Business Analysis 17: DEE Development Engineers Ltd
They are the largest player in the process pipe solutions in India in terms of installed capacity
As we all know, if India is going from developing status to developed one or $3.5 trn to $10 trn, then infrastructure is a crucial theme for the country. Within infrastructure, there are several sub themes.
Like in case of Dee Development, they are in the process piping solutions. Their product portfolio includes piping spools, modular piping (skids and modules), induction pipe bends, pressure vessels, industrial pipe fittings, industrial stacks and wind turbine towers, pilot plants.
They are the largest player in the process pipe solutions in India in terms of installed capacity. Also, they are one of the leading process pipe solution providers in the world in terms of technical capability.
With 7 manufacturing facilities, they serve several industries such as oil & gas, power, chemical, process industries (sugar, specialty chemicals, distilleries). Clients including Reliance, Thermax, Honeywell, Mitsubishi etc are big enough for sustainable job.
Let's look at some numbers.
Total capacity - 103500 MT currently which will increase to 112500 MT
Revenue mix
Piping division - 81.9% + Power division - 11.2% + Heavy fabrication - 6.9%
Domestic contributes 57.7% and the rest 42.3% comes from overseas. So most of the revenue comes from piping division. And process piping system equipment includes pipes, tubes, pressure hoses, valves, separators, traps, flanges, fittings, gaskets strainers, control instruments etc. Industry wise, 38.8% revenue comes from Oil & gas segment, 39.8% from Power, 11.1% from Power generation, 10.3% from Process and around 1% from chemical.
Order book as of Sept 2024 stands at 1192 cr
Order book mix
Oil & gas - 1007 cr + Power - 178 cr + Process - 63 cr
Domestic and overseas segments contribute more or less 50-50 of the total order book. Heavy fabrication division is doing extremely well with >400% growth y-o-y.
The company plans to manufacture fold seamless pipes with an annual capacity of 7000 tons with a capital outlay of 90 cr of which 22.5 cr will be from internal accruals and it will generate 450 crs of topline at its peak. Recently they have guided to triple their revenue within 3-5 years.
Remember, the business is seasonal. H2 is usually heavy - Q1>Q2>Q3>Q4 where Q1 is lower and Q4 is higher.
Management is taking measures to improve their margins going forward. Also, there's huge demand from oil & gas sector in the next 3-4 years as per management guidance.
Industry Overview
Global market for process piping system expected to reach $54.5 bn by 2030 from $39.2 bn in 2023 growing at 4.8% CAGR.
Indian process piping solutions market expected to reach 38400 cr by 2030 from 25400 cr in 2023 growing at 6.1% CAGR.
Indian chemical industry valued at $252 bn in FY23 and $349 bn by FY27 growing at 8.5% CAGR.
Valuation
Aa per their IPO draft, ISGEC is one of their competitors. Current market cap - 2060 cr, current revenue - 789 cr, PE - 40-45, EV/EBITDA - 20 on TTM basis. The company has been giving 12-14% operating margin on avg over the past few years. On the other hand, ISGEC is trading around PE of 30 with EV/EBITDA at 16. Margins for DEE Development is higher than ISGEC. As per their guidance, if they can triple their topline, then the number would be around 2400 cr over the next 3-5 years. With 12% margin, EBITDA would be 288 cr. As most of their capex will come from internal accruals, debt would stabilize I think going forward. So, EV/EBITDA - 8.3. Seems extremely cheap, right but remember, over the next 3-5 years' perspective. ISGEC is trading around just above 1x revenue on TTM basis whereas Dee Development is trading around 2.5x revenue. Considering the growth, ISGEC PE doesn't deserve 30 whereas the PE of DEE is pretty supportive of its growth. If the company can achieve what they are guiding then it could be a good bet for the future.
Thanks for reading
Take care
Rabi
Disclaimer: I'm not SEBI registered. This content is for educational purposes only. Do your own diligence.