The Diffusion Engineers Limited IPO is generating buzz in the market, with investors wondering if they should apply or avoid this opportunity.
In this detailed review, we will assess the company’s background, financials, and overall market performance to determine whether this IPO is worth considering.
Overview of Diffusion Engineers Limited
Founded in 1982, Diffusion Engineers Limited is a key player in the manufacturing of welding consumables, wear plates, and heavy machinery parts, primarily catering to core industries.
The company has established a strong reputation for its specialized services, including repair and reconditioning of heavy machinery. With a solid market presence and a focus on increasing service life and reducing production costs for its clients, Diffusion Engineers has positioned itself as a reliable partner in heavy engineering.
The company operates through four manufacturing units located in Nagpur, Maharashtra. These units are dedicated to producing specialized welding consumables, wear plates, and offering surface treatment processes that improve wear resistance.
The upcoming IPO represents a fresh issue of shares aimed at expanding its existing facilities and setting up a new manufacturing unit.
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Diffusion Engineers Limited IPO Details
| Details | Information |
| IPO Opening Date | 26th September 2024 |
| IPO Closing Date | 30th September 2024 |
| Allotment Date | 1st October 2024 |
| Listing Date | 4th October 2024 |
| Lot Size | 88 shares |
| Minimum Investment | ₹14,784 |
| IPO Price | ₹159 to ₹168 per share |
| Lower Price Band | ₹159 |
| IPO Size | ₹158.00 crores (fresh issue) |
| Investor Sentiment | Positive, with focus on industry growth |
| Oversubscription | Yet to be confirmed after closure |
The Diffusion Engineers Limited IPO opens for subscription from September 26, 2024, and closes on September 30, 2024. The issue size is ₹158 crore, consisting entirely of fresh shares.
The company has set a price band of ₹159 to ₹168 per share, with a lot size of 88 shares. The minimum investment required for retail investors is ₹14,784, and the allotment date is scheduled for October 1, 2024.
The tentative Diffusion Engineers Limited IPO listing is expected on October 4, 2024.
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The IPO offers shares through a book-built issue, with the following allotment structure:
- 50% reserved for Qualified Institutional Buyers (QIBs)
- 35% reserved for retail investors
- 15% reserved for High Net-Worth Individuals (HNIs)
There is also a special Diffusion Engineers Limited IPO shareholder quota, offering up to 50,000 shares at a discount of ₹8 for employees.
Financial Performance of Diffusion Engineers Limited
| Financial Metrics | Details |
| Revenue (FY 2024) | ₹285.56 crore |
| Revenue Growth (YoY) | 10% |
| Profit After Tax (PAT) FY 2024 | ₹30.8 crore |
| PAT Growth (YoY) | 39% |
| Debt-to-Equity Ratio | 0.18 |
| Return on Equity (ROE) | 18% |
| Return on Capital Employed (ROCE) | 20% |
| Price-to-Earnings (P/E) Ratio | 20 |
| Peers’ P/E Ratios | Ador Welding: 29, AIA Engineering: 35 |
| Valuation Margin | 30% compared to peers |
| Key Concern | Negative cash flows in previous years |
A crucial factor in determining the success of any IPO is the financial strength of the company. In the case of Diffusion Engineers, the financials present a mixed picture.
The company recorded revenues of ₹285.56 crore for the financial year ending March 31, 2024, representing a 10% increase compared to the previous year. The profit after tax (PAT) also saw an impressive 39% growth, rising from ₹22.15 crore in FY 2023 to ₹30.8 crore in FY 2024.
Despite this growth, some investors are concerned about the company’s previous negative cash flows, which could indicate financial instability.
However, the company’s current debt-to-equity ratio of 0.18 is comfortable, and its return on equity (ROE) of 18% and return on capital employed (ROCE) of 20% are both commendable figures.
Comparing Diffusion Engineers with its peers, such as Ador Welding (P/E ratio of 29) and AIA Engineering (P/E ratio of 35), the company’s price-to-earnings (P/E) ratio of 20 seems reasonable, leaving a 30% margin in its valuation.
Diffusion Engineers Limited IPO Allotment Status and Subscription Status
One key factor that investors will closely watch is the Diffusion Engineers Limited IPO allotment status. Since the issue size is relatively small, demand might outstrip supply, especially in the retail category.
Investors are advised to apply for just one lot in the retail segment, as applying for multiple lots will not increase the chances of allotment if the Diffusion Engineers Limited IPO subscription status sees significant interest.
In the retail category, applying under different names may not help increase allotment chances if the retail portion is subscribed just once.
Should You Apply for the Diffusion Engineers Limited IPO?
While the company’s financials have shown improvement, particularly over the last year, it is essential to be cautious about the possibility of inflated numbers just before the IPO. The company’s profitability has surged, but the key question is whether this growth is sustainable post-IPO.
The grey market premium (GMP) for the Diffusion Engineers Limited IPO price today shows no activity. However, based on industry expectations, the GMP could pick up closer to the listing date. Some experts predict that the GMP might increase to ₹10, and possibly ₹30-35 in case of high demand.
Positive Aspects of the IPO
- Strong Market Position: Diffusion Engineers has been a well-known player in the heavy engineering and welding consumables sector for over four decades, giving it a solid reputation.
- Growth in Financials: The company has shown strong growth in both revenue and profit over the last fiscal year, which is promising for potential investors.
- Reasonable Valuation: With a P/E ratio of 20, Diffusion Engineers is priced lower than some of its industry peers, potentially offering good value to investors.
- Robust Return Metrics: ROE and ROCE of 18% and 20%, respectively, are healthy indicators of the company’s financial strength.
Risk Factors to Consider
- Negative Cash Flows: The company has experienced negative cash flows in the past, which could signal future liquidity issues.
- Small IPO Size: With a total issue size of ₹158 crore, the IPO might see over-subscription, reducing the chances of allotment for retail investors.
- Dependence on Core Industries: The company’s performance is closely tied to the health of core industries like heavy engineering, which can be volatile based on economic cycles.
- Uncertain GMP: The lack of a grey market premium at the time of this review raises questions about the level of interest from retail investors.
Diffusion Engineers Limited IPO Price Today and Future Outlook
The IPO price has been set within a narrow range of ₹159 to ₹168 per share. Considering the company’s growth trajectory and competitive pricing compared to its peers, there is potential for short-term listing gains, especially if demand increases as the IPO date approaches.
Conclusion: Apply or Avoid?
To sum up, the Diffusion Engineers Limited IPO is neither the most exciting nor the worst IPO of the week. Investors with limited funds might want to wait and evaluate other IPOs. However, for those looking for modest listing gains and a strong player in the heavy engineering sector, this IPO could be worth applying for.
Given the company’s steady financials, strong return metrics, and competitive pricing, the Diffusion Engineers Limited IPO listing may offer decent gains. However, if you are looking for explosive returns, this may not be the best choice. Always consider your investment strategy and risk tolerance before applying.
Source: DRHP
