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Dinesh Engineers Click here for Rating Reckoner
Laying optic fibre network
(25 Sep 2018)
CM RATING43/100
Incorporated in 2006 and promoted by Dinesh Kargal and Shashikala Kargal, Dinesh Engineers (Dinesh) is a passive communication infrastructure provider providing services mainly to the Telecom Operators and Internet Service Providers (ISPs). The company has been licensed by Department of Telecommunications (DoT) with the Infrastructure Provider (IP-I) License, under which company can establish and maintain wired networks, Duct Space for the purpose to grant on lease or sale on IRU (Indefeasible right of use) basis to the licensees of telecom operators and ISPs.

Company's key expertise lies in the field of providing support services to telecom vendors which inter alia includes project management for laying of the duct and optic fibre cables, construction of basic transmission and telecom utilities, dark fibre leasing, optical fibre network construction, maintenance of duct and optic fibre and optical fibre project turnkey services to various Telecom network operators & broad band Service operators across the states of India.

The company's business within the Telecom space can be broadly classified into income from project execution for telecom operators (vendor projects) and laying of fibre under IP-I license and then leasing or selling it. Project execution involves working as a contractor for the telecom operators. The scope of the work includes work of procuring Right of Way (ROW) permissions, laying of fibre in the allowable ROW limits, arranging requirement of labour, machines, testing and hand over of the project to telecom operators.

Under the IP-I license, company can establish and maintain the assets such as Dark Fibres, Right of Way and Duct Space for the purpose to grant on lease/rent/sale on IRU basis to the licensees of telecom services providers and other vendors on mutually agreed terms and conditions. Over the past 5 years company has created its own fibre optic network of around 7500 km which run across Rajasthan, Gujarat, Maharashtra, Goa, Karnataka, Andhra Pradesh and Telengana. This network is then leased to telecom operators either by duct lease or by fibre lease.

Besides own network, the company has undertaken vendor projects and developed a network of 9,500 km. The fibre network is currently being used by various companies like telecom operators, cable TV companies, MSOs (multi service operators) and ISPc. This includes prominent names of the industry like Bharti Airtel, Idea Cellular, Vodafone, Tata Communications, Reliance Jio etc as well as ISP clients like Intech, D-vois SSV, Atria, Power Grid, Hathway Sify.

Apart from laying the network under the Vendor project or own network, company is also engaged in the operations & maintenance activity of the fibre network and involves deploying manpower and tools required for maintenance to monitor the route of the operator and preventing the underground optic fibre from getting cut due to activities like road repairs, digging and expansion works by various authorities.

Apart from the above, the company also has Mahanagar Gas in its client list for gas pipeline work. Mahanagar Gas has entrusted the company with the laying of its gas pipelines under the city of Mumbai and the same is outsourced to various sub - contractors. The gas pipeline laying work will help company to diversify in the field of gas sector and will also open new business avenues for the company.

Around 98.9% of total revenue of the company in FY 2018 came from Telecom sector and the rest from the gas pipeline. Within telecom revenues, around 91% of telecom revenue comes from vendor projects and the rest 9% from IP-I leasing income.

As on April 18, the company's unexecuted order book stood at Rs 420 crore.

The Offer and the Objects

The offer comprises initial public offering of 100 lakh of equity shares, which at lower price band of Rs 183 per share, works out to Rs 183 crore and at higher price band of Rs 185, the issue size works out to Rs 185 crore.

The minimum bid lot is 80 equity shares and in multiples of 80 equity shares.

The objects of the issue is to use Rs 156.5 crore towards expansion of business by setting up of further OFC Network under IP-1 Licence and balance for other corporate purposes apart from the benefits of listing the equity shares on the BSE and the NSE and to enhance its visibility and brand image and provide liquidity to its existing shareholders.

The Promoters and group will hold 74.7% of total paid up equity share capital of the company post listing.

Strengths

The government of India (GOI) launched the Digital India initiative in July 2015. One of the projects under the Digital India initiative was Bharat Net, launched to deploy high-speed optical fibre cables to connect 2.58 lakh Gram Panchayat across the country by 2018, The government has proposed a subsidy of Rs 3600 crore to private telcos such as Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio through viability gap funding, for setting up Wi-Fi in rural areas as part of the second phase of the Bharat Net project. Telecom operators are expanding their network across Nation and giving boost to this industry.

Leverage the economies of scale. Under the IP-1 License company has developed its own network of around 7500 kms during the last 5 years that will in turn boost company's operating income (EBIDTA) without incurring additional capital investment.

Present across entire value chain in project business and covers the entire spectrum of work right from design, ROW, construction till O&M of the project under one roof.

Strong financial track record. The company reported net sales CAGR of 81% and a PAT CAGR of 108% from FY 2015 to FY 2018.

There are long-standing customer relationships with strong repeat business.

Weaknesses

Currently almost entire business is dependent on the telecommunication sector. Growth depends on continued growth of telecommunication industry which is seasonal, uneven and cyclical.

The strong growth in the past was due to implementation of 4G network by various telecom operators. While the telecom operators will continue to expand their network, it may not be at the same pace as was seen in the past. Further most of the network expansion in future will be in Tier 3 and 4 cities which may not require large network and will be vary scattered and will not provide major economies of scale benefits to a contractor like Dinesh going forward.

87.4% and 78.9% of FY 2018 and FY 2017 revenues, respectively, were from Top 5 customers. Any loss of a customer will significantly impact the financials.

Valuation

For FY 2018, consolidated net sales were up 79% to Rs 302.17 crore. The OPM stood at 35.7% as compared to 27% thus resulting in an increase of 136% at OP level to Rs 107.97 crore. Other income stood at Rs 0.61 crore down by 11%. Interest cost stood at Rs 1.99 crore down by 29% while depreciation stood at Rs 11.29 crore up by 16%. Thus, PBT stood at Rs 95.29 crore up by 182% YoY. After paying a total tax of Rs 33.41 crore up by 183%, PAT for FY 18 stood at Rs 61.77 crore up by 181%. After providing for minority interest and share of profits from associates of Rs 0.03 crore, PAT stood at Rs 61.67 crore, up 181%.

At the higher price band of Rs 185, the P/E on FY 2018 consolidated EPS (on diluted equity share capital of Rs 39.50 crore) of Rs 15.6 works out to 11.8. There is no strictly comparable listed player.

Dinesh Engineers: Issue highlights
Fresh Issue ( in Rs crore)
- On lower price band183.00
- On upper price band185.00
Total Issue size for fresh issue ( in no of shares in lakhs)100.00
Price Band (Rs)183-185
Bid size ( in no of shares)80.00
Post issue share capital (Rs crore) 39.50
Post-issue Promoter & Group shareholding (%)74.7%
Issue open date28-09-2018
Issue closed date03-10-2018
ListingBSE, NSE
Rating 43/100

Dinesh Engineers: Consolidated Financials
1503(12)1603(12)1703(12)1803(12)
Net Sales50.88122.25169.23302.17
OPM (%)30.4%22.7%27.0%35.7%
OP15.4627.7545.67107.97
Other in. 0.270.250.680.61
PBDIT15.7327.9946.35108.57
Interest1.602.072.781.99
PBDT14.1325.9343.57106.58
Dep.4.106.189.7311.29
PBT 10.0319.7533.8495.29
EO 0.000.040.040.11
PBT after EO10.0319.7133.8095.18
Tax (including Deferred Tax)3.086.8211.7933.41
PAT6.9512.8922.0061.77
MI-0.050.000.00-0.03
PAT after MI6.9012.8922.0061.74
EPS (Rs)*1.73.35.615.6
*EPS is on post issue equity capital of Rs 39.5 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
Figures in crore
Source: Capitaline Database

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