Diffusion Engineers IPO day 2: GMP, subscription status, other details. Should you apply?

Diffusion Engineers IPO: The initial public offering (IPO) of Diffusion Engineers, a welding consumables manufacturer, opened for subscription on Thursday, September 26, and will remain so until Monday, September 30.

The ₹158 crore mainboard IPO, with a price band of ₹159 to ₹168 per equity share, saw healthy buying interest, as it was subscribed over seven times on the first day of subscription. Moreover, the stock's grey market premium (GMP) indicates that the company's shares could list at a healthy premium.

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

The company wants to use the net proceeds from the issue to fund capital expenditure requirements towards the expansion of the existing manufacturing facilities and to set up a new manufacturing facility.

Diffusion Engineers IPO GMP

Investors appear upbeat about the issue as the stock trades at a premium in grey markets. According to investorgain.com, which tracks grey market activities, the last GMP of Diffusion Engineers IPO was ₹90. Considering the upper price band of the issue at ₹168 and the last GMP, the listing price of the stock could be ₹258, a premium of 53.57 per cent over the issue price.

Diffusion Engineers IPO subscription status

According to BSE data, the IPO saw an overall subscription of 27.19 times on second day of bidding. The segment reserved for retail investors was subscribed 33.91 times, the segment of non-institutional investors (NIIs) was subscribed 47.08 times, and the qualified institutional buyers' segment was subscribed 0.28 times.

On Thursday, the first day of subscription, the issue saw an overall subscription of 7.16 times, with the retail portion subscribed 11.24 times and NII 6.80 times. QIB segment was subscribed 0.03 times on day 1.

Diffusion Engineers IPO details

The book build issue, which is entirely a fresh issue of 94 lakh shares, opened for subscription on the previous day and will remain open until Monday, September 30. The company is expected to finalise the share allotment process on Tuesday, October 1. Successful bidders can expect shares to be credited into their demat accounts on Thursday, October 3, while those who fail to get the allotment may get the refund on the same day.

Diffusion Engineers IPO: Apply or not?

Experts appear positive about the issue due to its long term growth prospects even as some of them find it fully priced.

"If we attribute FY24 annualised earnings to its post-IPO fully diluted paid-up equity capital, the asking price is at a P/E (price-to-earnings) of 20.4 times. The company stands to benefit from the bright prospects ahead amidst mega spending on infra and industrialisation. Though the issue appears fully priced, investors can look at the IPO from a longer-term perspective," said Aditya Gaggar, the director of Progressive Shares.

Gaggar pointed out that with over four decades of experience, Diffusion Engineers provides specialised repairs and reconditioning services for heavy machinery and equipment. It is also involved in the trading of anti-wear powders and welding and cutting machinery.

It provides a super conditioning process at its manufacturing facilities, a surface treatment solution for machine components that enhances wear resistance, eliminates stress and improves their reparability, ultimately extending their lifespan and reducing production costs.

As India continues to undergo rapid industrialisation, these industries will grow and require wear plates to protect their equipment and machinery.

Gaggar underscored a CRISIL report that suggests amongst the players considered for the industry between FY21-24, Diffusion Engineers recorded the third-highest CAGR of 21 per cent in operating income, the second-highest CAGR of 38 per cent in PAT, and the third-highest CAGR of 33 per cent in EBITDA.

Master Capital Service underscored India’s heavy engineering capital goods industry is estimated to be ₹3,100-3,200 billion as of fiscal 2024 and is projected to clock a CAGR of 7.5-8.5 per cent over fiscals 2023- 27 to reach ₹3,800-3,900 billion.

According to Master Capital Service, Diffusion Engineers plans to take advantage of this growth-fueled environment by focusing on a strategic expansion into nickel, cobalt, and iron-based powder manufacturing for an enhanced welding consumables portfolio. The company also intends to expand its geographical reach and increase its exports through its subsidiaries and joint ventures.

"The company is focusing on diversifying its Anti Wear Solutions and Heavy Engineering Equipment business into new industries and providing customised solutions for the same across various industries. Investors looking to invest can invest in the IPO for the medium to long term," said Master Capital Service.

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