Acuite has considered consolidated financial and business risk profile of DEL to arrive at the rating as all the subsidiaries and JV’s deals in the same/related line of business. The group has 6 subsidiaries and 2 joint ventures (JV) which are considered in the consolidation. The six subsidiaries are - Diffusion Super Conditioning Services Private Limited, Diffusion Hernon Adhesive and Sealant Private Limited, Nowelco Industries Private Limited, Diffusion Engineers Singapore Pte Ltd, Diffusion Wear Solutions Philippines Inc. and Diffusion Eurasia Mühendislik Sanayi Ve Ticaret Anonim Sirketi (Turkey) and the two JV's are LSN Diffusion Limited and Mecdiff Sdn Bhd.

­Long track record of operations supported by experienced management
DEL has been in the business of welding consumables since past more than four decades. The current managing director, Mr. Prashant, has around 14 years of experience. Besides manufacturing welding consumables like electrodes, flux cored wires, etc., the group also offers solutions for reconditioning/repair of critical equipment used in manufacturing plants of cement, power, and steel, among others. The long-standing industry experience of the promoters has enabled DEL not only to maintain good relationship with customers and suppliers, but also to diversify the product/service offerings. In terms of geographic revenue distribution, around 85% of revenue is derived from the domestic market, while 15% comes from exports.

Acuite believes that DEL’s established track record and experienced management would continue to support its growth going ahead.

Improving revenue along with stable profitability
The revenue of the group improved in FY2025 and stood at Rs. 336.60 Cr. against Rs. 279.78 Cr. in FY2024. The improvement in the revenue is primarily attributable to increase in the sales volume during the year. The operating profit margin stood stable at 14.59 per cent in FY2025 against 14.58 per cent in FY2024. The PAT margin marginally moderated to 10.71 per cent in FY2025 against 11.01 per cent in FY2024.

The 9MFY2026 revenue stood at Rs. 265.06 Cr., operating profit margin stood at ~17.50 per cent and PAT margin stood at ~12.41 per cent.

Going forward, the revenue and the profitability is expected to improve over the medium term with the materialisation of the capex, which remains a key monitorable.

Healthy financial risk profile
The financial risk profile of the group is healthy marked by healthy net worth, low gearing, and strong debt protection metrics. The net worth of the group stood at Rs. 368.84 Cr. as on 31 March 2025 against Rs. 190.59 Cr. as on 31 March 2024. The net worth has improved on account of accretion of profits into reserves and the issue of the IPO of Rs. 157.96 Cr. during the year. The infusion is majorly utilised towards capex spends (~Rs.19 Cr. incurred in FY2025, ~Rs. 65 Cr. in FY2026 and balance planned in FY2027) and meeting working capital requirements.  Therefore, with low reliance on external debt, the gearing of the group stood low at 0.06 times in FY2025. The debt protection metrics are also strong with interest coverage ratio at 23.95 times in FY2025.

Going forward, the financial risk profile of the group is expected to remain healthy over the medium on account of expected improvement in the operating profitability and no planned debt funded capex over the medium term.

­Intensive working capital operations
The working capital operations of the group are intensive in nature with gross current asset days increasing to 209 days in FY2025 against 190 days in FY2024. The increase is due to elevation in debtor and inventory levels and reduced credit period from suppliers.  The inventory days stood at 87 days in FY2025 against 81 days in FY2024. The debtor days stood at 106 days in FY2025 as compared against 100 days in FY2024. The group typically received around 70% of its receivables within 90 days. The creditor days stood at 56 days in FY2025 against 72 days in FY2024.

Susceptibility to fluctuations in raw material prices
DEL’s profitability is susceptible to fluctuations in prices of key raw material, i.e., steel. DEL’s inability to pass on sudden rise in steel prices to its consumers could impact the group's overall operating performance.

• Improvement in operating performance with revenues reaching above ~Rs 600 Cr. at stable profitability margins.
• Improvement in the working capital cycle.

• Deterioration in operating performance with revenues falling below ~Rs 250 Cr. or decline in operating margins.
• Significant increase in debt levels or any adverse change in capital structure impacting financial flexibility.
• Significant elongation in the working capital.