Incorporated in 2006, Dinesh Engineers Ltd (DEL) is a Mumbai based company engaged in the business of providing passive communications infrastructure service mainly to the telecom operators and Internet Service Providers (ISP). DEL has been licensed by the Department of Telecommunication (DoT) with the Infrastructure provider (IP) – I License, which allows the company to establish and maintain wired network, Duct Space to grant on lease or sale on Indefeasible Right of Use (IRU) basis to the licensees of telecom operator and ISPs. Based on past records and experience in laying fiber for telecom operators, Mahanagar Gas Ltd entrusted them with the laying of its gas pipelines under the city of Mumbai.
DEL has created its own optic fiber network of around 7500kms across Rajasthan, Maharashtra, Goa, Gujarat, Karnataka, Andhra Pradesh, and Telangana. The wired network infrastructure solutions of the company are used by many telecom companies such as Bharti Airtel, BSNL, Reliance corporate IT park, Reliance Jio, Vodafone Idea, Tata Communication, Tata Teleservices, and Gas companies such as Mahanagar Gas Ltd.
The company through the IPO offers 1,00,00,000 equity shares of face value of Rs.10 each and amounting to Rs.185cr on the upper price band. Issue comprises fresh issue of equity share only. Issue will dilute 25.3% of post issue paid-up capital.
Outlook and Valuations
DEL provides passive communication infrastructure service to telecom operator as well as internet service provider. The company has strong presence in West and South India with superior client base. The management expects a rise in business opportunity on back of increasing penetration of 4G, 5G, and Fibre-To-The-Home (FTTH) that will, in turn, impact the use of OFC network, going ahead. We believe robust order book, increasing government spending, and superior financial performance and return ratio make DEL a good longterm play on the increasing data story. At the upper price band, the company’s stock trades at 8.83x its FY18 EPS of Rs 20.95/-. We recommend to SUBSCRIBE the issue from a long-term perspective.
DEL provides support services to telecom vendors such as project management for laying of duct and OFCs, construction of basic transmission and telecom utilities, dark fibre leasing, and OFC network construction. Company’s business operations can be briefly classified under the below mentioned three heads:
Project Execution for Telecom operators (Vendor Projects)
Project Execution for Telecom operators involves solely working for the Telecom operators as contractors. The Telecom companies based on their requirement notify the area where they require the Fibre network. Once this area is notified the telecom operators assign the projects and their requirements to the company. On receiving the Project, they initiate the work of procuring the Right of Way (ROW) permissions for the operators. On receiving the permission, company start executing the projects. The fibre is laid in the allowable ROW limits from the centre of the road and available land width. The depth of the trench and the protection material is based on the specifications given by the respective telecom operator. The entire activity is done with the assistance of labour and/ or machinery. The activity is done simultaneously on multiple routes across the areas. Once the fibre lying is complete the same is first tested by the project team and then acceptance testing is done by the operators (Acceptance Testing Team) for whom the project is executed. After such testing the network along with ROW documents are handed over to the Telecom operator.
Laying fiber under IP-I License (IP-I)
Under the Infrastructure Providers Category I (IP-I) Licence, 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. Under the IP-1 License, company has developed their own network of around 7500kms during the last 5 years. Company identifies such strategic routes where the operators don’t have their presence and build their network there. This network is then leased to telecom operators either by duct lease or by fibre lease. In some cases where the telecom operators are unable to build network by their own on particular routes due to constraints like: High ROW Challenges, overall project cost viability, Local issues etc they ask company to execute the route
Operations & Maintenance (O&M)
Company also undertakes the operations & maintenance activity for the telecom operators and of the leased fiber maintained under IP-1 License. Operation & Maintenance involves deploying manpower and tools required for maintenance such as splicing machine, rodometre, OTDR machine etc. to monitor the route of the operator and preventing the underground optic fiber therein from getting damaged due to activities like road repairs, digging and expansion works by various authorities. For the fibre laid by the company either as vendor project or on own account under IP-1 license, they are preferred for the operation and maintenance of the same as their team is aware of the exact position of the fibre laid. . The key focus under the operation and maintenance activity is the early identification of the faults and undertake the repair activities in a timely manner in order to minimize the network downtime. As of July 31, 2018, company has laid fiber of around 17000 Kms for their telecom vendors which includes fibre laid under Vendor Projects and own network running across 10 states in India. Further, their order book, as of any particular date, consists of the unexecuted portions of their outstanding orders, that is, the total contract value of the existing contracts secured by them, as reduced by the value of work executed and billed until the date of such order book. Company’s total Order Book was approximately Rs 420cr, as at April 01, 2018.
Established Optic fiber network in India
Over the past years, company has created their own fibre optic network of around 7500 Kms which run across Maharashtra, Goa, Telangana, Rajasthan and Karnataka. Apart from their own network, they have also undertaken Vendor Projects and developed a Network of around 7500 Kms for their customers. This fibre network is currently being used by various companies such as companies like telecom operators, cable TV companies, MSOs, ISPs etc. Even after building a network running across 10 states, they are continuously expanding their fibre and duct network so as to be able to serve more customer needs and leverage economies of scale. With the increase in the number of the Telecom subscribers, internet users and widespread digitalization there has been an increasing need of fibre network. With the recent advancement in the field of Telecommunication, the telecom operators are more focused on taking the fibre network on lease rather than developing and maintain their own network & thus provide a business opportunity for their company