DEE Development Engineers
- DEE Development Engineers is coming out with a 100% book building; initial public offering (IPO) of 2,14,21,378 shares of Rs 10 each in a price band Rs 193-203 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on June 19, 2024 and will close on June 21, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 10 and is priced 19.30 times of its face value on the lower side and 20.30 times on the higher side.
- Book running lead manager to the issue are SBI Capital Markets and Equirus Capital.
- Compliance Officer for the issue is Ranjan Kumar Sarangi.
Profile of the company
The company 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. It has manufacturing experience of over three and a half decades and has been able to leverage its brand, strategically located manufacturing facilities and engineering capabilities to successfully expand its business. As part of its specialized process piping solutions, it also manufactures and supply piping products such as high-pressure piping systems, piping spools, high frequency induction pipe bends, Longitudinally Submerged Arc Welding pipes, industrial pipe fittings, pressure vessels, industrial stacks, modular skids and accessories including, boiler superheater coils, de-super heaters and other customized manufactured components. The company currently is 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.
The company 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). It also specializes in handling complex metals such as varying grades of carbon steel, stainless steel, super duplex stainless steel, alloy steel and other materials including inconel and hastelloy in its manufacturing processes. The company has seven 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. It also operates a temporary Manufacturing Facility in Barmer, Rajasthan which is a dedicated facility set up to cater to the piping and erection requirements of the HPCL Rajasthan Refinery (the Barmer Satellite Facility).
Proceed is being used for:
- Funding working capital requirements of the company.
- Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company.
- General corporate purposes.
Industry overview
A piping system comprise of multitude of pipes as well as in-line components like industrial pipe fittings and flanges. In an industrial setting, often equipment like pumps, heat exchangers, and valves are considered as part of the broader piping system. A process piping system is a specialized piping system that is exclusively used in an industrial plant for transporting input materials that goes into the actual production process. Process piping carries the raw materials or finished products to the desired location i.e., either into the reaction vessel or other containers or to the storage tanks or other equipment for further treatment or next stage reaction. The process piping system typically consists of a network of interlinked piping system comprising different components such as pipes, tubes, pressure hoses, valves, separators, traps, flanges, fittings, gaskets, strainers, and control instruments among others which are required to regulate the movement of liquids and gases in various industries. Process piping systems are widely used across diverse industries such as chemical and pharmaceutical, oil & gas, semiconductor, paper, textiles etc. Depending on their application process piping systems may be simple and limited in scope, or extensive and complex. This core usage separates process piping system from other types of piping systems found in an industrial plant. Hence, piping systems used for heating and cooling processes of liquids and gases, or power processing or pipework that leads to plumbing fixtures or waste-water systems, are considered as part of plumbing system, and not process piping systems.
Steel fabrication industry in India has evolved over the years, graduating from traditional welding of parts to an industry which is capable of designing & executing complex steel structures with diverse applications in the industrial sector. Steel fabrication has strong backwards and forward linkage, and the success / failure of the industry is dependent on numerous factors across the value chain. Easy access to quality raw materials at competitive prices, presence of skilled labour pool, and a robust end use demand landscape are some of the key factors that have a direct impact on steel fabrication industry. From a raw material perspective, India is the second largest producer of both crude steel and finished steel – which ensures a steady supply of steel at competitive price to domestic fabrication industry. On the manufacturing ecosystem front, the country has a well-developed fabrication infrastructure, comprising of small- and large-scale enterprises with a strong pool of technically skilled labour to support it. Meanwhile, the stable industrial activity rapid expansion in industrial / manufacturing capacity and construction have ensured a steady demand for fabricated steel products. Thus, all three factors that are critical for the success of steel fabrication industry is currently aligned in India’s favour, which in turn has helped in fuelling the growth of domestic steel fabrication industry.
Pros and strengths
Leading player in an industry with significant barriers to entry: The company is an engineering company providing specialized process piping solutions for industries such as oil and gas, power (including nuclear), process industries and chemicals through engineering, procurement and manufacturing services. As part of its specialized process piping solutions, it also manufactures and supplies piping products such as high-pressure piping systems, piping spools, high frequency induction pipe bends, Longitudinally Submerged Arc Welding pipes, industrial pipe fittings, pressure vessels, industrial stacks, modular skids and accessories including boiler superheater coils, de-super heaters and other customized manufactured components. Its leadership position can be attributed to factors such as its long-standing relationship with certain of its global customers, business experience, domain expertise and consistent quality of its products. Such leadership position offers it competitive advantages such as product pricing, reduced costs due to economies of scale, its ability to scale its business, customer loyalty and increasing its client base.
Largest player in process piping solutions in India: The company currently is 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. At present, it is the largest player in process piping solutions in India, in terms of installed capacity. It has seven 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. Its Barmer Satellite Facility is a dedicated facility set up to cater to the piping and erection requirements of the HPCL Rajasthan Refinery. Its wholly owned subsidiary, DFIPL operates its Anjar Heavy Fabrication Facility. Its seven Manufacturing Facilities and the Anjar Heavy Fabrication Facility together span an area of approximately 436,967.87 square meters. The company’s Manufacturing Facilities are equipped with modern equipment and systems which includes fully automated robotic welding systems, in-house non-destructive examination facilities such as radiography test, magnetic particle test, ultrasonic test, liquid penetrant test, visual test, semi-automatic shot blasting machines and separate fabrication shops for stainless steel and a clean room/ dust free manufacturing facility. Its engineering processes are technologically advanced which allow it to offer its customers latest products and advanced manufacturing processes.
Long standing customer relationships with strong order book: The company has, through the three and a half decades of business operations, established long-term relationships with customers across industries it caters to. Its ability to address the various and stringent client requirements over long periods enables it to obtain additional business from existing clients as well as new clients in an industry marked by high entry barriers. It has a balanced mix of domestic and overseas customers including certain Fortune 500 companies in India and various multinational corporations. Its customers include global companies such as JGC Corporation, Nooter Eriksen, MAN Energy Solutions SE, Mitsubishi Heavy Industries and John Cockerill S.A, and Indian companies such as Reliance Industries, Thermax Babcock & Wilcox Energy Solutions India, HPCL–Mittal Energy, Toshiba JSW Power Systems, UOP India, Doosan Power Systems India and Andritz Technologies. One of the entry barriers to the industry in which it operates is the lead time required to build confidence and relationships with its customers. Such long-term association with its customers offers it significant competitive advantages such as revenue visibility, industry goodwill, a deep understanding of the requirements of its customers and is a testament to the quality of its products and services.
Wide range of specialized product offerings and services: As an integrated manufacturing partner providing ‘design-led-manufacturing’ solutions to its customers, it provides designs, engineering solutions, manufacturing and testing to ensure that its customers’ products meet robust standards in reliability, safety and performance. Its diversified product portfolio which includes piping spools, induction pipe bends, industrial pipe fittings, pressure vessels, modular piping (skids and modules), industrial stacks, wind turbine towers and pilot plants allows for limited dependence on individual products and addresses different business cycles across industries where its products are used. The company’s business footprint spans across geographies. As of December 31, 2023, it served customers across 27 countries. In the nine months ended December 31, 2023 and Fiscal 2023, Fiscal 2022 and Fiscal 2021 its revenue from operations outside India was Rs 2,211.10 million, Rs 2,685.92 million, Rs 1,681.48 million and Rs 2,259.62 million, respectively, which represented 40.53%, 45.10%, 36.48% and 45.63% of its revenue from operations, respectively.
Risks and concerns
Depend on third-party agents for referral of certain portion of customers: The company depends on third-party agents, to source a portion of its customers. Such third-party agents market and promote its products and services. Continued growth in its business is dependent upon identifying, developing, and maintaining strategic relationships with such third-party agents. Its business is dependent on the ability of its third-party agents to promote, sell and market its products and services effectively. Its inability to maintain a stable distribution network of third-party agents and to attract new third-party agents in the future could adversely affect its business, financial condition and results of operations. Further, while it continuously seeks to increase the penetration of its products and services by appointing new third-party agents targeted at different markets and geographies, it cannot assure that it will be able to successfully identify or appoint new third-party agents or effectively manage its network. While the terms of its agency agreements typically stipulate that the third-party agents are not allowed to enter any contract on behalf of the company, any misrepresentation by a third-party agent to a potential customer, may adversely affect its business, financial conditions or results of operations. Further, its agreements with its existing third-party agents are not renewed automatically and the continuity of its relationship with them is dependent upon their internal policies, applicable law, and is subject to fresh negotiations.
Dependent on design and engineering teams: The company has developed in-house resources with key competencies to deliver a project from conceptualization to completion which includes its qualified design and engineering team. It relies on its in-house team for timely and efficient execution of its orders. As of March 31, 2024, it had 1,061 full time employees out of which 748 employees were employed in the design and engineering team. In addition to design and engineering, its teams carry out detailed inspection of the relevant area for the installation of its products to record and highlight important features and identify any issues that may be of importance in terms of implementation and operation of such orders. While its teams have the necessary skill and experience in carrying its pre-approval engineering studies, it may not able to assure the accuracy of such studies. The accuracy of the pre-approval studies is dependent on the following key elements; (i) preparing a project road map-based investigation of the order site; (ii) undertaking engineering surveys and preliminary designs which broadly include carrying out inventory and detailed condition surveys, carrying its preliminary investigations, availability of construction materials and implementing design in accordance with environmental and social concerns; and (iii) preparation of bills of quantities covering all the items required in the work. Any deterrence or deviation in the estimation and calculation of the key elements may hamper the quality of the pre-approval engineering study, on which it relies before submitting any tenders for the relevant order.
Rely on contractors, and therefore exposed to execution risks: The company enters into arrangements with contractors as per its requirements for a fixed period of time. As of December 31, 2023, it has over 200 number of contracts with contractors, which accounts for Rs 475.47 million or 8.82% of its total expenses. Some of its arrangements with contractors will expire on March 31, 2025. There is no assurance that it may be able to renew these arrangements on a timely basis or at all. It does not have direct control over the timing or quality of the services and supplies provided by such third parties. Contractors hired by it may be unable to provide the requisite manpower on a timely basis, or at all, or may be subjected to disputes with their personnel, which, in turn, may affect production at its Manufacturing Facilities and timely delivery of its products to its customers. Although it does not engage contract labor directly, it may be held responsible under applicable Indian laws for wage payments to such labor should its contractors’ default on wage payments, which shall adversely affect its financial condition and results of operation.
Face competition: The company faces competition from companies such as ISGEC Heavy Engineering in certain segments and from the pipe fabrication division of L&T Heavy Engineering in certain areas of its operations, in India as well as other international companies such as Seonghwa Industrial Co.., SUNG IL (SIM) Co, US Pipe Fabrication. And McDermott which either operate in the same line of business as it or offer similar products and services. Few of its competitors may win market share from it by providing lower cost solutions to its customers, with or without adversely affecting their profit margins or by offering technologically advanced products or services. Even if its offerings address industry and customer needs, its competitors may be more responsive to these needs and more successful at selling their products. If it is unable to provide its customers with superior products and services at competitive prices or successfully market those services to current and prospective customers, it could lose customers, market share or be compelled to reduce its prices, thereby adversely affecting its business, results of operations and financial condition.
Outlook
DEE Development Engineers is the largest player in process piping solutions in India, in terms of installed capacity, providing specialized process piping solutions with strategically located state-of-the-art Manufacturing Facilities. It has been focussed on automating certain manufacturing processes and its Manufacturing Facilities are equipped with equipment such as fully automated robotic welding systems, semi-automatic shot blasting machines, automatic GMAW welding system and fully automatic high frequency induction bending machines having diameter of up to 48 inches. It operates two biomass power generation plants in Abohar and Muktsar, Punjab, with a contracted annual capacity of 8 MW and 6 MW, respectively, which together span an area of approximately 347,511.15 square meters. It has recently expanded its business by entering a new business vertical of design, engineering, fabrication and manufacturing of pilot plants, which it is carrying out from its Palwal Facility III. The company has a management team with extensive industry experience. On the concern side, the company supplies its products in overseas markets such as the United States of America, United Kingdom, Canada and Japan. Although it has not experienced any downward fluctuations in its revenues on a regular basis there can be no assurance that fluctuations on account of unfavourable market conditions shall not occur in the future. Any such fluctuations, if they occur, may adversely affect its profitability, results of operations and financial condition.
The company is coming out with an IPO of 2,14,21,378 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 193-203 per equity share. The aggregate size of the offer is around Rs 413.43 crore to Rs 434.85 crore based on lower and upper price band respectively. On performance front, total income increased by 30.47% from Rs 4,708.39 million in Fiscal 2022 to Rs 6,143.20 million in Fiscal 2023. Restated Profit for the year increased by 58.25% from Rs 81.97 million in Fiscal 2022 to Rs 129.72 million in Fiscal 2023 primarily due to an increase in total income. Meanwhile, the company intends to increase the level of automation at its upcoming manufacturing facilities at Anjar and the recently established Numaligarh Facility as compared to the current levels of automation at its existing Manufacturing Facilities. The completion of its expansion plans and a consequent increase in its installed capacity, will reduce the pressure on its existing Manufacturing Facilities. This will in turn enable it to re-engineer and automate certain processes and systems at its existing Manufacturing Facilities. It also intends to augment its scale of operations through inorganic expansion strategies, including selectively evaluating targets for technical alliances, in order to consolidate its position as an integrated, comprehensive solution for providing specialized process piping solutions.
