| Diffusion Engineers Limited | ||||||
| Ratings reaffirmed at 'Crisil A- / Stable / Crisil A2+ '; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has reaffirmed its ‘Crisil A-/Stable/Crisil A2+’ ratings on the bank facilities of Diffusion Engineers Ltd (DEL; a part of the Diffusion group).
The ratings reflect the group's longstanding market presence, supported by the extensive experience of the promoters, healthy operating efficiency, diverse revenue profile and strong financial risk profile. These strengths are partially offset by vulnerability to intense competition and fluctuation in raw material prices and large working capital requirements. |
Analytical Approach Crisil Ratings has combined the business and financial risk profiles of DEL and its subsidiaries. This is because all these entities, collectively referred to as the Diffusion group, operate in the same industry and have operational and financial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers - Strengths Longstanding market presence, supported by extensive experience of the promoters: DEL has been in the welding industry since 1982; it initially started with trading these products and then shifted to manufacturing in 1993. The group is currently engaged in manufacturing welding consumables, wear plates/parts and heavy engineering equipment. The longstanding presence of promoters in the industry, their strong understanding of market dynamics and healthy relationships with customers and suppliers should continue to support the business. This can be reflected in the increase in the scale of operations to Rs 337 crore in fiscal 2025 (from Rs 280 crore in fiscal 2023), backed by healthy demand of products in the industry and continuous repeat orders from customers. The group has further achieved revenues of Rs 164 crore in first half of fiscal 2026 and the scale is further expected to increase over the medium term driven by the planned capex to increase its capacity, which would be operational shortly.
Diversified end-user industry base and customers: DEL caters to a diversified pool of industries such as cement, power, sugar, steel, engineering etc. Further, DEL has a longstanding relationship with customers of more than 5-10 years. The group has a large customer profile catering to both domestic and export markets, with presence across 35+ countries. The top 10 customers contributed about 25-30% to the total revenues in fiscal 2025. A diversified end-user industry along with diversified customer base allows it to mitigate the risk of obsolescence in case of any new technology coming into the market and overcome the risk of slowdown in a particular industry, thus achieving higher growth.
Strong financial risk profile: The group has a strong financial profile, marked by networth of Rs 369 crore as on March 31, 2025, driven by equity funds raised through IPO in fiscal 2025 of Rs 145 crore along with steady accretion to reserves. The capital structure has always remained healthy due to low reliance on working capital debt. This along with significant improvement in networth has led to gearing and total outside liabilities to adjusted networth ratio of 0.06 and 0.2 times as on March 31st 2025 as compared to 0.2 and 0.4 times respectively a year ago. The debt protection metrics have also been robust due to low leverage and adequate profitability. The interest coverage ratio stood at 24.3 times and net cash accrual to total debt ratio at 1.7 time for fiscal 2025. The debt protection metrics may remain at similar levels over the medium term. Financial risk profile is expected to remain strong over the medium term backed by steady accretion to reserves and absence of any debt funded capex. |
Key Rating Drivers - Weaknesses Susceptibility of the operating margin to volatility in raw material prices and exposure to intense competition: The operating margin is exposed to volatility in the cost of the key raw material – steel, which accounts for 55-65% of the operating revenue. Absence of long-term contracts with suppliers regarding price and absence of fully order-backed inventory accentuates DEL's exposure to volatility in raw material prices. Thus, the operating margin fluctuated between 11.8-14.9% for the five fiscals through fiscal 2025. Furthermore, the welding industry comprises welding consumables, equipment and related services, which is highly fragmented in nature. The welding consumables industry is intensely competitive due to the presence of numerous unorganised players in the segment. Further, DEL faces competition from existing players in the domestic as well as international markets. This restricts the company's pricing power with customers and suppliers and hence affects the scale of operations. Steady increase in scale of operations while maintaining stable operating margins remains a key rating sensitivity factor.
Large working capital requirement: Operations are working capital intensive as reflected by high gross current assets (GCA) of 310 days (net-off cash GCA: 178 days) as on March 31, 2025, driven by high debtors of 106 days and inventory of 87 days. Debtors are due to high credit period of 60-90 days extended to customers as well as presence of retention money. Inventory has been high as the company needs to maintain inventory of around 60 days to meet customer requirements on time. The working capital cycle is likely to remain stretched and will be closely monitored. |
Liquidity Strong Bank limit utilisation stood at around 27% for the 12 months through August 2025. In the absence of any yearly maturing debt over the medium term, the entire cash accrual -- expected at more than Rs 35-40 crore per annum – will aid financial flexibility. The current ratio stood healthy at 4.3 times and cash and bank balance at around Rs 136 crore as on March 31, 2025 of which major in unencumbered. Liquid investments stood at around Rs 27 crore in shares, debentures and mutual funds as on March 31, 2025. Low gearing and moderate networth support its financial flexibility and provides the financial cushion available in case of any adverse conditions or downturn in the business. |
Outlook Stable The Diffusion group will continue to benefit from the extensive experience of its promoters and their established relationship with clients. |
Rating sensitivity factors Upward factors
Downward factors
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About the Company DEL, incorporated in 1982, started its business with trading in welding rods/ electrodes and ventured into manufacturing of the same since 1993. DEL along with its subsidiaries, are engaged in manufacturing welding consumables, wear plates/parts and heavy engineering equipment. It has five manufacturing facilities at Nagpur, Maharashtra. The group is currently promoted and managed by Mr Prashant Garg (managing director), Dr Nitin Garg (additional director), and Ms Chitra Garg (director). The company got listed on BSE & NSE in October 2024. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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