IPO: DEE Development Engineers

DEE Development Engineers, a piping systems company, is launching its IPO (initial public offering) on June 19, 2024. Below is a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: ROE and ROCE was 2.8 and 3.5 per cent, respectively, between FY21 and FY23. Growth: Between FY21 and FY23, its revenue grew 9.7 per cent annually. However, the profit after tax declined 4.4 per cent per annum due to a higher base of FY21 on account of previously deferred taxes. Valuation: The stock is valued at a P/E and P/B of 108.1 and 1.9 times, respectively. Overview: Growing energy demands and the government's push on the oil, gas and power sectors are key growth drivers for the company. However, a weak global economy, volatile raw material prices, and intense competition within the industry can damage its prospects. About DEE Development Engineers Founded in 1988, DEE Development Engineers offers customised piping solutions through specialised processes to industries like oil, gas, and chemicals. As of 9M FY24, its order book was valued at Rs 829 crore, with 74 per cent of these orders originating from its largest segment-the oil and gas industry. Additionally, the company has a strong presence overseas. Its exports accounted for 41 per cent of its revenue for 9M FY24. Strengths of DEE Development Engineers The company has maintained long-term relationships with its key customers in the Indian and global markets. For instance, it has been associated with Reliance and Mitsubishi Heavy Industries for 12 years. Since the company offers specialised process piping solutions, clients do not easily switch to different suppliers, which creates an entry barrier for new players in the industry. Weaknesses of DEE Development Engineers The company's revenue is highly concentrated . Its top 10 customers contributed 66 per cent to its total revenue as of 9M FY24. DEE Development Engineers has high working capital requirements , with receivable days and inventory days of 99 and 181, respectively. Over the last three years, the company has had to rely on short-term debt to grow its business. As a result, its short-term debt grew from Rs 206 crore in FY21 to Rs 325 crore as of 9M FY24. The business is cyclical and highly dependent on the oil and gas sector and the government's infrastructure push. Moreover, its margins significantly depend on steel prices, which is a key raw material. IPO details Total IPO size (Rs cr) 418 Offer for sale (Rs cr) 93 Fresh issue (Rs cr) 325 Price band (Rs) 193-203 Subscription dates June 19-21, 2024 Purpose of issue Working capital requirements and debt repayment Post IPO M-cap (Rs cr) 1,402 Net worth (Rs cr) 753 Promoter holding (%) 70.2 Price-to-earnings ratio (P/E) 108.1 Price-to-book ratio (P/B) 1.9 Financial history Key financials 2Y growth (% pa) Nine months ending December 2023 FY23 FY22 FY21 Revenue (Rs cr) 9.7 546 595