Deepak Builders & Engineers India is set to launch its initial public offering (IPO) on October 21, 2024, marking a significant milestone for the engineering and construction company. The IPO, which aims to raise Rs 260.04 crore, has garnered substantial attention in the market, particularly with regards to the grey market premium (GMP). In this article, we delve into the details of the IPO, the significance of GMP, and what it signals for investors.
The IPO of Deepak Builders & Engineers India is a combination of a fresh equity sale of Rs 217 crore and an offer for sale (OFS) of 21 lakh shares. The company has finalized the allocation of 38,42,939 equity shares to anchor investors at Rs 203 per share, mobilizing over Rs 78 crore from five institutional investors.
The IPO is divided into three categories: 50% reserved for qualified institutional buyers (QIBs), 35% for retail investors, and 15% for non-institutional investors. Investors can place bids for 73 shares in one lot and in multiples thereafter.
The funds raised through the IPO will be utilized for various purposes. Rs 30 crore will be used for debt repayment, Rs 111.96 crore for working capital requirements, and the remaining amount for general corporate purposes.
Deepak Builders & Engineers India is an integrated engineering and construction firm specializing in the development of various structures, including administrative and institutional buildings, hospitals, medical colleges, industrial buildings, historical memorial complexes, stadiums, sports complexes, and residential complexes.
The company executes both construction and infrastructure projects through EPC contracts on a turnkey basis as well as on item-rate or percentage-rate contracts. Currently, Deepak Builders is managing 12 active projects, including seven EPC contracts and five item-rate contracts.
One of the key strengths of Deepak Builders is its integrated in-house model, which leverages its core competencies and internal resources to manage projects from concept through to completion. This approach minimizes reliance on external parties for design, engineering, procurement of essential materials, and access to necessary machinery, allowing the company to streamline project execution.
The company has a diversified portfolio, having completed around 63 key projects and is involved in the construction of 13 ongoing projects across various industries and sectors. These include commercial complexes, logistics projects like road works and flyovers, healthcare projects such as hospital buildings, residential buildings, and educational institutions.
Despite its strengths, Deepak Builders faces several challenges. The company has declared Rs 15.7 crore as undisclosed income in a search operation conducted by the income tax department. This is a serious matter regarding corporate governance and may have a negative impact on the company's reputation. Additionally, the company's working capital cycle is stretched at nearly 7 months, which is higher than its peers.
The grey market premium (GMP) for Deepak Builders & Engineers India IPO has been a subject of interest among investors. GMP is an unofficial figure that indicates the expected listing gain of a stock. However, it is essential to note that GMP is not officially recognized by SEBI guidelines and should be used with caution.
The financial performance of Deepak Builders has shown significant improvement in recent years. Revenue from operations stood at Rs 511 crore in FY24, up from Rs 433 crore in the previous year. Net profit after tax more than doubled to Rs 60.4 crore in FY24.
Despite these positive trends, investors need to be mindful of the weak fundamentals of the company. The margin spurt just prior to the IPO, poor working capital management, small size of operations, and regional presence do not build confidence in this micro-cap stock.
In conclusion, the IPO of Deepak Builders & Engineers India is an exciting opportunity for investors to participate in the growth of a diversified engineering and construction company. However, it is crucial to carefully evaluate the company's financials, corporate governance, and market conditions before making any investment decisions.
