IPO Note

Dinesh Engineers Ltd.

Premia Research Issue Opens: September 28, 2018; Issue Closes: October 03, 2018; Price Band: ` 183-185
Company Overview
Recommendation Dinesh Engineers is a contractor and turnkey player providing passive
Not Rated communication infrastructure mainly to the telecom operators and
internet service providers (ISPs). The company’s business segments
Issue Details
include (1) Vendor projects (89.8% of FY18 sales), executes projects
Face Value: `10
which involve obtaining Right of Way (ROW) and laying duct and fiber;
Public Issue: 1.0cr shares
(2) as Infrastructure Providers (IP; 9.1% of FY18 sales), the company
Price Band: `183-185
Issue Size#: ~`185 cr
leases its own optic fiber network (OFC) of ~7,500 km (under IP-1
Bid lot: 80 Equity shares license) which runs across Rajasthan, Gujarat, Maharashtra, Goa,
Issue Type: 100% Book building Karnataka, Andhra Pradesh and Telengana. (3) It is also laying gas
Post Issue Market Cap#: ~`731cr; # - at upper pipeline for MGL (1.1% of FY18 sales). The company’s major clients are
price band
Airtel, BSNL, Reliance Jio, Vodafone, Idea, Tata Communication, etc.
% Shareholding Pre IPO Post IPO
Offer Details
Promoter 100.0 74.7
The offer consists of fresh issue of 1cr shares (`185cr). The proceeds
Public 0.0 25.3
will be utilized to enhance OFC network by 5,400km for `156.4cr. The
Source: RHP
rest of the proceeds will be used to fund general corporate expenses.
Share Reservation % of Net Issue
Our View
QIB 50
Dinesh Engineers stands to benefit from increasing need of fiberization
NII 15
in the telecom sector coupled with its entry into new segments. The
Retail 35
company’s sales and PAT have grown at an impressive CAGR of 64.3%
Company Management and 88.2% respectively (FY13-18), albeit on a lower base. However,
Mr. Dinesh Kollaiah Chairman & tapering off of Bharatnet capex by March 2019, increasing competition
Kargal MD
Whole time and probable delay in rollout of 5G are the key risks particularly for the
Mrs. Shashikala Kargal
director leasing business. At the upper price band, the stock is valued at a P/E
Issue Managers of 11.8xFY18 on post issue basis.
BRLMs Hem Securities Financial Summary
Registrar Link Intime India Pvt. Ltd. Consolidated `cr. FY16 FY17 FY18
Revenue from operations 122 169 302
Analysts: Khadija Mantri EBITDA Margin % 22.7 27.0 35.7
E-mail: research@iifl.com Adj. PAT 12.9 22.0 61.8
September 26, 2018 EPS (`)* 3.3 5.6 15.6
Growth y-o-y (%) 99.7 70.6 180.4
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, IIFL Research; *EPS & Ratios at higher end of the price band and on post IPO shares
 Dinesh Engineers Ltd.
Premia Research

Key Points

Increasing demand for optic fiber bodes well for the company
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 `420.4cr (~5,600km) executable over 6-9
months.

Capacity expansion of own network to augment growth

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 (`115.69cr 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.

Strong track record; diversification to de-risk business

The company’s high network uptime of 99.5%, strong track record and
ease in obtaining ROW helps it enjoy a strong clientele. Further, in
order to de-risk its business, the company has diversified into gas
pipeline segment. It is currently executing a gas pipeline project in the
state of Maharashtra assigned by Mahanagar Gas Ltd. (MGL).
 Dinesh Engineers Ltd.
Premia Research

Key Risks

Higher client concentration

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

Delay in 5G rollout, completion of Bharatnet may hamper growth

Delay in rollout of 5G due to poor financial health of telecom
operators, increasing competition and tapering off of Bharatnet capex
by March 2019 may lead to under-utilization of its own OFC network.
 Disclaimer
Premia Research
Recommendation Parameters for Fundamental/Technical Reports:

Buy – Absolute return of over +10%

Accumulate – Absolute return between 0% to +10%
Reduce – Absolute return between 0% to -10%
Sell – Absolute return below -10%

Please refer to http://www.indiainfoline.com/research/disclaimer for recommendation parameter, analyst disclaimer and other disclosures.

IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City,
Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech
Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22) 25806654
E-mail: mail@indiainfoline.com Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates.

Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248

For Research related queries, write at research@iifl.com

For Sales and Account related information, write to customer care: cs@iifl.com or call on 91-22 4007 1000