Deepak Builders and Engineers India may debut with decent premium on Oct 28: Experts

Deepak Builders and Engineers India Listing

Construction company Deepak Builders and Engineers India is expected to report decent listing premium on October 28, following a double-digit subscription for its initial share sale, but investors need to be cautious as the sharp fall in equity markets might impact some listing gains, according to experts.

The Rs 260-crore IPO was subscribed 41.54 times during October 21-23, with non-institutional investors buying 82.47 times the reserved portion, and retail investors subscribing 39.79 times the part set aside for them. Qualified Institutional Buyers bought 13.91 times the allotted quota.

The Punjab-based company has raised Rs 217.21 crore via fresh issue of 1.07 crore equity shares, and Rs 42.83 crore through offer-for-sale of 21.1 lakh shares, at a price of Rs 203 per share. Deepak Kumar Singal and his wife Sunita Singal offloaded 21.1 lakh shares in the offer-for-sale.

"I expect a good listing for Deepak Builders based on its grey market premium (GMP) of 24.63 percent, suggesting a listing price of around Rs 253, which would result in a gain of Rs 50 on its issue price of Rs 203," Shivani Nyati, Head of Wealth at Swastika Investmart said.

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However, given the current market conditions, there is a possibility that it could dampen the expected gains slightly, so investors should remain cautious, she advised.

The benchmark Nifty 50 corrected 2.7 percent during the week and plunged 8 percent from its record high on September 27.

Akriti Mehrotra, Research Analyst at StoxBox also sees a potential debut premium of around 25 percent above the upper price band.

Deepak Builders specialises in administrative, institutional, and industrial buildings, hospitals, stadiums, residential complexes, and other construction activities. Currently, it has 12 ongoing projects with order book of Rs 1,380.4 crore, including seven EPC projects. Further, 66 percent projects are awarded by Railways, and 25 percent industrial building project awarded by Indian Oil Corporation.

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With India's construction industry projected to reach $1.4 trillion by 2025, driven by initiatives like the Gati Shakti National Master Plan and the Bharatmala Pariyojana, the company is strategically positioned for growth, Akriti believes.

Financially, Deepak Builders has demonstrated strong growth, with profit growing by 182.4 percent on-year to Rs 60.4 crore for the year ended March 2024, revenue increasing by 18 percent to Rs 511.4 crore during the same period. EBITDA (earnings before interest, tax, depreciation, and amortisation) jumped 120.5 percent on-year to Rs 112.2 crore with margin expanding by 1,020 bps to 21.9 percent in the fiscal 2024. In the April-June quarter of fiscal 2025, profit stood at Rs 14.2 crore on revenue of Rs 105.1 crore.

While the company faces risks related to its dependence on government contracts and an ongoing tax dispute, it plans to strengthen its presence in Northern India and expand geographically, focusing on enhancing its bidding and execution capabilities, Akriti Mehrotra said.

Post Listing Strategy

With a track record of 76 completed projects and Class I (Super) Contractor accreditation, Deepak Builders is well-positioned for future expansion, and we recommend that investors allotted shares consider holding their positions for the medium to long term.

However, considering the market sentiments, Narendra Solanki, Head Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers believes that the listing would be flat i.e in the price band of Rs 203-240. The expected listing is justified considering significant headroom in infrastructure space, he said.

At the upper price band, company is valued at P/E of 15.6x post issue. Therefore, the company is fairly priced. Post listing, investors should hold the stock from a longer-term perspective, Narendra advised.

Post listing, Akriti Mehrotra also recommended that investors should hold their positions for the medium to long term, but Shivani Nyati advised that investors should evaluate their position based on the actual listing performance.

"While short-term gains appear promising, those with a long-term perspective may want to hold, especially considering Deepak Builders' strong fundamentals and high subscription, which could lead to further appreciation over time. However, given the volatile market, booking partial profits at listing could also be a prudent approach for risk-averse investors," Shivani said.

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