Diffusion Engineers IPO: Shares likely to debut with strong double-digit premium on October 4 despite weak market conditions

Diffusion Engineers IPO

Shares of Diffusion Engineers are still expected to debut with strong double-digit premium on October 4 despite sharp downtrend in the benchmark indices, following the healthy IPO subscription numbers and financial performance.

The Nifty 50 and BSE Sensex fell more than 2 percent on October 3 amid valuation concerns, Middle East tensions and fear of flowing money from India to China. The indices already corrected nearly four percent from its all-time high.

The Rs 158-crore initial public offering was subscribed 114.5 times during September 26-30, with non-institutional investors buying 207.60 times the allotted quota. Qualified institutional buyers and retail investors also showed strong interest in the issue, bidding 95.74 times and 85.61 times the portions set aside for them.

The book-built issue was entirely a fresh issue by the company, thus the entire IPO proceeds were received by the firm.

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Diffusion Engineers IPO shares still traded at more than 30 percent premium over the issue price of Rs 168 per share in the grey market, an unofficial market for trading in IPO shares till the listing, market observers said.

"The company is poised for a strong stock market debut with an anticipated premium of approximately 33 percent over the upper price band," Akriti Mehrotra, Research Analyst at StoxBox said.

Narendra Solanki, Head Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers also expects decent listing premium on Friday.

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Diffusion Engineers manufactures welding consumables, wear plates and parts, and heavy machinery for core industries.

Wear plates are significant contributor in manufacturing of industrial equipment used in core industries like cement, steel, power, mining, engineering, oil & gas, sugar. Considering the significant growth in the infrastructure space in coming years, experts see the demand increasing for welding consumables required in the construction of roads, bridges, ports and airports.

It also provides specialised and customized repair and reconditioning services for heavy machinery and equipment. Additionally, the company is involved in trading of anti-wear powders, as well as welding and cutting machinery.

The company's long-standing relationships with customers generate a significant portion of its revenue, ensuring steady income growth. It ranks among the top three industry players in terms of CAGR for operating income, profitability, and EBITDA between FY21 and FY24. It demonstrated substantial revenue growth from FY22 to FY24, with a CAGR of 16.6 percent. Profit also rose significantly, from Rs 17.05 crore in FY22 to Rs 30.8 crore in FY24.

As India continues to experience rapid industrialization and increasing demand for improved infrastructure, the welding consumables market is estimated at around Rs 5,100 crore in FY24, with projections of Rs 6,400-6,600 crore by FY27 while the wear plates market in India is estimated at around Rs 2,200 crore in fiscal 2024 and is expected to grow at a CAGR of 8-9 percent to Rs 2,800 crore in fiscal 2027.

To meet this growing demand, the company is strategically planning to expand its manufacturing activities. The net IPO proceeds will be utilised for the expansion of existing manufacturing facility and setting up of a new manufacturing facility in Nagpur, apart from spending for working capital requirements, and general corporate purposes.

Thus, "we recommend that investors allotted shares consider holding their positions from a medium to long-term perspective," Akriti Mehrotra said, while Narendra Solanki also advised that investors should hold the stock from a longer-term perspective.

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