Lead Manager: Smart Horizon Capital Advisors Private Limited

Registrar: Bigshare Services Pvt Ltd

Promoters: Ms. Indiraben Pruthubhai Desai, Mr. Pankaj Pruthu Desai, Ms Hina Pankaj Desai, Mr. Malhar P Desai and Mr Samarth Pankaj Desai

Share Allocation Breakdown:

• QIB (Qualified Institutional Buyers): Up to 50% of the net issue

• Retail Investors: Up to 35% of the net issue

• Non-Institutional Investors (HNI): Up to 15% of the net issue

Share Holding Pre Issue: 79.29%

Share Holding Post Issue: 58.12%

IPO Timeline

Opening Date: Mar 24, 2025

Closing Date: Mar 26, 2025

Basis of Allotment: Mar 27, 2025

Refund Initiation: Mar 28, 2025

Credit of Shares to Demat: Mar 28, 2025

Listing Date: Apr 1, 2025

Company Overview

Desco Infratech Limited (DIL) has carved a niche in the Indian infrastructure space. The company specializes in providing comprehensive services that range from city gas distribution to power and water supply infrastructure. Here’s a closer look at its core operational domains:

City Gas Distribution and Maintenance

DIL is renowned for its expertise in laying, installing, testing, erecting, and commissioning pipelines for Piped Natural Gas (PNG). This service is vital for both domestic and commercial users, ensuring that gas is delivered safely and efficiently. The company’s operations extend to both underground and above-ground pipelines made from carbon steel and MDPE. Their work in lock pressure and leak detection is crucial for preventing gas leaks, thereby protecting both public safety and reducing potential operational hazards.

Expansion into Power and Water Infrastructure

In a bid to diversify its portfolio, DIL has recently expanded into the power sector. This move involves:

• Installation, Connectivity, and Commissioning: Services for both Low Tension (LT) and High Tension (HT) cables, which are critical for robust power transmission.

• Recent Orders: In April 2023, the company secured an order for executing works related to connectivity and the laying of double-walt cables, along with HDPE pipes for Traffic Signal Lights in Surat.

Furthermore, DIL has broadened its services to include water distribution projects. This new offering covers:

• Design and Construction: The creation of water distribution networks, open and sump wells, overhead tanks, and well systems.

• Regional Projects: Ongoing projects in Madhya Pradesh and other regions underscore the company’s commitment to meeting diverse infrastructural needs.

Venturing into Renewable Energy

Keeping pace with global trends, DIL has also stepped into the renewable energy arena. It has won its first project in this sector at the Gujarat Hybrid Renewable Energy Park. The project includes:

• Structural and Foundational Support: The erection of RCC piles.

• Installation: Fitting solar modules to capture energy efficiently.

With projects spread across states like Gujarat, Haryana, Uttar Pradesh, and Punjab, DIL is steadily expanding its operational footprint. As of the end of 2024, the company employed 234 professionals, reflecting a stable yet growing workforce.

Objects of the Issue

Risk Factors

Investors must weigh the following risk factors carefully:

• Litigation and Regulatory Risks: DIL is currently involved in various civil, criminal, and regulatory proceedings. Unresolved litigation could negatively impact the company’s reputation and operational results.

• Contract Dependency: Much of DIL’s revenue comes from competitive bidding processes. Losing major contracts, particularly with key customers who contribute a substantial portion of revenue, could adversely affect profitability.

• Geographic Concentration: A significant portion of revenue is derived from specific regions like Gujarat, Haryana, Uttar Pradesh, and Punjab. Any adverse developments in these areas may reduce revenue streams.

Negative Cash Flows: Historical negative cash flows pose a risk to future growth, and sustained negative trends might impact operational sustainability.

Machinery Procurement Delays: The company has yet to finalize orders for certain critical machinery. Any delay could disrupt project schedules and elevate costs.

Dependency on City Gas Distribution: With a majority of its revenue coming from city gas distribution projects, any disruption in these operations could have a material impact on financial results.

Revenue Dependency: Revenue primarily comes from public sector undertakings, contributing 46.74%, 73.71%, 66.28%, and 71.74% for the periods ended September 30, 2024, and the financial years ending March 31 from 2022 to 2024.

Market Landscape & Growth Drivers

Infrastructure Development in India

India’s push toward becoming a US $26 trillion economy is anchored in significant investments in infrastructure. The government’s initiatives—such as the US$ 1.3 trillion national master plan for infrastructure and the Gati Shakti program—are laying the groundwork for sustained economic growth. This focus on building and upgrading physical infrastructure has spurred an increase in capital expenditures by 37% in the current fiscal year, fueling growth across roads, railways, and ports.

Energy and Oil Sector Trends

The oil and gas sector remains one of India’s core industries. With India being the third-largest oil consumer globally, the rising demand is expected to drive further investments. The government’s progressive policies, including allowing 100% FDI in many segments of the sector, are attracting significant investments. Forecasts suggest that crude oil consumption will continue to grow steadily, underpinning the demand for gas and supporting the infrastructure companies that service these industries.

Global Partnerships and Investments

Global investment trends and partnerships, such as the India-Japan forum for development in the Northeast, signal strong private sector interest. These collaborations are crucial for developing self-reliant and future-ready critical infrastructure. With urban infrastructure investments projected to require US$ 840 billion over the next 15 years, companies like DIL that offer diversified services stand to benefit from this growth.

Competitor Comparison

According to the offer document, the company has identified Rudra Gas and Likhitha Infra as comparable entities in its peer group. 

Competitive Strengths

Extensive Experience in Infrastructure Services

Since its inception in 2011, Desco Infratech Limited has honed its expertise in the city gas distribution sector. The company’s in-depth knowledge of technical requirements and regulatory frameworks gives it a competitive edge in managing complex pipeline projects. Its operational efficiency is bolstered by an end-to-end service model that covers everything from installation to maintenance.

Direct Supplier Relationships

One of the company’s key strengths lies in its established direct relationships with suppliers. This direct engagement eliminates middlemen, leading to cost savings and better control over material quality. The company’s proactive supplier management not only secures a steady stream of raw materials but also enhances its ability to respond to market fluctuations.

Seasoned Leadership and Robust Management

The management team, led by promoters such as Mr. Pankaj Pruthu Desai, Mr. Malhar P Desai, and Mr. Samarth Pankaj Desai, brings a wealth of industry experience and strategic vision. Their leadership has been pivotal in driving operational growth and financial performance. This blend of technical know-how and business acumen is supported by on-site supervisors and technical staff who ensure adherence to best practices and regulatory standards.

Standard Operating Procedures and Safety Compliance

Structured operating procedures (SOPs) are a cornerstone of DIL’s operational strategy. These procedures not only ensure consistency and efficiency but also mitigate risks associated with safety and compliance. The company’s rigorous adherence to safety protocols—ranging from the use of non-sparking tools during gas leak checks to regular safety training—reinforces its commitment to maintaining high operational standards.

Key Financial Information

For the reported periods, the company has posted PAT margins of 4.16% (FY22), 4.20% (FY23), 11.76% (FY24), and 14.94% (H1-FY25), along with RoE margins of 24.53%, 27.62%, 40.61%, and 19.51% for the respective periods.

Conclusion: Is the Desco Infratech Limited IPO worth the Risk?

DIL is actively engaged in providing essential infrastructure and maintenance services for city gas and power distribution, as well as water supply. While the company experienced steady top-line performance in FY23 and FY24, it demonstrated improved margins for FY24, signaling effective operational efficiency. The robust margins reported for the first half of FY25 are noteworthy and invite a closer examination of their sustainability. 

Operating in a highly competitive and fragmented market presents both challenges and opportunities for DIL. Given its recent earnings, investors may want to consider the company's valuation carefully. Additionally, the low equity base following its IPO suggests that there may be a longer pathway to growth and development in the future.

Investors considering participation in the IPO should review the company's financials and Desco Infratech Limited IPO RHPthoroughly to make an informed decision. For more insights and detailed analysis, Whatsapp group, and visit www.stockknocks.com

DISCLAIMER

The information provided in this blog is for informational purposes only and should not be construed as investment advice. Readers are encouraged to conduct their own research and consult with financial advisors before making any Investment.