DEE Development Services expects New Gujarat Facility to lower logistic costs

KUTCH : DEE Development Services Ltd., which is set to open its public offering next Wednesday, will see its logistic costs ease as its New Gujarat Facility, which is near the port, commences operations, according to key officials of the company.

“The 48-acre new manufacturing facility at Anjar in Kutch, Gujarat, will cater to our piping division,” Chief Executive Officer Atul K. Bansal told.

The exiting mother unit in Delhi-NCR is 1,600 km away from the port; it takes 15 days for transportation, he said. This new facility in Gujarat, being near the port, will help lower logistic costs given that 50% of the raw materials are imported and 50% of the company’s revenue comes from exports, Bansal said. 

He said that the current logistics cost net of recovery is approximately 3–3.5%, which is very substantial. Furthermore, the company will benefit from new machines and operational leverage.

The company has planned to raise a total of Rs 418 crore from its initial public offering. This comprises a fresh issue of Rs 325 crore and an offer for sale of 79 lakh shares, according to the company’s DRHP. The company has set the price band for the offer at Rs 193 to Rs 203 per equity share, with a face value of Rs 10 each.

For retail investors, the issue opens on June 19 and closes on June 21. Anchor investors can place their bids on June 18.

A major part of the fresh issue amounting to Rs 175 crore will be used for repayment of debt, Rs 75 crore will be used for additional working capital, and the remaining Rs 75 crore will be for general corporate purposes, according to Chairman and Managing Director Krishan Lalit Bansal.

After the IPO proceeds, the interest savings will be directly added to the net profit, the management said.

The management also acknowledged that its current working capacity of 150 days is longer due to the impact of Covid and after that, there was no sense of capital expansion. Going forward, this will be improved, Bansal said.

Business

The company is engaged, inter alia, in providing technical know-how in the manufacture or processing of piping or piping-related processes, in the installations or erection of plants for such manufacture or processing, or in power generation. It is also engaged in the working of mines, oil wells, or other sources of mineral deposits, or in the search for, discovery, or testing of, mineral deposits. 

Risks 

Here are some of the key risks that the company’s business is subjected to, according to its red herring prospectus

• Dependence On Long-Term Customers: The company derives a significant part of its revenue from some customers. If one or more of such customers choose not to source their requirements from the company or terminate contracts or purchase orders, it will adversely affect profitability and liquidity.
• Underutilisation of Capacities: Underutilization of the company’s manufacturing capacities over extended periods or significant underutilization in the short term, could materially and adversely impact its business, growth prospects, and future financial performance.
• Increased Material Costs: Any increase in the prices of raw materials or a change in our customers’ preferences for raw material suppliers could adversely affect our business.
• Contractual Risks: The company is subject to contractual risks with its power purchaser, Punjab State Power, which is a government body. Any failure to extend or renew our PPAs will have a material and adverse effect on our business.