Analysis of Diffusion Engineers Limited IPO: An Overview
This week, we are presented with three Initial Public Offerings (IPOs), out of which we have already discussed two. Today, we will focus on Diffusion Engineers Limited, whose IPO price is set at Rs. 168.
Gray Market Premium (GMP) and Expectations
When it comes to the gray market premium, currently, there isn’t any activity. However, this doesn’t necessarily mean that it won’t pick up in the future. Based on my analysis and expectations, I predict that the gray market premium could be around ₹10. In the best-case scenario, it could rise to ₹30-35, but as of now, no GMP is active. I’m simply sharing my insights and predictions at this stage.
Company Overview
Let’s delve into the basics of the company. Diffusion Engineers Limited was incorporated in 1982 and is involved in manufacturing welding consumables, wear plates, parts, and heavy machinery for core industries. This highlights that the company is focused on hardcore engineering and production.
IPO Timeline and Key Details
- The IPO will be open from 26th to 30th September.
- If you have limited funds, it may not be necessary to apply for this IPO. If I were to apply, I’d prefer to do so on Monday to avoid my money being blocked over the weekend. The refund process will start shortly after, or the shares will be allotted.
- The allotment date is set for October 3rd, while the tentative listing date is on October 4th.
Each lot consists of 88 shares, with a total basket value of ₹1,784. For small-category investors, a minimum of 14 lots is required, and in the High Net Worth Individual (HNI) category, the maximum is 68 lots. The overall size of the IPO is ₹158 crores, making it a relatively small offering.
Since the IPO size is small, applying for multiple or extra lots doesn’t seem to offer any additional advantage. In the retail category, applying for more than one lot won’t necessarily increase your chances of getting the shares, so it’s better to avoid unnecessary money blockage.
Employee Discount and Price Band
There will be a discount of ₹9 for employees, while the price band for retail investors is set at ₹50, for QIBs at ₹35, and HNIs, it is 15%.
Financial Performance
The financials of the company are decent, though not extraordinary. Over the past one or two years, the company has shown improvement, especially in preparation for the IPO. While revenue grew by 10% between 2023 and 2024, profits surged by 39%. This points to an attempt by the company to boost profits right before going public.
However, a key concern is the company’s cash flow, which has been negative multiple times in the past. If this trend continues, it could be a significant negative factor going forward. Additionally, total borrowings stand at ₹34 crores, with a debt-to-equity ratio of 0.18, which is quite comfortable.
The return on equity (ROE) is 18%, capital employed is 20%, and the earnings per share (EPS) is approximately 8. In terms of valuation, the price-to-earnings (P/E) ratio stands at 20. When compared to peers like Ador Welding (with a P/E ratio of 29) and AIA Engineering (P/E ratio of 35), the company seems to have left some room for valuation growth.
Conclusion and Listing Expectations
Looking at the overall scenario, while this IPO is neither the best nor the worst, it is the top one for this week. I don’t foresee a significant listing loss, but after reviewing the anchor book, my outlook became more optimistic.
In conclusion, I will be sharing my ranking of all three IPOs this week. If you have any thoughts or comments, please feel free to share them.