Deepak Builders and Engineers India, a well-established player in the engineering and construction sector, is all set to launch its much-anticipated Initial Public Offering (IPO) worth ₹260 crore. The IPO is scheduled to open for public subscription on Monday, October 21, 2024, and will remain open for just three days, concluding on October 23, 2024. This offering has caught the attention of investors eager to explore the potential of this construction company, which boasts a strong portfolio of projects and a notable financial track record.
Ahead of the public bidding, the allocation for anchor investors will take place on Friday, October 18, 2024. With Deepak Builders aiming to raise ₹260 crore through this IPO, investors are closely monitoring the Grey Market Premium (GMP) and other key financial indicators. As the company gears up for its market debut, let’s dive deeper into the key aspects of the Deepak Builders and Engineers IPO, including its price band, share allocation, promoters, and financial performance.
Deepak Builders and Engineers IPO: Key Information
The Punjab-based company has set a price range of ₹192 – ₹203 per share for its maiden IPO, with a face value of ₹10 per share. The issue comprises the sale of 10.7 million new equity shares, while an additional 2.11 million shares will be sold through an Offer for Sale (OFS). The OFS portion will see the company’s promoters, Deepak Kumar Singal and his wife Sunita Singal, who currently hold nearly 100% ownership, dilute part of their stake in the firm.
Deepak Builders & Engineers has appointed Fedex Securities Pvt Ltd as the book-running lead manager for the IPO, while Kfin Technologies Ltd will handle the registrar duties. The allocation of shares is distributed as follows: 50% of the offer is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 35% for retail investors.
The company’s Red Herring Prospectus (RHP) offers prospective investors key insights into its business model, financial performance, and future growth potential. Investors are closely analyzing these details to gauge whether the Deepak Builders and Engineers IPO aligns with their investment strategies.
Promoters and Ownership Structure
The promoters of Deepak Builders & Engineers, Deepak Kumar Singal and Sunita Singal, have a significant ownership stake in the firm, holding almost full control over its operations. Their decision to participate in the OFS signals a partial dilution of their ownership as they look to reduce their holding. While this move allows for broader public ownership, investors are closely watching how this affects the company’s governance and strategic decisions in the future.
The IPO not only provides a path for the company to raise funds for growth and expansion but also allows for better liquidity for the promoters and early stakeholders. The partial dilution of the promoters’ stake is considered a positive step toward broadening the company’s investor base and improving its market capitalization.
Industry Peer Comparison and Business Focus
In its RHP, Deepak Builders & Engineers has listed several of its peers in the construction industry to provide benchmarks for potential investors. These comparisons include:
- IRCON International Ltd: P/E ratio of 24.67
- Ahluwalia Contracts (India) Ltd: P/E ratio of 19.25
- PSP Projects Ltd: P/E ratio of 19.16
- ITD Cementation Ltd: P/E ratio of 37.04
These peer companies offer a reference point for investors looking to compare valuation metrics and assess where Deepak Builders stands in terms of profitability and industry performance. The company operates across various sectors, undertaking large-scale projects that include administrative, institutional, and industrial buildings, as well as hospitals, stadiums, and residential complexes.
Known for its turnkey project expertise, Deepak Builders & Engineers offers a wide range of services, including architectural design, structural engineering, civil construction, and mechanical engineering solutions. The company’s expertise also extends to specialized services like medical gas pipelines, public health systems, firefighting systems, and landscaping, making it a versatile player in the construction industry.
Ongoing Projects and Key Clients
As of now, Deepak Builders & Engineers is managing 12 active projects, which include seven Engineering, Procurement, and Construction (EPC) contracts and five item rate/percentage rate contracts. These projects cover a range of sectors, such as healthcare, administrative and industrial buildings, and infrastructure developments like road and railway station upgrades.
The company boasts a robust client base, with key clients including Northern Railways, PWD Punjab, PWD Haryana, PWD Uttarakhand, WAPCOS, Indian Oil Corporation Limited (IOCL), GMADA Punjab, and Ludhiana Smart City Limited (LSCL). This diverse client portfolio highlights the company’s ability to handle large-scale government and institutional projects, giving it an edge in the competitive construction industry.
Financial Performance and Growth Prospects
The financial performance of Deepak Builders & Engineers has been impressive in recent years. For the fiscal year ending March 31, 2024, the company reported a 19% increase in revenue, along with an astounding 182% surge in profit after tax (PAT) compared to the previous fiscal year. As of June 30, 2024, the company’s order book stood at ₹13,803.89 million, driven primarily by railway projects (66.03%), industrial building projects awarded by IOCL (25.05%), and hospital and medical projects (4.38%).
This financial growth reflects the company’s strong position in the market and its ability to secure large, lucrative contracts. However, it also presents certain risks, as the company’s project portfolio is heavily reliant on a few key contracts. Any delays or disruptions in these projects could have a significant impact on the company’s financial performance.
Risks and Challenges for Investors
Despite its promising growth trajectory, the Deepak Builders and Engineers IPO comes with certain risks that potential investors should consider. One key challenge is the geographical concentration of its operations, which are primarily based in Punjab. Any adverse changes in local laws, policies, or economic conditions could negatively impact the company’s business.
Additionally, the company’s reliance on specific key projects makes it vulnerable to project delays or cancellations. In the past, Deepak Builders & Engineers has experienced negative cash flows from its operating activities, which could pose financial risks in the future if earnings fluctuations or operational challenges persist.
For anchor investors, 50% of the shares allocated will be subject to a 90-day lock-in period, while the remaining 50% will be locked in for 30 days from the date of allotment.
In conclusion, the Deepak Builders and Engineers IPO offers investors a chance to participate in the growth story of a well-established construction company with strong financials and a promising order book. However, potential investors should carefully weigh the risks and rewards before making their investment decisions.
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