Desco Infratech coming with IPO to raise Rs 30.75 crore

Desco Infratech

• Desco Infratech is coming out with an initial public offering (IPO) of 20,50,000 equity shares in a price band Rs 147-150 per equity share.
• The issue will open on March 24, 2025 and will close on March 26, 2025.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 14.7 times of its face value on the lower side and 15 times on the higher side.
• Book running lead manager to the issue is Smart Horizon Capital Advisors.
• Compliance Officer for the issue is Gandharva Javanika. 

Profile of the company

The company is engaged in providing infrastructure and maintenance services to city gas distribution divisions in India. It engages in activities such as pipeline laying, installation, testing, erection and commissioning for Piped Natural Gas (PNG) utilized by both domestic and commercial users. Its Operation and Maintenance services (O&M Services) encompass both underground and above ground gas pipeline work for carbon steel and MDPE pipelines. As part of its O&M Services, it conducts lock pressure and leak detection tests on MDPE pipelines to identify leaks and prevent significant natural gas losses and potential accidents resulting from these leaks. It maintains client dedicated emergency response vehicles designed to detect leaks and deter unauthorized access, addressing potential hazards proactively. When a situation arises, a specialized team comprising an engineer, technicians and support staff is mobilized to the location. This team takes safe and immediate action to assess the situation and implements necessary measures, ensuring a quick operational recovery and minimizing any uninterrupted gas supply.

The company has recently begun offering services in the power division, focusing on the installation, connectivity, commissioning, and erection of Low Tension (LT) and High Tension (HT) cables. These services ensure efficient power transmission and distribution across industrial, commercial, and residential applications. In the month of April, 2023, it received its first order to provide services works for execution of works for connectivity and laying of double walt cable and HDPE pipes including cabling and termination works for Traffic Signal Lights in Surat.

Proceed is being used for:

• Funding of capital expenditure requirements towards setting up of corporate office in Surat, Gujarat.
• Funding of capital expenditure requirements towards purchase of machineries.
• Funding working capital requirements. 
• General corporate purposes.

Industry overview 

The infrastructure sector is a key driver of the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure the time-bound creation of world-class infrastructure in the country. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. In other words, the infrastructure sector acts as a catalyst for India’s economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure, and construction development projects.

The oil and gas sector is among the eight core industries in India and plays a major role in influencing the decision making for all the other important sections of the economy. India’s economic growth is closely related to its energy demand, therefore, the need for oil and gas is projected to increase, thereby making the sector quite conducive for investment. India retained its spot as the third-largest consumer of oil in the world as of 2023. According to the IEA (India Energy Outlook 2021), primary energy demand is expected to nearly double to 1,123 million tonnes of oil equivalent, as India's gross domestic product (GDP) is expected to increase to $8.6 trillion by 2040. Indian refining capacity has increased from 215.1 million Metric Tons Per Annum (MMTPA) to 256.8 MMTPA in last 10 years. It is projected to increase to 309.5 MMTPA by the year 2028.

Rapid economic growth is leading to greater outputs, which in turn is increasing the demand of oil for production and transportation. Crude oil consumption is expected to grow at a CAGR of 4.59% to 500 million tonnes by FY40 from 223.0 million tonnes in FY23. In terms of barrels, India’s oil consumption is forecast to rise from 4.05 MBPD in FY22 to 7.2 MBPD in 2030 and 9.2 MBPD in 2050. Diesel demand in India is expected to double to 163 MT by 2029-30, with diesel and petrol covering 58% of India’s oil demand by 2045. Demand is not likely to simmer down anytime soon, given strong economic growth and rising urbanisation.

Pros and strengths

Direct relationship with suppliers: It has established direct relationships with various companies/firms to streamline its material supply chain. This effectively reduces procurement costs by eliminating middlemen, allowing it to negotiate more favourable terms and ensure greater control over the quality of the products it receives. By working directly with suppliers, it enhances its ability to protect its business interests, ensuring that terms and conditions are transparent and aligned with its needs. Furthermore, its management team leverages their extensive experience in supplier relationship management, which enables it to foster reliable partnerships. This ensures an uninterrupted supply of raw materials but also allows it to respond swiftly to market changes and maintain operational efficiency. 

Standard Operating Procedures: Structured operating procedures (SOPs) form a vital strength for its contracting services in the city gas distribution industry. These procedures provide a clear framework for executing tasks related to pipeline installation, maintenance, and safety protocols, ensuring consistency and efficiency across all projects. In the city gas distribution sector, where safety and compliance are paramount, structured SOPs help mitigate risks and enhance operational safety. By following standardized methods like using of non-sparking tools while gas leak check, etc, its teams ensure to maintain high safety standards during all phases of a project, from initial installation to ongoing maintenance.

Adherence to safety and compliance standards: It prioritizes strict compliance with industry standards, regulatory requirements, and safety protocols across all its operations. Its compliance management system is designed to ensure that every project meets legal and environmental regulations, providing a framework for accountability and transparency. Central to its approach is a strong safety culture that emphasizes the well-being of its workforce and stakeholders. It actively promotes safety practices through regular training, clear communication, and ongoing assessments of its procedures. To further enhance safety on site, it provides essential safety accessories, including reflector jackets, helmets, and other personal protective equipments, ensuring its teams are well-equipped to minimize risks during operations.

Risks and concerns

Highly dependent on certain key customers: It depends on certain customers who have contributed to a substantial portion of its total revenues. There is no guarantee that it will retain the business of its existing key customers or maintain the current level of business with each of these customers. Reliance on a limited number of customers for its business may generally involve several risks. These risks may include, but are not limited to, reduction, delay or cancellation of orders from its significant customers; failure to renegotiate favourable terms with its key customers; the loss of these customers; all of which would have a material adverse effect on the business, financial condition, results of operations and future prospects of the company.

Geographical concentration: It generates major portion of its sales from its customers situated in Gujarat, Haryana, Uttar Pradesh and Punjab. Such geographical concentration of its business in its top regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. It may not be able to leverage its experience in such regions to expand its operations in other parts of India, should it decide to further expand its operations.

Face competition: It operates in a competitive environment. Its competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. It competes against major as well as smaller regional oil and gas infrastructure companies. While service quality, performance, health and safety records and personnel, as well as reputation and experience, are important considerations in client decisions, price is a major factor in most tender awards. There can be no assurance that it can continue to effectively compete with its competitors in the future and failure to compete effectively may have an adverse effect on its business, financial condition and results of operations.

Outlook

Desco Infratech is mainly engaged in providing infrastructure and maintenance services to city gas distribution divisions in India. It engages in activities such as pipeline laying, installation, testing, erection and commissioning for PNG utilized by both domestic and commercial users and in its operation and maintenance services. On the concern side, the major portion of its revenue for the period ended September 30, 2024 and for the financial years ended on March 31, 2024, March 31, 2023 and March 31, 2022, respectively is from public sector undertakings i.e., 46.74%, 73.71%, 66.28% and 71.74%. Such concentration of its business heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations.  

The company is coming out with a maiden IPO of 20,50,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 147-150 per equity share. The aggregate size of the offer is around Rs 30.14 crore to Rs 30.75 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations in FY 2023-24 was Rs 2,939.31 lakh as compared to Rs 2,922.21 lakh in FY 2022-23 indicating a growth by 0.59%. Moreover, the Profit after Tax in FY 2023-24 was Rs 345.80 lakh as compared to Rs 122.72 lakh in FY 2022-23.

Meanwhile, it is dedicated to continuously enhancing its operational efficiency. It achieves this by fostering better synergy between departments and stakeholders through effective management control and optimized labor management. Its focus on process improvement involves ongoing skills upgrades to align its team with operational needs. It also instills a strong commitment to quality among all employees, ensuring that everyone contributes to its efficiency goals.