Diffusion Engineers IPO subscribed 72x on Day 3 so far; NII portion booked over 160 times

The initial public offering (IPO) of Diffusion Engineers continued to see a strong response from the investors during the third and final day of the bidding process. The issue was overall booked more than 7 times on the first day of bidding, while ended day two with about 28 times subscription.

Nagpur-based Diffusion Engineers is selling its shares in the price band of Rs 159-168 apiece. Investors can apply for a minimum of 88 shares and its multiples thereafter. It is looking to raise Rs 158 crore via IPO, which is entirely a fresh share sale of 94,05,000  equity shares.

According to the data, the investors made bids for 47,20,27,864 equity shares, or 71.54 times, compared to the 65,98,500 equity shares offered for the subscription by 2.20 on Monday, September 30. The three-day bidding for the issue, which kicked-off for bidding on Thursday, September 26, will concludes today.

The allocation for non-institutional investors (NIIs) was subscribed 162.05 times, while the portion reserved for retail investors saw a subscription of 69.56 times. The allocation for employees was booked 71.90 times. However, the quota set aside for qualified institutional bidders (QIBs) saw bids for 21.05 times as of the time.

Incorporated in 1982, Nagpur-based Diffusion Engineers is active in the manufacture of welding consumables, wear plates and parts, and heavy machinery for core industries. The company offers specialized repair and reconditioning services for heavy machinery and equipment.

The grey market premium (GMP) for the Diffusion Engineers has took a hit despite the strong bidding for the issue on the back of rising volatility in the broader markets. Last heard, the company was commanding a premium of Rs 48-50 in the unofficial market, suggesting a listing pop of about 30 per cent for the investors.

Brokerage firms, largely have a positive view on the issue and suggest to subscribe for a long term citing its sound financial performance, expansion plans, strong hold in the market, rising demand and reasonable valuations. However, dependence on Indian clients, delay in setting facilities and approval related nature of business are the major concerns.

Diffusion Engineers provides repair and reconditioning services for heavy equipment and trades in wear protection powders and welding machines. Over the coming years, the company plans to enhance its service delivery by robust growth and operational efficiency, said Anand Rathi Research.

"At the upper price band, the company is valuing at P/E of 20.4 times with a market cap of Rs 629 crore post issue of equity shares and return on net worth of 18.5 per cent. On the valuation front, we believe that the company is fairly priced. Thus, we recommend a 'subscribe' rating to the IPO," it said.

The issue includes a reservation of up to 50,000 shares for eligible employees of the company, who shall be offered at a discount of Rs 8 apiece. The company has reserved 50 per cent of the net offer for qualified institutional bidders (QIBs), while non-institutional investors (NIIs) have 15 per cent of the allocation. Retail investors will get the remaining 35 per cent of the net offer.

Diffusion Engineers demonstrated substantial revenue growth from FY22 to FY24, with a CAGR of 16.6 per cent. The company’s profit after tax (PAT) also rose significantly, from Rs 17.05 crore in FY22 to Rs. 30.8  crore in FY24, said the IPO note from BP Equities.

"The current issue is priced at a P/E ratio of 11.7 times on the upper price band based on FY24 earnings, which is relatively lower compared to its peers. Therefore, we recommend a 'subscribe' rating for this issue with a medium to long-term investment perspective," it said.

Unistone Capital is the sole book running lead manager of the Diffusion Engineers IPO, while Bigshare Services is the registrar for the issue. Shares of the company shall be on both BSE and NSE with October 4, Friday, as the tentative date of listing on the bourses.