DEE Development Engineers IPO: 10 key risks you should know about before investing

DEE Development Engineers specialises in providing process piping solutions for various sectors. The IPO, priced at 193 to 203 per share, saw a subscription rate of 0.78 times on Day 1.

A Ksheerasagar
First Published19 Jun 2024, 01:34 PM IST
DEE Development Engineers: The company said that a significant portion of its revenue is derived from key customers without long-term contracts. The potential loss of these customers or contract terminations could negatively affect its business operations and financial performance.
DEE Development Engineers: The company said that a significant portion of its revenue is derived from key customers without long-term contracts. The potential loss of these customers or contract terminations could negatively affect its business operations and financial performance. (www.deepiping.com/)

The 418 crore initial public offering (IPO) of DEE Development Engineers opened for subscription on Wednesday, June 19, and will remain open until Friday, June 21. 

The issue includes a fresh sale of 1.6 crore equity shares, valued at up to 325 crore, and an offer for sale of 0.46 crore shares, aggregating to 93.01 crore.

The DEE Development Engineers IPO price band is set at 193 to 203 per share. Retail investors have the option to bid for a minimum of 73 shares, constituting a single lot, and can bid for a maximum of 13 lots. The minimum investment required by retail investors would be 14,819.

Also Read: Dee Development Engineers IPO: GMP, review, other details. Apply or not?

As of June 19, 2024, 12 p.m. (Day 1), the DEE Development Engineers IPO garnered a subscription rate of 0.78 times. Within this, the retail category saw a subscription of 1.08 times, while the Qualified Institutional Buyers (QIB) category showed no subscription, and the Non-Institutional Investors (NII) category was subscribed to 1.07 times, according to Chittorgarh.

DEE Development Engineers is an engineering company providing specialised process piping solutions for industries such as oil and gas, power (including nuclear), chemicals and other process industries through engineering, procurement and manufacturing.

With over 35 years of manufacturing experience, the company has capitalised on its established brand, strategically located facilities, and robust engineering capabilities to expand its operations successfully.

The company's offerings include a range of high-pressure piping systems, piping spools, induction pipe bends, LSAW pipes, industrial fittings, pressure vessels, stacks, modular skids, and various accessories like boiler superheater coils and de-superheaters. 

Also Read: DEE Piping Systems IPO: 10 key things to know before issue opens

In its Draft Red Herring Prospectus (DRHP), DEE Development Engineers claims to be globally recognised for its technical expertise in meeting complex process piping requirements across diverse industrial segments.

Domestic brokerage firms have recommended a 'Subscribe' rating to the IPO. However, the following are some of the key risks outlined by the company in its DRHP report:

Key Risks

Dependency on Cyclical Industries: According to the company, any downturn in the oil and gas, power (including nuclear), and process industries could adversely impact its revenue, cash flows, and financial condition.

Concentration of Customer Base: The company said that a significant portion of its revenue is derived from key customers without long-term contracts. The potential loss of these customers or contract terminations could negatively affect its business operations and financial performance. 

Intense Competition: The company highlights competition from both domestic and international firms. Inadequate competitiveness in terms of pricing, technology, or service offerings may pose risks to the company business performance, financial stability, and operational results.

Also Read: DEE Development IPO to open next week; 10 key things to know from RHP

Raw Material Price Volatility: The company identifies operational costs heavily influenced by raw material prices. Increases in raw material costs or shifts in customer preferences for suppliers could impact its business reputation, operational efficiency, and financial outcomes.

Technological Integration Risks: According to the company's disclosures, strategic technological tie-ups with global OEMs or investments may present challenges in integration and management. Failures in these initiatives could adversely affect business operations, growth prospects, and financial stability.

Exposure to Unsecured Loans: DEE Development Engineers discloses their current reliance on unsecured loans, which lenders may demand repayment of at any time. Such demands could potentially disrupt liquidity, cash flows, and overall financial stability.

Also Read: Akme Fintrade IPO: Retail portion fully subscribed within 2 hours of Day 1

Financial Performance of Subsidiaries: The company said that its subsidiaries have recorded losses in recent fiscal years and may continue to do so. This situation could significantly impact its overall business performance, financial health, cash flow, and operating results.

Capital Intensive Operations: The company operates in an industry that requires substantial capital for current operations and future expansion plans. Failure to secure adequate additional capital could negatively impact business prospects, financial performance, and overall financial condition.

Utilisation of Net Proceeds: DEE Development Engineers plans to utilise a portion of the IPO proceeds for the repayment or prepayment of existing indebtedness. The allocation of funds towards debt repayment aims to reduce financial obligations but may affect capital allocation for other business initiatives.

Also Read: ixigo share doubles allottees money within two days of listing. More steam left?

Personal Guarantees by Promoters: The company discloses that its promoter and certain promoter group members have provided personal guarantees for loans taken by DEE Development Engineers and its subsidiaries. Any default in loan repayment obligations could trigger repayment obligations for the promoter and group members, potentially impacting their financial standing and consequently affecting business operations.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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$112 B

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$136 M

First Published:19 Jun 2024, 01:34 PM IST
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