September 25, 2024
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Stock Market

Diffusion Engineers Limited IPO – GMP, Financials And More

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Stock Market

Diffusion Engineers Limited IPO – GMP, Financials And More

Diffusion Engineers Limited Company is coming up with an IPO size of Rs. 158 crore. The company is going for all shares of the fresh issues of Rs. 158 crore, which will open on 26th September 2024. The issue will close on 30th September 2024 and be listed on the exchange on 04th October 2024. In this article, we will look at the Diffusion Engineers Limited IPO and analyze its strengths and weaknesses. Let’s begin!

Diffusion Engineers Limited IPO – About the Company

Diffusion Engineers Limited was established in 1982. The company headquarters operate in Nagpur, Maharashtra, India. Diffusion Engineers Limited specializes in manufacturing welding consumables, wear plates, and heavy engineering machinery for catering to core industries such as steel, cement, power, and mining.

Diffusion Engineers Limited started as a private limited company but became a public entity in 1995. Initially focused on trading welding electrodes, Diffusion expanded into manufacturing by 1993, establishing multiple product lines in response to industry needs.

Diffusion Engineers has a strategic presence in international markets through subsidiaries in Singapore, Turkey, and the Philippines. These subsidiaries support the company’s export activities and enhance its ability to deliver metalworking solutions globally. The company has exported its products to over 20 countries across Asia, Africa, and the Middle East.

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Diffusion Engineering Limited holds several ISO certifications, including ISO 9001:2015 for quality management and ISO 14001:2015 for environmental management. By focusing on innovation and research, the company stays competitive and constantly develops new products to meet growing demand across various industries.

Manufacturing Facilities

Diffusion Engineers Limited operates four manufacturing facilities, with Units I, II, and III situated in the Nagpur Industrial Area at Hingna, Nagpur, Maharashtra. Unit IV is located in Khapri (Uma), Nagpur, Maharashtra, and is responsible for the processing and production of the company’s products.

Unit I focuses on producing welding electrodes.

Unit II handles flux-cored wires, wear plates, and wear parts through fabrication and machining.

Unit III specializes in coatings for abrasion and corrosion resistance.

Unit IV manufactures heavy engineering equipment.

Diffusion Engineers Limited IPO – Industry Overview

The welding consumables industry in India is valued at approximately ₹51 billion as of fiscal 2024. It is projected to grow to ₹64-66 billion by fiscal 2027, which will grow at a CAGR of 8-9% from 2024 to 2027. The growth driven by increasing demand for infrastructure development, including roads, bridges, and ports, drives this market. The global welding consumables industry, valued at $17 billion in 2023, is experiencing steady growth. It is expected to reach $19.5-20.5 billion by 2027, with a CAGR of 4.5-5.5%.

India’s wear plates market was valued at ₹22 billion in fiscal 2024, which is expected to grow at an 8-9% CAGR, reaching ₹28 billion by fiscal 2027. This industry’s growth is driven by sectors such as cement, power plants, and steel mills, which require wear plates to protect machinery from wear and tear. The global market size was estimated at $3.6 billion in 2023, which will be growing at a CAGR of 5-6% from 2023 to 2027. It will reach $4.4 billion in fiscal year 2027.

The heavy engineering capital goods industry in India is estimated at ₹3,100-3,200 billion in fiscal 2024. It is projected to grow at a CAGR of 7.5-8.5% from fiscal 2023 to 2027, reaching ₹3,800-3,900 billion. This sector includes heavy electrical engineering, earthmoving, and process plant equipment, which are crucial for India’s expanding manufacturing and construction sectors.

Diffusion Engineers Limited IPO – Financial Highlights

Coming into the financial analysis of Diffusion Engineers Limited, the company revenue has increased over the last two years. Diffusion Engineers Limited has increased from ₹254.88 crore in FY23 to ₹278.14 crore in FY24, which has grown by 9.13%. The company’s revenue has grown at a CAGR of 16.45% over the two years.

Diffusion Engineering Limited has learned most of the revenue from the domestic market by 90.53% and the international market by 9.47%. The company generated revenue from various product categories in the main business, which includes welding and antiwear consumables by 28.07%, wear plates or parts by 29.99%, heavy engineering equipment by 25.98%, and trading by 8.39%. In the subsidiary business, revenue from welding and antiwear consumables by 2.29%, wear plate or parts by 4.91%, and trading by 9.78% in FY24.

Diffusion Engineers Limited’s net profit has increased from ₹17.05 crore in FY22 to ₹22.15 crore in FY23, which has grown by 29.91%. The company’s net profit improved in FY24 and reached ₹30.80 crore, which has grown by 39.05%. The net profit has grown at a CAGR of 35.04% over the last two years.

In FY24, Diffusion Engineers Limited’s ROE has increased from 16.86% to 18.52%. The ROCE of the company also improved from 18.46% in FY23 to 20.63% in FY24. Further, Diffusion Engineers Limited has decreased its net borrowing from 48.09 crore to 34.44 crore in FY24, which is reflected in its debt-to-equity ratio from 0.32x in FY23 to 0.18x in FY24.

Diffusion Engineers Limited’s EBITDA margin has increased from 13.65% in FY23 to 17.04% in FY24. The PAT margin has also improved from 8.56% in FY23 to 10.79% in FY24. The company’s other key financial metrics, like net worth, interest coverage ratio, and current ratio are improved as compared to previous years.

Peers of the Company

Diffusion Engineers Limited’s peer competitors are Ador Welding Limited and AIA Engineering Limited. Diffusion Engineers Limited has less revenue compared to the other peer competitor groups listed in the stock market. However, the company’s return on net worth is higher than the other two peer competitors.

The below images show the comparison of peer competitors of Diffusion Engineers Limited:

Strengths of the Company

Strong Customer Base: The company has established long-term relationships with reputable clients across various sectors, such as automotive, railways, and construction. Its customer base includes well-known domestic and international companies.
Commitment to Quality: The company is committed to delivering high-quality products and services. It has implemented quality management systems and obtained certifications such as ISO 9001:2015, which demonstrate its dedication to quality assurance.
Diversified Product Portfolio: Diffusion Engineers Limited manufactures a wide range of products, including welding consumables, wear plates, and heavy engineering machinery. This diversification reduces dependence on a single product line, enhancing revenue stability across different sectors.
Global Market Presence: With subsidiaries in Singapore and the Philippines, the company has expanded its operations internationally. This global reach provides opportunities for revenue growth and mitigates risks tied to domestic market fluctuations.
Research and Development Focus: Diffusion Engineers has a DSIR-approved R&D facility. This focus on innovation enhances product quality and helps the company develop cutting-edge metallurgical solutions.
Forward Integration in Manufacturing: The company follows a forward integration model, producing specialized electrodes and flux-cored wires for wear plates. This strategy improves efficiency and reduces dependency on third-party suppliers.

Weaknesses of the Company

Heavy domestic dependency: The company derives 91% of its revenue from the domestic market. This heavy reliance limits its ability to mitigate risks from domestic market downturns.
Limited Global Market Share: Despite its global presence, Diffusion Engineers holds a small market share internationally. This limits its competitiveness in rapidly growing global markets.
Heavy Reliance on Key Industries: A large portion of the company’s revenue is derived from industries like cement and steel. Economic cycles and reduced demand in these sectors could negatively impact business operations and profitability.
Relatively Low Inventory Turnover: With an inventory holding period of 67 days, Diffusion Engineers has a slower inventory turnover compared to industry peers. This may tie up capital and increase operational costs.
Geographic Concentration of Manufacturing Units: All of the company’s manufacturing facilities are located in Nagpur, Maharashtra, which exposes it to risks from localized disruptions. Any social unrest, natural disaster, or political instability in this area could lead to severe operational issues.
Limited Innovation in Wear Plates: Although the wear plate division performs well, innovation in this sector is limited. Competitors with more advanced technologies may capture market share.