Dinesh Engineers IPO Note - Not Rated

Dinesh Engineers IPO Note - Not Rated

by Nikita Bhoota Last Updated: Dec 14, 2022 - 06:14 am 161.2k Views
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Issue Opens: September 28, 2018
Issue Closes: October 03, 2018
Face Value: Rs 10
Price Band:  Rs 183-185
Issue Size: ~Rs 185 cr
Public Issue: 1 cr shares
Bid Lot: 80 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

74.7

Public

0.0

25.3

Source: RHP

Company Background

Dinesh Engineers is a contractor and turnkey player providing passive communication infrastructure mainly to the telecom operators and internet service providers (ISPs). The company’s business segments include (1) Vendor projects (89.8% of FY18 sales), executes projects which involve obtaining Right of Way (ROW) and laying duct and fiber; (2) as Infrastructure Providers (IP; 9.1% of FY18 sales), the company leases its own optic fiber network (OFC) of ~7,500 km (under IP-1 license) which runs across Rajasthan, Gujarat, Maharashtra, Goa, Karnataka, Andhra Pradesh and Telengana. (3) It is also laying gas pipeline for MGL (1.1% of FY18 sales). The company’s major clients are Airtel, BSNL, Reliance Jio, Vodafone, Idea, Tata Communication, etc.

Offer Details

The offer consists of fresh issue of 1cr shares (Rs185cr). The proceeds will be utilized to enhance OFC network by 5,400km for Rs156.4cr. The rest of the proceeds will be used to fund general corporate expenses.

Financials

Consolidated Rs cr.

FY16

FY17

FY18

Revenue from operations

122

169

302

EBITDA Margin %

22.7

27.0

35.7

Adj. PAT

12.9

22.0

61.8

EPS (`)*

3.3

5.6

15.6

P/E*

56.5

33.1

11.8

P/BV*

25.2

15.8

6.8

RoE (%)

44.6

47.8

57.2

Source: RHP, 5Paisa Research; *EPS &Ratios at higher end of the price band and on post IPO Shares

Key Investment Rationale

  1. The data transmission volumes are increasing rapidly given the rise in telecom subscribers, internet users and widespread digitalization. This has led to rise in demand for OFC installations, which are critical in telecom network expansion. Currently, fiberization is at mere 20%, while 80% is needed in order to ensure widespread roll-out of 5G in the coming years. Hence, Dinesh Engineers, in its capacity as an EPC player (vendor projects) is likely to gain from orders for fiberization, which involves laying down duct and fiber. Currently, the company’s order book stands at Rs420.4cr (~5,600km) executable over 6-9 months.

  2. Dinesh Engineers currently has own OFC network of more than 7,500km (duct- 4,009km and fiber capitalization -3,491km). The company’s capability to obtain Right of Way (ROW) faster is encouraging telecom operators and ISPs to avail of the company’s established network on a leasing basis. In the leasing business, the company receives upfront cash (Rs115.69cr in FY18) at the time of leasing of network. This leads to higher profitability (EBITDA margin is as high as ~75%) and returns leading to strong asset turnover.Hence, the company plans to expand the capacity of its own dedicated OFC network by ~5,740km in states of Maharashtra, Rajasthan, Karnataka, Madhya Pradesh and Andhra Pradesh. Moreover, current utilization level at mere 32% provides significant scope for growth.

Key Risk

Dinesh Engineers derives ~95% of its revenue from top 5 customers. This increases its business concentration risk.

Research Disclaimer

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