DEE Development Engineers Ltd. (May Subscribe)

HighlightsIssue Size –: 20,591,852 sharesIssue Open/Close – 19 June / 21 June, 2024Price Band (Rs.)  193 – 203Issue Size (Rs.) – 4,180 mnFace Value (Rs) 10Lot Size (shares) 73DEE Development Engineers Limited (DDEL) incorporated in 1988, 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.As part of their specialized process piping solutions, they also manufacture and supply piping products such as (i) high-pressure piping systems, (ii) piping spools, (iii) high frequency induction pipe bends, (iv) Longitudinally Submerged Arc Welding pipes, (v) industrial pipe fittings, (vi) pressure vessels, (vii) industrial stacks, (viii) modular skids and accessories including, boiler superheater coils, de-super heaters and other customized manufactured components.They provide 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).They are 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.Out of the total proceeds of Rs. 4,180 mn, Rs. 750 mn would go towards funding working capital requirements of the company, Rs. 1750 mn would go towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the Company, ~Rs.750 mn would go towards general corporate purpose and Rs. 930 mn would go towards existing selling shareholders of the company.Key HighlightsThe global market for process piping solutions is expected to reach USD 54.5 bn by the end of this decade, growing by a CAGR of 4.8 pct during 2023-30 period. The process piping solutions market in India managed to generate an annual turnover of appox. Rs. 254 bn in FY23. By FY 2030, the annual turnover in Indian process piping solution market is expected to reach Rs. 384 bn, growing by a CAGR of nearly 6.1 pct during FY23 and FY30.They have 7 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.  As of FY23 they have 80,000 MT installed capacity in India and 14,500 MT installed capacity in Thailand.They have commenced operations at the New Anjar Facility I which has an installed capacity of 3,000 MTPA and are in the process of enhancing their 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 their Anjar facilities (excluding their heavy fabrication capacity) from 3,000 MTPA to 15,000 MTPA.As on 9MFY24 the orderbook of the company stood at Rs. 8,287.04 mn. Out of the total orderbook Rs. 6616.65 mn came from Oil and Gas segment (73.8 pct). Rs. 2016.75 mn came from Power (including nuclear) segment (24.3 pct) and Rs. 153.64 mn came from process industries segment (1.9 pct). Whereas 65 pct of the orderbook came from domestic customers and 34 pct of the orderbook came from international customers.As a part of their growth, they continue to (i) Leverage market leading position in the industry to capitalize on the revival of capital expenditure cycle in the sectors which DDEL services which will drive next phase of the company’s growth. (ii) Launch pilot plant offering in the near future. (iii) Increasing focus on high margin products with additional contributions from modular skids and usage of high grade materials which offers a better margin contribution to profitability (iv) Forging technology tie-ups with select global OEM’s to derive consistent order flow and provide integrated specialized process piping solutions making DDEL a preferred partner (v) Drive automation across the facilities and processes to bring in operational efficiencies (vi) Focus on deleveraging and maintaining financial flexibility.Sales of the company has grown by ~9.66 pct CAGR during the period FY21-23 while EBITDA grew ~13.52 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 5,955 mn which increased by ~29.2 pct YoY, while EBITDA increased by 7.12 pct YoY to Rs. 692 mn as EBITDA margin fell from 14.02 pct in FY22 to 11.62 pct in FY23. As of FY23 the company reported profit of Rs. 130 mn which was up 58.5 pct YoY. During 9MFY24 the Sales/adjusted EBITDA/Profit came at Rs. 5,456 mn/Rs. 680 mn/Rs. 143 mn.Key RiskAny downturn in the oil and gas, power (including nuclear), process industries, chemical sectors would create an adverse impact DDEL business.DDEL raw material cost constitutes a significant percentage of their total expenses. Any increase in the prices of raw materials or a change in their customers’ preference of raw material suppliers could adversely affect their business, results from operations.Barmer Satellite Facility is a dedicated facility set up to cater to the piping and erection requirements of the HPCL Rajasthan Refinery, which may shut down once the project is completed. The shutdown of this manufacturing facility may adversely affect DDEL business.Also read: The Landscape Of Robo-Advisory in IndiaFinancial Performance and KPI’sParticularsFY21FY22FY239MFY24Sales (Rs. mn)4952460959555456EBITDA (Rs. mn)537646692680EBITDA Margin10.84%14.02%11.62%12.46%Profit (Rs. mn)14282130143Profit Margin2.87%1.78%2.18%2.62%ROCE2.47%3.99%3.91%3.91%RONW3.17%2.04%3.14%3.35%Net Debt (Rs. mn)2247260131983710Net Debt/Equity (x)0.490.630.750.85Order Book (Rs. mn)3357434656348287ValuationDEEL is ranked as one of the leading process pipe solution providers in the world, in terms of its technical capability to address complex process piping requirements arising from multiple industrial segments. DEEL has exposure to niche sectors with high entry barriers. At the upper end of the price band of Rs. 203, the stock is priced at PE of 73.3x its annualized FY24 earnings. The issue looks fully priced. However, long term investors can apply.Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.