Likhitha Infrastructure IPO review (Subscribe for Long Term)

Review By Dilip Davda on Sep 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.


Conclusion / Investment Strategy

LIL has good track record and a healthy order book. Based on financial parameters issue appears reasonably priced. It is going to create fancy as first mover in the segment post listing. Due to listing in "T" group with 5% circuit limit, speculative movement will get restricted. Considering this, investors may plan investment with a long term perspective.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Sep 22, 2020

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Likhitha Infrastructure IPO FAQs

  1. 1. Why Likhitha Infrastructure IPO?

    The initial public offer (IPO) of Likhitha Infrastructure Ltd offers an early investment opportunity in Likhitha Infrastructure Ltd. A stock market investor can buy Likhitha Infrastructure IPO shares by applying in IPO before Likhitha Infrastructure Ltd shares get listed at the stock exchanges. An investor could invest in Likhitha Infrastructure IPO for short term listing gain or a long term.

  2. 3. Likhitha Infrastructure IPO what should investors do?

    Likhitha Infrastructure IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Likhitha Infrastructure IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Likhitha Infrastructure IPO good?

    Our recommendation for Likhitha Infrastructure IPO is to subscribe for long term.

  4. 5. Is Likhitha Infrastructure IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Likhitha Infrastructure IPO.

  5. 6. When will Likhitha Infrastructure IPO allotment status?

    The Likhitha Infrastructure IPO allotment status will be available on or around Oct 12, 2020. The allotted shares will be credited in demat account by Oct 14, 2020. Visit Likhitha Infrastructure IPO allotment status to check.

  6. 7. When will Likhitha Infrastructure IPO list?

    The Likhitha Infrastructure IPO will list on Thursday, October 15, 2020, at BSE, NSE.

1 Comments

Rkg
1. Rkg  Sep 24, 2020 15:10 I Like It. | Report Abuse Reply
Top Contributor Top Contributor (200+ Posts, 100+ Likes)
Issue appears OK.But , in this falling market there is need for extra care.
May apply on the last day.








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