Diffusion Engineers Limited
Company
| Website 🔗 |  |
| Business Activity | Manufacture |
| Division | Heavy Engineering Equipment |
| Sub-class | Welding Consumables, Wear Plates and Heavy Engineering Equipment |
| Location | Nagpur, Maharashtra |
| Establishment Year | 1982 |
Management
| Managing Director | Prashant Garg |
| Educational Qualifications | Bachelor’s degree in Engineering from Rashtrasant Tukadoji Maharaj Nagpur University and a Master’s degree in Business Administration from Saïd Business School, University of Oxford |
| Experience | Two decades of experience in the industry |
| Annual Salary | ₹ 240 Lakhs |
| Total Number of Employees | 640 |
About
Diffusion Engineers Limited is a manufacturing company specializing in welding consumables, wear plates, wear parts, and heavy engineering machinery. The company has over four decades of experience serving core industries such as cement, steel, power, mining, and engineering.
Products and Services:
Welding and Anti-wear Consumables:
Special purpose electrodes, flux-cored wires, and cold repair compounds.
Wear Plates/Wear Parts:
Wear plates, wear parts, and welding services (job work).
Heavy Engineering Equipment:
Air separators, high-pressure grinding rollers, FD fans, mill bodies, RAPH Rotters, etc.
Trading:
Thermal spray powders and welding equipment.
Clients:
Direct Customers:
The company serves a diversified customer base, including industry leaders and small and medium-sized companies in India and overseas.
OEMs:
Diffusion Engineers Limited also works with Original Equipment Manufacturers (OEMs) who service major players in core industries, positioning the company as a vital link in the OEM ecosystem.
Cement Industry contributed 37% of revenue to the company for FY 2024
Manufacturing Process:
Electrode Production:
Involves wire cutting and cleaning, dry mix preparation of alloys, binding and wet flux of alloys, extrusion, virtual inspection, quality control, air drying, packaging, and dispatch.
Flux Cored Wire Production:
Includes order placement, production planning, dry mix preparation, loading of FCW hopper, loading of the strip to the feeder, mixing in FCW machine, virtual inspection, quality control, coiling, packaging, and dispatch.
Anti-wear Consumables Production:
It encompasses order placement, production planning, material procurement, pre-mixing of raw materials, mixing in sequence, quality checks, packaging, and dispatch.
Wear Plate Production:
Involves forecasting, production planning, raw material procurement, cutting mild steel plates, cleaning and cladding, fabrication, painting, marketing, order receipt, and dispatch.
Wear Parts and Heavy Engineering Equipment Production:
Includes customer enquiry, estimation and quotation, negotiation and acceptance, production planning, production, quality checks, billing, and dispatch.
Welding Service – Job Work:
Consists of customer enquiry, assessment of work/repair requirements, job inspection, customer communication, repair work, inspection by the customer, and dispatch.
Raw Materials:
Metals:
Steel plates, mild steel plates, pipes, stainless steel, iron, iron sheets, strips of steel, nickel, etc.
Alloys:
Tungsten, nickel, chromium, cobalt, molybdenum, niobium, vanadium, etc.
Other Materials:
Polymers, solvents, fillers, curing agents, additives, etc.
Suppliers:
The company sources raw materials from various domestic and international suppliers based on quality specifications and cost-effectiveness. Imported materials are primarily sourced from countries such as China, the United Kingdom, Italy, Singapore, Germany, and Switzerland. The top 10 suppliers contributed 31.25% of the total revenue from operations in Fiscal 2024.
Marketing and Sales:
Direct Sales (89% of Revenue):
The company has a direct relationship with the majority of its customers, including overseas clients.
Distributor Network (11% of Revenue):
Diffusion Engineers Limited also has a network of over 95 distributors in the domestic market and 9 distributors in the overseas market.
Other Key Aspects:
Manufacturing Units:
The company operates four manufacturing units in Nagpur, Maharashtra, each with the necessary infrastructure for material storage, production, quality control, and R&D activities. Diffusion Engineers Limited has a team of over 130 qualified engineers.
Forward Integration:
The company operates on a unique forward integration model, manufacturing components like special-purpose electrodes and flux-cored wires, which are then used to produce wear-resistant plates. Their heavy engineering division uses these wear plates to manufacture industrial equipment.
Technology-Driven Manufacturing:
The company invests in R&D to drive innovation and sustainability in its product offerings. They have a dedicated DSIR-approved R&D facility equipped with laboratory infrastructure for process refinement, product testing, and raw material analysis.
Quality Assurance:
Diffusion Engineers Limited places significant emphasis on quality control and holds various certifications, including ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018, ensuring adherence to international quality standards.
Awards and Recognitions:
The company has received several awards and recognitions, including the “Best Employer Brands” award and the “Vidharbha Udyog Gaurav Award” for its contribution to industrial development.
Business Process Flowchart
Revenue – Category
Revenue – Region
Audit and Legal
Auditor’s Remarks:
There are no remarks or qualifications made by the statutory auditors in their report on Diffusion Engineers Limited’s financial statements.
Non-Compliances and Other Issues:
Diffusion Engineers Limited had a history of delayed filings of Form 32, Form BEN-2, MGT-14 and breach of section 67(3) of the Companies Act.
Contingent Liabilities:
As per the Restated Consolidated Financial Statements, there is no contingent liability that has been recognized and reported for the financial year ended March 31, 2024.
Legal Cases:
Cases Filed Against the Company
Minimum Wage Disputes:
Mr Sukhdeo Khobragade and others have on August 08, 2018, filed an application case (IDA No. 15/2018) against the Company under Section 33-C (2) of Industrial Disputes Act, 1947, before the Labour Court at Nagpur, Maharashtra alleging the Company for not paying minimum wages to the 129 workers. As per the said application, a sum of ₹ 130.45 million along with interest at the rate of 18% per annum thereon has been claimed from the Company. The matter is currently pending before the Labour Court at Nagpur, Maharashtra.
Mr Girendra Pande (‘Complainant’) has on June 24, 2024, filed a complaint (No. 19 of 2024) against the Company under Section 28 of the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 before the Labour Court, Nagpur, Maharashtra, alleging the Company of not paying minimum wages to the Complainant and for the wrongful termination of his employment in the Company.
Regulatory Proceedings:
There are 11 statutory or regulatory proceedings cases against the company.
Amount Involved: ₹130.45 million
Cases Filed by the Company
The company has filed five criminal proceedings cases against various persons, including some of its customers, under Section 138 of the Negotiable Instruments Act, 1881, alleging dishonour of cheques concerning goods supplied by the company.
Amount Involved: ₹0.75 million
Tax Proceedings against the Company:
There are two direct tax proceeding cases against the company and the amount involved is not ascertainable
SWOT Analysis
Strengths
| Strong financial performance: The company has demonstrated consistent financial growth, with a Compound Annual Growth Rate (CAGR) of 21% in operating income and 38% in profit after tax between fiscal years 2021-2024. |
| Forward Integration: Diffusion Engineers has a unique business model with forward integration, wherein they manufacture components (special purpose electrodes and flux cored wires) that are used to create wear-resistant plates, which are then used in their heavy engineering division for manufacturing industrial equipment. |
| Customer Relationships: The company boasts long-standing relationships with customers across diverse industries. |
Weaknesses
| Dependence on Key Geographies: A significant portion of the company’s domestic revenue comes from specific regions, making it vulnerable to regional happenings and downturns. |
| Working Capital Intensive: Any insufficient cash flows from operations or inability to borrow to meet working capital requirements, may materially and adversely affect business and results of operations. |
Opportunities
| Expanding Product Portfolio: The company can further enhance its product offerings by venturing into the manufacturing of nickel, cobalt, and iron-based powders, catering to the growing demand for these materials in the welding industry. |
| Technological Advancements: Investing in new technologies and automation can further improve the company’s manufacturing efficiency and product quality. |
| Strategic Acquisitions: The company can explore strategic acquisitions to expand its product portfolio, acquire new technologies, or enter new markets. |
Threats
| Competition: The company faces competition from both domestic and international players, which could put pressure on its pricing and market share. |
| Economic Downturn: A slowdown in the Indian or global economy could adversely affect the demand for the company’s products and services as they are related to capital goods and deal with cyclical industries. |
| Raw Material Price Volatility: Fluctuations in the prices of raw materials, such as steel and alloys, could impact the company’s profitability. |
Porter’s Five Forces1
| Threat of New Entrants | MODERATE |
| While there are low-moderate barriers to entry in terms of capital investment and technology, new entrants may face challenges in establishing a strong brand reputation, building customer relationships, and achieving economies of scale. |
| Bargaining Power of Suppliers | LOW |
| The bargaining power of suppliers in these industries is relatively low due to the availability of numerous suppliers and the standardized nature of many raw materials. Diffusion Engineers has a diversified supplier base and can switch between suppliers without significant disruptions to its operations. Additionally, the company’s backward integration strategy, particularly in manufacturing key components in-house, further reduces its dependence on external suppliers. |
| Bargaining Power of Buyers | MODERATE |
| While the company serves a diversified customer base, including large industrial players, buyers may still have some negotiating power due to the availability of alternative suppliers and the potential for price competition. |
| Threat of Substitute Products or Services | LOW |
| Welding remains a crucial process in various industries, and there are limited alternatives that can provide the same level of strength, durability, and cost-effectiveness. Similarly, wear plates are essential for protecting equipment in harsh environments, and few substitutes offer comparable performance. |
| Rivalry Among Existing Competitors | HIGH |
| The rivalry among existing competitors in these industries is high due to the presence of numerous players, including both domestic and international companies. The market is characterized by price competition, product differentiation, and innovation. |
Peer Comparison
The company’s performance on various financial and operational metrics compared to its peers for FY 2024 is as follows:
| Metric | Diffusion Engineers Limited | Ador Welding Limited | AIA Engineering Limited |
| Revenue from operations (₹ in millions) | 2,781.44 | 8,838.30 | 48,537.61 |
| EBITDA margin | 17.04% | 10.17% | 27.51% |
| ROCE (%) | 20.63% | 24.07% | 22.80% |
| ROE (%) | 18.52% | 18.43% | 18.41% |
| Debt-to-Equity ratio | 0.18 | 0.12 | 0.07 |
Green Box
IPO Funds:
Expansion of existing manufacturing facility (Unit IV) at Khapri (Uma), Nagpur, Maharashtra:
This expansion will enable the company to increase the production of wear plates, flux-cored wires, and heavy engineering equipment. The expanded facility is expected to have an installed capacity of 4920 MT/annum for wear plates, 1080 MT/annum for flux cored wires, and 12000 MT/annum for heavy engineering fabrication.
Setting up a new manufacturing facility at Hingna, Sonegaon District, Nagpur, Maharashtra:
This new facility will focus on manufacturing special-purpose electrodes and wire strips, which are used in the production of flux-cored wires. It will have an installed capacity of 600 MT/annum for welding electrodes and a CR coil slitting line with a capacity of 1200 MT/annum.
Growth and Expansion:
The company plans to expand its product portfolio by venturing into the manufacturing of nickel, cobalt, and iron-based powders for welding applications. It also aims to increase its geographical reach, focusing on select markets like Turkey, where it has already established a subsidiary.
Focus on Customization:
The company places a strong emphasis on tailoring its products and services to meet the specific needs of its customers. This focus on customization allows them to cater to diverse industries and applications, providing solutions that are not readily available from competitors.
Industry Outlook:
The welding consumables market in India is expected to grow at a CAGR of 8-9% until FY 2027. The wear plates market in India is expected to grow at a CAGR of 8-9% until FY 2027. The heavy engineering capital goods industry in India is expected to grow at a CAGR of 7.5-8.5% over FY 2023-27.
Amber Box
Capacity Utilization:
The current capacity utilization rate of the company varies across its different production units and product categories. Here’s a summary based on the latest figures available:
- Unit I (Welding Electrodes): 86.04%
- Unit II (Flux Cored Wires): 71.79%
- Unit II (Wear Plates, Wear Parts, Fabrication, and Machining): 76.36%
- Unit III (Anti-Wear Consumables): 2.12%
- Unit IV (Heavy Engineering and Wear Plates): 84.14%
- Unit IV (Flux Cored Wires): 4.50%
Negative Operating Cash Flow:
The company has had a negative operating cash flow for FY 2023.
Dependence on Key Geographies: A substantial portion of the company’s domestic revenue comes from the western and southern zones of India, accounting for 37.29% of total revenue in Fiscal 2024
Red Box
Under-Utilization of Capacity:
Some production units, particularly Unit III, have experienced under-utilization of capacity, indicating potential inefficiencies and the need for better resource allocation.
Competition:
The company operates in a competitive and fragmented industry with low barriers to entry. It faces competition from both organized and unorganized players, which could put pressure on its pricing and market share.
Raw Material Price Volatility:
The company’s business is significantly dependent on the availability and cost of raw materials, such as steel and alloys. Fluctuations in the prices of these materials could impact the company’s profitability.
Images
- The force value of “LOW” is considered good Click Porter’s Five Forces article for more information. ↩︎
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