Likhitha Infrastructure IPO review (May apply)

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Review By Dilip Davda on September 22, 2020

•    LIL is in the field of oil and gas infra services segment.
•    It has posted growing pattern in the top and bottom lines for the last three fiscals.
•    Based on P/E and P/BV parameters, the issue appears reasonably priced.
•    Being < Rs. 250 cr. IPO, it will have 'T' category listing with circuit limits.
•    Investors may consider an investment with a long term perspective.

ABOUT COMPANY:
Likhitha Infrastructure Ltd. (LIL) is an oil & gas infrastructure service provider in India, focused on laying pipeline networks along with the construction of associated facilities and providing Operations & Maintenance Services for City Gas Distribution ('CGD') projects in India.

Over the years, LIL has diversified the gamut of services being provided by it from Cross-Country Pipeline Projects (CCP); City Gas Distribution (CGD) Projects to providing Operation & Maintenance (O&M) Services to CGD Companies. Its client base comprises of established players in the Oil and Gas Industry, both in public and private sector.

The company has a presence (including past operation) in more than 16 states and 2 Union Territories in India. It has successfully laid over 600 Kms. of Oil and Gas pipelines including steel and Medium-Density Polyethylene ('MDPE') network in past 5 fiscals. Additionally, the Company has laid approximately 800 kms of Oil and Gas pipelines for on-going projects. Further, it has increased the scale of operations by adopting a strategy of expansion across regions and has strategically expanded to geographies where there is a demand for providing pipeline infrastructure and O&M services.

According to the management, the growth and development of the Company during the past years have been the result of its client-centric approach and core competence in the field of pipeline infrastructure. LIL's main focus and vision is to sustain profitable growth by executing projects in time to the satisfaction of clients. The company is proud to have executed 10.75' OD x 69 Kms Petroleum Product Pipeline for the first-ever Trans-National Cross-Country Pipeline of South-East Asia connecting India to Nepal, in the Year 2019, for the supply of petroleum products.

LIL's financial strength provides it with a valuable competitive advantage in terms of access to bank guarantees and letters of credit, which are factors critical to the business. The long term debt-equity ratio as on March 31, 2020, 2019 and 2018 was 0.01:1, 0.03:1 and 0.11:1, respectively. The Company's low-cost centre operations in India provide it with a competitive edge by allowing it to be more cost-effective as compared to its competitors. As per the terms of the contract, it is generally the obligation of the client to provide the majority of the required material to execute the contract. The additional materials to be procured by the Company is a minor portion of the contract price.

The order/ contract value consists of the executed and unexecuted portions of outstanding orders which were approximately Rs. 950 cr. as of July 31, 2020. Order Book represents the total contract value of all existing contracts of the Company as reduced by the value of work executed and billed until the date of such order book. Thus Order Book as of July 31, 2020 was approximately Rs. 662.59 cr. As of July 31, 2020, LIL has been engaged on more than 31 on-going projects across India. Strong project execution capabilities have enabled them to complete various large and complex projects within the stipulated delivery timelines.

The recent Government initiatives have provided lucrative opportunities for work execution Company like LIL, who is already having a good presence in City Gas Distribution Projects along with the construction of CNG Stations. India's pipeline network is expected to expand to around 35,000 kms in the next 5-6 years, based on which the Company is also planning to expand its pipeline laying execution capacity to a range of 250-300 kms per year.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 47.00 cr.) and general corpus fund, LIL is coming out with a maiden IPO of 5100000 equity shares of Rs. 10 each via book building route. It has fixed a price band of Rs. 117 - Rs. 120 per share.  The issue opens for subscription on September 29, 2020, and will close on October 01, 2020. Minimum application is to be made for 125 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. LIL mulls mobilizing around Rs. 61.20 cr. (based on upper price band) through this IPO. Issue constitutes 25.86% of the post issue paid-up capital of the company.

Having issued entire equity at par, the company issued bonus shares in the ratio of 3.5 for 1 (February 2018) and 2.25 for 1 (December 2019). Thus entire current paid up equity is issued at par coupled with bonus shares.

The average cost of acquisition of shares by the promoters is Rs. NIL and Rs. 0.68 per share. Post issue, LIL's current paid-up equity capital of Rs. 14.63 cr. will stand enhanced to Rs. 19.73 cr. With this issue, the company is looking for a market cap of Rs. 236.70 cr.

The issue is solely lead managed by Unistone Capital Pvt. Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:
On the financial performance front, LIL has posted revenue/net profits of Rs. 88.61 cr. / Rs. 7.16 cr. (FY18), Rs. 140.55 cr. / Rs. 17.86 cr. (FY19) and Rs. 162.79 cr. / Rs. 19.88 cr. (FY20). For the last three fiscals, LIL has posted an average EPS of Rs. 11.68 and RoNW of 35.06%. The issue is priced at a P/BV of 2.51 based on its NAV of Rs. 47.83 as of March 31, 2020.

If we attribute FY20 earnings on fully diluted equity post issue, then asking price is at a P/E of around 11.90. Since this company will be the first mover in the segment, there is no average industry P/E is available. On the basis of financial data and the P/E as well as P/BV ratio, the issue appears reasonably priced.

According to management, for Q1 of FY21, due to COVID-19 pandemic, the company has suffered in line with the general trend across the sectors. Now, it has established near normalcy since June 01, 2020, with an extension of completion plans for the majority of its contract. However, this may result in a little lower than estimated business performance.

MERCHANT BANKER'S TRACK RECORD:
This is the third mandate from the Merchant Banker in the last four fiscals (including the ongoing one). The only two mandates that got listed so far opened at premiums of 0.04% and 0.5% on the day of listing.  

COMPARISION WITH LISTED PEERS:
As per offer documents, LIL has no listed peers to compare with.

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