Dee Development IPO review (May apply)

• IPO Details
• Stock Price
• Docs
  • RHP
  • DRHP
  • Anchor Investor Link
• Reviews
• Subscription
• Calculator
• News
• GMP
• Allotment
• BoA
• Messages

Review By Dilip Davda on June 13, 2024

•    DDEL specializes in process piping solutions for various industries globally. 
•    It marked steady growth in its top and bottom lines post the Pandemic year. 
•    The company has an order worth Rs. 828 cr. as of December 31, 2023.
•    It has good financial data with strong fundamentals. 
•    Based on annualized FY24 earnings, the issue appears aggressively priced, discounting all near term positives.
•    Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Dee Development Engineers Ltd. (DDEL) is an engineering company providing specialized process piping solutions for industries such as oil and gas, power (including nuclear), chemicals and other process industries through engineering, procurement and manufacturing. It has manufacturing experience of over three and a half decades and have been able to leverage its brand, strategically located manufacturing facilities and engineering capabilities to successfully expand business. As part of its specialized process piping solutions, the company also manufactures and supplies piping products such as high-pressure piping systems, piping spools, high frequency induction pipe bends, Longitudinally Submerged Arc Welding pipes, industrial pipe fittings, pressure vessels, industrial stacks, modular skids and accessories including, boiler super heater coils, de-super heaters and other customized manufactured components. 

The Company currently is ranked as one of the leading process pipe solution providers in the world, in terms of technical capability to address complex process piping requirement arising from multiple industrial segments. (Source: D&B Report) At present, it is the largest player in process piping solutions in India, in terms of installed capacity. (Source: D&B Report). The company provides comprehensive specialized process piping solutions including engineering services such as pre bid engineering, basic engineering, detailed engineering and support engineering which includes engineering of process/ power piping systems for projects, and pre-fabrication services such as cutting and beveling on conventional and CNC machines, welding services on semi-automatic and fully automatic robotic welding machines, conventional and digital radiography, post weld heat treatment using CNG fired fully calibrated furnaces and induction heating process, hydro testing, pickling and passivation, grit blasting (manual and semiautomatic) and painting (manual and semiautomatic). It also specializes in handling complex metals such as varying grades of carbon steel, stainless steel, super duplex stainless steel, alloy steel and other materials including Inconel and hastelloy in its manufacturing processes. DDEL has seven strategically located Manufacturing Facilities at Palwal in Haryana, Anjar in Gujarat, Barmer in Rajasthan, Numaligarh in Assam and Bangkok in Thailand, with three Manufacturing Facilities located at Palwal, Haryana. The company also operates a temporary Manufacturing Facility in Barmer, Rajasthan which is a dedicated facility set up to cater to the piping and erection requirements of the HPCL Rajasthan Refinery Limited (the "Barmer Satellite Facility"). 

Its wholly owned subsidiary, DFIPL, also operates a heavy fabrication facility at Anjar, Gujarat (the "Anjar Heavy Fabrication Facility"). The company also has a dedicated engineering facility located at Chennai in Tamil Nadu (the "Chennai Engineering Facility"). Its seven Manufacturing Facilities, the Anjar Heavy Fabrication Facility and Chennai engineering Facility together span an area of approximately 437,453.85 square meters. The company has commenced operations at the New Anjar Facility I which has an installed capacity of 3,000 MT per annum and are in the process of enhancing its manufacturing capabilities by setting up a new manufacturing facility at the New Anjar Facility II with a proposed installed capacity of 9,000 MT per annum, which will increase the total installed production capacity of Anjar facilities (excluding its heavy fabrication capacity) from 3,000 MT per annum to 15,000 MT per annum.

It has been focused on automating certain manufacturing processes and its Manufacturing Facilities are equipped with equipment such as fully automated robotic welding systems, semi-automatic shot blasting machines, automatic GMAW welding system and fully automatic high frequency induction bending machines having diameter of up to 48 inches. Its Chennai Engineering Facility is dedicated to the design of certain of products and the development of engineering processes. As per the D&B Report, the Company has strong quality procedures and standards in place, which have played a key role in elevating it to a leadership position, in India as well as globally. It also manufactures industrial pipe fittings which are registered under the Canadian Registration Number. 

It operates two biomass power generation plants in Abohar and Muktsar, Punjab, with a contracted annual capacity of 8 MW and 6 MW, respectively, which together span an area of approximately 347,511.15 square meters. The Muktsar Biomass Power Plant is operated by its wholly owned subsidiary, MPPL. Further, it manufactures wind turbine towers through wholly owned subsidiary, DFIPL, at Anjar Heavy Fabrication Facility. DFIPL is also involved in the manufacturing of industrial stacks. DDEL recently expanded its business by entering a new business vertical of design, engineering, fabrication and manufacturing of pilot plants. The company intends to provide a one stop solution for pilot plant requirements of customers which will range from conceptualization to commissioning of a pilot plant, and will include 3-D modelling, process simulation, control engineering, design, fabrication and construction of a pilot plant, followed by installation of the pilot plant at the site specified by the customer. It intends to develop pilot plants which cater to the research and development needs of companies in the oil and gas, petrochemicals, refineries, specialty chemicals, pharmaceuticals and nuclear sectors, as well towards the research and development needs of educational research institutions.

Certain projects by government owned companies, in the pilot plant sector are awarded on the basis of competitive bidding, wherein vendors are evaluated inter alia on their technical capabilities and infrastructure set up to execute such projects. DDEL is meeting these criteria which augurs well for its market place. As of December 31, 2023, it had an order book worth Rs. 828.70 cr. and as of March 31, 2024, it had 1061 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its combo maiden IPO of fresh equity shares issue worth Rs. 325 cr. (approx. 16009849 shares at the upper price band), and an Offer for Sale (OFS) of 4582000 equity shares (worth Rs. 93.01 cr. at the upper cap). Thus the overall size of the IPO is for 20591849 shares worth Rs. 418.01 cr. at the upper cap. The company has announced a price band of Rs. 193 - Rs. 203 per share of Rs. 10 each. The issue opens for subscription on June 19, 2024, and will close on June 21, 2024. The minimum application to be made is for 73 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE.

The issue constitutes 29.82% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 75 cr. for working capital, Rs. 175 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The company has reserved 5% of the IPO for its eligible employees and offering them a discount of Rs. 19 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers to this issue are SBI Capital Markets Ltd. and Equirus Capital Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued/converted initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 100 - Rs. 555.67 between February 2011 and August 2015. It has also issued bonus shares in the ratio of 8 for 1 in January 1996, 1 for 3 in March 2003, 9 for 2 in May 2008, and 4 for 1 in September 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.27, Rs. 0.37, and Rs. 0.83 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 53.04 cr. will stand enhanced to Rs. 69.05 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1401.69 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 513.03 cr. / Rs. 14.21 cr. (FY21), Rs. 470.84 cr. / Rs. 8.20 cr. (FY22), and Rs. 614.32 cr. / Rs. 12.97 cr. (FY23). For the 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 14.34 cr. on a total income of Rs. 557.86 cr. While it suffered a setback for FY22 following the Pandemic impact, it marked lower net for FY23. 

For the last three fiscals, it has posted an average EPS of Rs. 2.14, and an average RoNW of 2.78%. The issue is priced at a P/BV of 2.46 based on its NAV of Rs. 82.59 as of December 31, 2023, and at a P/BV of xx based on its post-IPO NAV of Rs. 109.07 per share (at the upper cap). 

If we attribute annualized FY24 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 73.29. Thus the issue appears aggressively priced. But based on the current trends, it is poised for bright prospects ahead. 

For the reported periods, the company has posted PAT margins of 2.87% (FY21), 1.78% (FY22), 2.18% (FY23), 2.63% (9M-FY24), and RoCE margins of 2.47%, 3.99%, 3.91%, 3.91% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a prudent dividend policy in September 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown ISGEC Heavy as its listed peer. It is trading at a P/E of 37.2 (as of June 13, 2024). However, it is not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 43 public issues in the last three fiscals, out of which 17 issues closed below the offer price on listing date. 

DEE Piping Systems IPO FAQs