Deepak Builders Engineers India Limited IPO

By Elite Wealth
/ June 14, 2023
/ IPO-Recommendation

Deepak Builders & Engineers India Limited IPO Company Profile:

Deepak Builders & Engineers India Limited is a prominent construction and engineering firm in India, known for its extensive involvement in infrastructure development. The company specializes in a variety of projects, including residential, commercial, and industrial constructions, as well as roadways, highways, and other significant infrastructure projects.

Deepak Builders & Engineers India Limited IPO Business Operations:

Construction Services:
- Residential Projects: Development of high-quality residential buildings, including apartments, villas, and housing complexes. They focus on modern design, functionality, and comfort.
- Commercial Projects: Construction of commercial spaces such as office buildings, shopping malls, and hotels. These projects are designed to meet the dynamic needs of businesses and consumers.
- Industrial Projects: Development of industrial facilities like factories, warehouses, and plants. These constructions are tailored to support industrial operations and logistics.
Infrastructure Development:
- Roadways and Highways: Design and construction of roads, highways, and expressways to improve connectivity and transportation infrastructure.
- Bridges and Flyovers: Building of durable and strategically important bridges and flyovers that enhance traffic flow and reduce congestion.
- Urban Infrastructure: Development of urban infrastructure projects including sewage systems, water supply networks, and public transportation facilities to support urban growth and sustainability.
Project Management:
- Planning and Design: Comprehensive planning and architectural design services that ensure projects are well-conceived and align with client requirements and regulatory standards.
- Execution and Monitoring: Efficient execution of construction projects with continuous monitoring to ensure adherence to timelines, budgets, and quality standards.
- Quality Control: Implementation of rigorous quality control measures at every stage of construction to ensure the highest standards of workmanship and material use.
Engineering Services:
- Structural Engineering: Providing advanced structural engineering solutions that ensure the stability and safety of buildings and infrastructure projects.
- Mechanical, Electrical, and Plumbing (MEP): Offering specialized MEP engineering services that integrate the mechanical, electrical, and plumbing systems of a project seamlessly.
- Sustainability Consulting: Advising on and implementing sustainable building practices and green technologies to promote energy efficiency and environmental responsibility.

Deepak Builders & Engineers India Limited IPO Details:

IPO Open Date	[.]
IPO Close Date	[.]
Listing Date	[.]
Face Value	₹10 per share
Price	[.] to [.] per share
Lot Size	[.]
Issue Size	[.] Shares aggregating up to [.] million
Fresh Issue	Up to 12,000,000 Equity Shares aggregating up to ₹[.] million
Offer for Sale	Up to 2,400,000 Equity Shares aggregating up to ₹[.] million
Issue Type	Book Built Issue IPO
Listing At	BSE, NSE
QIB Shares Offered	Not more than 50% of the Offer
NII (HNI) Shares Offered	Not less than 15% of the Offer
Retail Shares Offered	Not less than 35% of the Offer

Deepak Builders & Engineers India Limited IPO Pre-Offer shareholding of the Selling Shareholders:

Name of the Shareholder	Number of Equity Shares	Percentage of the Pre-Offer Equity Share capital (%)
Promoters
Deepak Kumar Singal	32,305,970	90.04
Sunita Singal	3,564,890	9.93
Promoter Group
Henna Singal	6,200	0.02
Akash Singal	3,500	0.01
Total	35,880,560	100

Deepak Builders & Engineers India Limited IPO Strength :

Diverse and Comprehensive Insurance Coverage: Deepak Builders maintains a variety of insurance policies, including professional indemnity, workmen compensation, contractor risk, and vehicle and equipment policies. This comprehensive coverage protects the company against various potential risks and hazards associated with their projects.

Strong Customer Base: The Company derives a significant portion of its revenue from its top clients, indicating strong and stable business relationships. For instance, in fiscal 2023, 93.38% of revenue came from the top five clients, while 95.11% came from the top ten clients. This consistent reliance on top clients demonstrates customer satisfaction and loyalty.

Commitment to Health, Safety, and Environment (HSE): Deepak Builders adheres to globally accepted HSE practices and complies with relevant legislation. The company provides extensive training and safety equipment to its employees and conducts regular mock drills and safety programs to promote a safe working environment.

Industry Certifications: The Company holds accreditations such as ISO 9001:2015, valid until February 27, 2025. These certifications reflect the company’s commitment to maintaining high standards in quality management and operational processes.

Strategic Property Management: The company strategically leases and owns properties to support its operations, including offices, guest houses, and labour residences. This ensures operational efficiency and provides necessary infrastructure for smooth project execution.
Resilient Financial Performance: Despite varying percentages, the company consistently generates revenue from operations, reflecting a stable financial performance over the years. This resilience indicates strong financial health and the ability to sustain operations even in fluctuating market conditions.

Deepak Builders & Engineers India Limited IPO Risk Factors:

Dependence on Government Projects: The revenue is heavily reliant on government, semi-government, and government-controlled entities. Changes in government policies or priorities could lead to delays, renegotiations, or cancellations of contracts, significantly impacting the business operations and financial performance. Additionally, government contracts often come with stringent terms and limited negotiation power, posing potential risks to profitability.

Concentration Risk in Large-Scale Projects: The financial position is significantly impacted by delays or impediments in the large-scale projects. As of February 29, 2024, the company’s order book is heavily concentrated in a few major projects, with the top two projects constituting 62.75% of the total order book. This concentration increases the risk of cost overruns and operational volatility, potentially adversely affecting the financial performance if expected margins are not achieved or losses are incurred in these significant contracts.
High Working Capital Requirements Pose Financial Risks: The business is highly working capital intensive, requiring substantial funding for guarantees, deposits, and retention by clients, which increases the company’s reliance on debt and exposes to financial risks. Any delays in payments, inability to secure financing, or increased indebtedness could adversely affect the company’s financial stability and operational results.

Order Book May Not Reflect Future Financial Performance: The order book, valued at ₹12,115.68 million as of February 29, 2024, may not accurately predict future results due to potential changes in project scope, costs, delays, cancellations, and disputes. Factors such as client payment delays, regulatory issues, and litigation could adversely impact the revenue and financial condition.

Impact of Contingent Liabilities on Financial Health: The Company issues significant financial and performance bank guarantees for projects, totalling ₹2,429.75 million as of October 31, 2023. Additionally, the company face income tax demands totalling ₹8.60 million for A.Y. 2020-21 and ₹4.97 million for A.Y. 2023-24, currently under appeal. Any materialization of these contingent liabilities could adversely affect the financial condition and profitability.
Impact of Credit Ratings on Capital Access: The Company’s ability to secure capital at favourable costs hinges on the company’s credit ratings. Currently, the company hold a CRISIL BBB rating for long-term borrowing and A3 for short-term borrowing with a stable outlook from CRISIL Rating Limited. Any negative alteration or withdrawal of these ratings in the future, possibly due to reasons like ‘Issuer not cooperating’, may restrict the company’s access to funds and increase borrowing costs, thereby potentially impacting the business and operational results.
Risk of Subcontractor Performance Issues: The projects often rely on third-party subcontractors for various specialized tasks. Issues such as non-performance, late performance, or substandard work by these subcontractors can adversely affect project completion. The company may incur penalties, additional costs, or legal liabilities due to subcontractor failures. Moreover, the company’s reputation and financial performance could suffer if subcontractor-related issues arise, impacting the profitability and prospects.

Deepak Builders & Engineers India Limited IPO Profit & Loss Statement:

Particulars (in millions)	For the period ended December 31, 2023	For the year ended March 31, 2023	For the year ended March 31, 2022	For the year ended March 31, 2021	CAGR %


Revenue from operations	2,494.49	4,334.55	3,630.52	3,107.55	11.73%
Revenue from operations	2,494.49	4,334.55	3,630.52	3,107.55	11.73%
Other Income	21.46	20.05	19.35	12.83
Total Income	2,515.95	4,354.60	3,649.87	3,120.38	11.75%
Expenses	1961.87	3766.46	3152.62	2733.65
Other expenses	60.17	59.21	58.54	34.79
EBITDA	493.91	528.93	438.71	351.94	14.55%
EBITDA margin%	19.63%	12.15%	12.02%	11.28%
Depreciation	46.57	55.7	35.99	32.8
Depreciation	46.57	55.7	35.99	32.8
Interest	166.03	185.97	165.26	138.81
Interest	166.03	185.97	165.26	138.81
PBT	281.31	287.26	237.46	180.33	16.79%
Total tax	75.03	73.31	60.82	51.05
PAT	206.28	213.95	176.64	129.28	18.28%
PAT margin%	8.20%	4.91%	4.84%	4.14%

Deepak Builders & Engineers India Limited IPO Objects of the Offer:

Working Capital Requirements:
- The working capital requirement will increase in line with revenue, maintaining the current percentage of net working capital to revenue.
General Corporate Purposes:
- Up to 25% of the Gross Proceeds will be used for strategic initiatives, growth opportunities, marketing, brand building, contingencies, acquisition of fixed assets, capital expenditure, and business development.
Offer Related Expenses:
- Estimated at ₹[.] million, covering underwriting, management fees, printing, advertisement,