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Diffusion Engineers files DRHP with SEBI for IPO

Posted On: 2024-01-02 17:36:00 (Time Zone: IST)

Diffusion Engineers Ltd, engaged in the business of providing engineering solutions to customers both in domestic and international market has filed its draft red herring prospectus (DRHP) papers with capital markets regulator Securities and Exchange Board of India (SEBI) to mop up funds through an initial public offering (IPO).

The company plans to raise funds through offer of equity shares (face value ?10 each) through initial public offerings. The initial share sale is a complete fresh issuance of 9.84 million equity shares.

The Issue is being made through the Book Building Process, wherein not more than 50% of the Issue shall be available for allocation on a proportionate basis to Qualified Institutional Buyers, not less than 15% of the Issue shall be available for allocation to Non-Institutional Bidders and not less than 35% of the Issue shall be available for allocation to Retail Individual Bidders.

Diffusion Engineers was established in 1982. Initially, the company was focused on trading welding electrodes for Super-conditioning. Over its more than forty years in operation, it diversified its offerings, encompassing a broad spectrum of products and services such as production of specialized welding consumables, wear plates, and heavy engineering equipment for essential industries. The company also specializes in tailored repairs and reconditioning services for heavy machinery and equipment.

In addition to its core offerings, Diffusion Engineers is engaged in the trade of anti-wear powders, welding, and cutting machinery. One of its key services is the super conditioning process conducted at its manufacturing facilities. This process offers a surface treatment solution for machine components, significantly enhancing wear resistance, alleviating stress, and improving repair capabilities. Consequently, this leads to extended lifespans for industrial parts, fostering smoother functionality, and reducing production costs.

The company has established a seamless forward integration system. This involves the manufacture of special purpose electrodes and flux cored wires, which are utilized in creating wear-resistant plates (commonly known as wear plates). These plates are essential components in the manufacturing of a majority of large industrial equipment within its heavy engineering division. They significantly contribute to the production of industrial equipment for core sectors such as Cement, Steel, Power, Mining, Engineering, Oil & Gas, and Sugar. This integration fosters efficiency in the production process, offering competitive advantages, reducing product costs, exerting control over raw material supplies, and decreasing reliance on third-party operations.

Diffusion Engineers places a strong emphasis on alloy and process development, quality, and design. This focus has enabled the company to tailor products precisely to meet its customers' diverse requirements. Leveraging its expertise, it can design, develop, and manufacture intricate and specialized industrial equipment and components for both OEMs (Original Equipment Manufacturers) and end-user industries.

Presently, the company operates from four manufacturing units, with three located in Nagpur Industrial Area and Hingna, and the fourth in Khapri (Uma). Furthermore, it has extended its reach internationally through subsidiaries in Singapore and the Philippines, as well as Joint Ventures/Associates in the United Kingdom and Malaysia.

Following the proposed expansion plans, the new unit is anticipated to boast an estimated aggregate installed capacity, and will include 600 Metric Tons per annum for welding electrodes and a CR Coil Slitting Line capable of managing 1200 MTPA. Concurrently, the expanded Unit, encompassing the existing plant capacity, is projected to operate at a capacity of 4920 Metric Tons per annum for wear plates, 1080 Metric Tons per annum for Flux Cored Wires, and 12000 Metric Tons per annum for heavy Engineering Fabrication. Both units are scheduled to become operational from September 2025 onwards.

In the financial year 2023, the company's restated consolidated revenue from operations rose 24.58% year-on-year (YoY) to Rs 254.88 crore primarily attributed to an increase in revenue from Welding Consumables, Wear plate / Wear Parts, and from Trading activities. This increase was majorly attributed due to increase in production mix and increase in volume of units sold in these products, and profit after tax for the same period rose 29.92% to Rs 22.14 crore. In last ten years, revenue from operations and PAT has registered a CAGR of 12.03 % and 9.70%.

For the three months ended June 30, 2023, revenue from operations stood at Rs 65.85 crore and profit after tax stood at Rs 6.25 crore.

Among its listed peers, between fiscal 2021-23, the Company recorded third highest CAGR of 28% in operating income, second highest CAGR of 38% in profit after tax and fourth highest CAGR of 31% in EBITDA, according to a CRISIL Report mentioned in the DRHP.

Welding consumables market in India is estimated at around Rs 4600 crore in fiscal 2023, with fiscal 2026 projections around Rs 5800-6000 crore. The Indian heavy engineering capital goods industry is estimated to be Rs 2.65-2.75 trillion as of FY23 and is projected to clock a CAGR of 7-8% over FY23-26. The industry expected to reach Rs 3.3-3.4 trillion in size by FY26. Heavy electrical engineering, earthmoving, construction and Mining Machinery, and Process Plant Equipment are the largest segments of the industry.

Unistone Capital Private Limited is the sole book running lead manager and Bigshare Services Private Limited is the registrar to the offer. The equity shares are proposed to be listed on BSE and NSE.

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