Deepak Builders & Engineers IPO Review: Apply or Not?

With the Indian infrastructure sector experiencing rapid growth, Deepak Builders & Engineers India Ltd is positioning itself as a key player in the construction industry. Established in 2017, the company has quickly grown into a major name in the engineering and construction field, handling large-scale projects across administrative, institutional, and industrial sectors. From hospitals to historical memorials, stadiums, flyovers, and rail bridges, Deepak Builders & Engineers has diversified its portfolio to cover a wide range of infrastructure projects.

As the company prepares to launch its Initial Public Offering (IPO) between October 21 and October 23, 2024, potential investors are evaluating whether to subscribe to this offering. With a total issue size of ₹260.04 crore, the IPO aims to raise funds for debt repayment, working capital, and general corporate purposes. But does the company’s financial performance and project pipeline justify investing in the IPO? This detailed review will cover all the essential aspects of the Deepak Builders & Engineers IPO to help you make an informed decision.

Also Read: Premium Plast IPO Review: Apply or Not?

Deepak Builders & Engineers IPO Details

• IPO Dates: October 21, 2024, to October 23, 2024
• Listing Date: October 28, 2024
• Face Value: ₹10 per share
• Price Band: ₹192 – ₹203 per share
• Lot Size: 73 Shares
• Minimum Investment: ₹14,016
• Total Issue Size: ₹260.04 Cr
• Fresh Issue: ₹217.21 Cr (10.7 million shares)
• Offer for Sale (OFS): ₹42.83 Cr (2.11 million shares)
• Listing At: BSE and NSE

Business Overview

Deepak Builders & Engineers is primarily involved in the construction of administrative and institutional buildings, hospitals, medical colleges, sports complexes, residential projects, and more. Recently, the company has also ventured into specialized structural works, including flyovers, rail over- and under-bridges, and railway station development projects.

As of June 2024, the company is handling 12 active projects, including 7 EPC (Engineering, Procurement, and Construction) projects and 5 item-rate or percentage-rate contracts. With its impressive project pipeline and expertise in executing infrastructure projects across northern India, Deepak Builders & Engineers has become a recognized name in the sector.

The company’s portfolio also includes high-profile projects such as:

• Jang-E-Azadi Memorial, Kartarpur, Jalandhar
• AIIMS, New Delhi (Geriatrics Block)
• Super Speciality Block at Government Medical College, Patiala

Also See: IPO GMP

Strengths of Deepak Builders & Engineers

1. Strong Project Pipeline:
   The company boasts an order book of ₹1,380.38 crore as of June 30, 2024, which includes significant projects across four states and two Union Territories. With a strong presence in Punjab, Haryana, Rajasthan, and Uttarakhand, and projects in Delhi and Chandigarh, Deepak Builders & Engineers has established itself as a dependable contractor for large-scale infrastructure work.
2. Reputed Clientele:
   The company’s client base includes major government and semi-government entities such as:
   • Northern Railways
   • Public Works Departments of Punjab, Haryana, and Uttarakhand
   • IOCL (Indian Oil Corporation Ltd)
   • Punjab Heritage and Tourism Promotion Board
   • Ludhiana Smart City Limited These clients provide a steady stream of contracts, ensuring consistent project inflow.
3. Strong Revenue Growth:
   Deepak Builders & Engineers has shown impressive revenue growth over the last three fiscal years:
   • FY22 Revenue: ₹363.05 crore
   • FY23 Revenue: ₹433.45 crore
   • FY24 Revenue: ₹511.40 crore The company’s profits have also risen significantly:
   • FY22 PAT: ₹17.66 crore
   • FY23 PAT: ₹21.39 crore
   • FY24 PAT: ₹60.41 crore The sudden boost in FY24 profits has been a notable development, although it raises questions about sustainability in the long run.
4. Technological Investment:
   The company has continually invested in modern construction equipment to enhance efficiency and ensure timely project completion. As of June 2024, it owns 398 major pieces of equipment, including transit mixers, concrete boom pumps, mobile tower cranes, and more. This extensive fleet supports the company’s ability to handle large-scale projects efficiently.

ALso Read: Subscription

Risks and Concerns

1. High Client Concentration:
   While the company has secured contracts from a wide range of government entities, its revenue is highly dependent on a few key clients. In FY24, the top 10 clients contributed over 92% of total revenue. Any loss of these major clients or reduced demand from them could have a substantial impact on the company’s financial health.
2. Geographic Concentration:
   A significant portion of the company’s operations is concentrated in Punjab, with the state contributing over 30% of revenue in FY24. Any economic or political disruptions in the region could negatively affect the company’s ability to secure new contracts and complete existing ones.
3. Litigation Risks:
   Deepak Builders & Engineers is involved in multiple legal proceedings amounting to claims of ₹87 crore. While these cases are still pending, any adverse rulings could impact the company’s financial standing.
4. Indebtedness:
   As of August 2024, the company’s total debt stood at ₹484.96 crore. A significant portion of the IPO proceeds will be used for debt repayment, but high indebtedness remains a concern for investors. Any difficulty in servicing or repaying debt could strain the company’s financial resources.
5. Sector-Specific Risks:
   The infrastructure sector, especially government projects, is highly susceptible to policy changes, delays, and cost overruns. Given that Deepak Builders & Engineers is involved in several large-scale government projects, any changes in policy or delays in project execution could hurt the company’s bottom line.

Financial Performance

Revenue (₹ Cr)

• FY22: ₹363.05
• FY23: ₹433.45
• FY24: ₹511.40

PAT (₹ Cr)

• FY22: ₹17.66
• FY23: ₹21.39
• FY24: ₹60.41

Total Assets (₹ Cr)

• FY22: ₹322
• FY23: ₹449
• FY24: ₹559

The company has shown consistent growth in both revenue and profit, but the dramatic rise in profits during FY24 may raise concerns about the sustainability of such high margins going forward.

Should You Apply for Deepak Builders & Engineers IPO?

Reasons to Apply:

1. Strong Growth Trajectory: The company’s financials indicate a strong upward growth trend in both revenue and profitability. With an impressive order book and solid project execution capabilities, Deepak Builders & Engineers is well-positioned to benefit from the ongoing infrastructure development in India.
2. Reputed Client Base: The company’s ability to secure contracts from well-known government entities ensures a steady pipeline of work, providing some level of revenue stability.
3. Expansion Plans: The IPO proceeds will help the company reduce its debt and fund working capital, improving its financial flexibility to bid for and execute new projects.

Reasons for Caution:

1. Client and Geographic Concentration: The company’s reliance on a few key clients and its concentration of projects in Punjab poses risks if any adverse developments occur in this region or with these clients.
2. Litigation and Debt Concerns: Ongoing litigation and high debt levels are red flags for potential investors. The company will need to demonstrate its ability to manage both effectively.
3. Competitive Sector: The infrastructure and construction sector is highly competitive, and margins may come under pressure due to rising input costs and competitive bidding for contracts.

Conclusion

Deepak Builders & Engineers has emerged as a promising player in the Indian infrastructure sector, with strong revenue growth and an impressive order book. While the company’s financials appear solid, concerns over client concentration, high indebtedness, and legal proceedings cannot be overlooked. Investors with a high-risk appetite and long-term investment horizon may find value in this IPO, especially given the company’s growth prospects. However, more conservative investors may want to proceed with caution and closely evaluate the company’s ability to sustain its recent profit growth.

Verdict: May Apply for long-term gains but with a cautious approach.

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