DEE Development Engineers IPO: 10 Key Risks to Consider Before Investing in This ₹418 Crore Opportunity

DEE Development Engineers is launching its IPO, which includes a fresh issue of 1.6 crore equity shares worth up to ₹325 crore, and an offer for sale of 0.46 crore shares totalling ₹93.01 crore. The IPO price range is set between ₹193 and ₹203 per share. Retail investors can bid for a minimum of 73 shares (one lot) and up to 13 lots. The minimum investment needed for retail investors is ₹14,819.

As of 12 p.m. on June 19, 2024, the first day of the IPO, it was subscribed 0.78 times. Retail investors subscribed 1.08 times, while there was no subscription from Qualified Institutional Buyers (QIB), and Non-Institutional Investors (NII) subscribed 1.07 times, according to Chittorgarh.

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DEE Development Engineers specialises in providing process piping solutions for industries like oil and gas, power (including nuclear), chemicals, and other sectors. With over 35 years of experience, the company has grown its business using its strong brand, well-placed facilities, and engineering expertise.

The company offers a variety of products including high-pressure piping systems, piping spools, induction pipe bends, LSAW pipes, industrial fittings, pressure vessels, stacks, modular skids, and accessories like boiler superheater coils and de-superheaters.

According to its Draft Red Herring Prospectus (DRHP), DEE Development Engineers is recognised globally for its ability to meet complex piping requirements across various industries.

While domestic brokerage firms have given the IPO a ‘Subscribe’ rating, here are 10 key risks the company mentions in its DRHP:

1. Dependency on Cyclical Industries

DEE’s revenue is tied to industries like oil and gas, power, and chemicals. A downturn in these sectors could negatively impact its earnings and financial health.

2. Customer Concentration

A large part of DEE’s revenue comes from key customers, often without long-term contracts. Losing these customers could hurt the company’s business and financial performance.

3. Intense Competition

DEE faces strong competition from both local and international companies. If it can’t keep up in terms of pricing, technology, or services, it may struggle to maintain its market position and financial stability.

4. Raw Material Price Volatility

The company’s costs depend heavily on raw material prices. Rising prices or changes in customer preferences could harm its reputation and financial outcomes.

5. Technological Integration Risks

Strategic partnerships or investments in technology may face integration challenges. Failures in these efforts could negatively impact DEE’s operations and growth.

6. Reliance on Unsecured Loans

DEE currently relies on unsecured loans that lenders could demand back at any time. This could disrupt the company’s liquidity and financial stability.

7. Financial Performance of Subsidiaries

DEE’s subsidiaries have reported losses in recent years, which could continue and negatively affect the overall business and financial health of the company.

8. Capital-Intensive Operations

DEE’s industry requires significant capital for operations and expansion. If the company can’t secure enough funding, it could face challenges in maintaining and growing its business.

9. Use of IPO Proceeds

Part of the IPO proceeds will go towards repaying existing debt. While this reduces financial obligations, it may limit funds available for other business needs.

10. Personal Guarantees by Promoters

DEE’s promoter and some members of the promoter group have provided personal guarantees for the company’s loans. Defaults in loan repayment could affect their financial standing and, in turn, the company’s operations.

This list of risks provides potential investors with crucial insights to consider before participating in DEE Development Engineers’ IPO.