IPO Analysis: Likhitha Infrastructure Ltd

IPO  Analysis: Likhitha Infrastructure Ltd

Likhitha Infrastructure Ltd is an oil and gas pipeline infrastructure service provider in India which got incorporated in 1998. The company is engaged in providing oil & gas pipelines, city gas distribution projects, Cross-Country Pipeline Projects, and operations and maintenance services as well. It is the first company that has executed the first Trans-National Cross Country Hydrocarbon Pipeline Project between India and Nepal.

With 20+ years of existence, it has spread its geographical presence across 16+ states and 2 Union Territories in India such as Delhi, West Bengal, Telangana, Gujarat, Andhra Pradesh, Madhya Pradesh, Bihar, Chandigarh, Haryana, Kerala, Orissa, Uttar Pradesh, etc. 

Company has a strong client base in India including both the private and public players such as ONGC, HCG, IndianOil, GAIL, etc.

Order Book

The company has a strong client base consisting of leading gas distribution companies in India including both the private and public players and a strong order book (i.e. the unexecuted portion of the much larger total contract value) of approximately Rs 663 crore as on July 2020.

Financials and Peers

Likhitha Infrastructure's revenue from operations grew by 15.6 percent to Rs 161.24 crore in year ended March 2020 compared to previous year and in FY19, revenue increased 60.2 percent to Rs 139.48 crore compared to FY18. Revenue growth in FY15-FY20 stood at a 38.96 percent CAGR and profit 58.56 percent CAGR.

Profit for the financial year 2019-20 rose 11.3 percent to Rs 19.88 crore YoY and the same grew by 149.3 percent to Rs 17.85 crore in FY19 YoY, while on the operating front, its earnings before interest, tax, depreciation and amortisation (EBITDA) increased 2.6 percent YoY to Rs 29.67 crore in FY20 and 158.7 percent YoY to Rs 28.9 crore in FY19.

EBITDA margin for the FY20 stood at 18.40 percent against 20.72 percent in FY19 and 12.83 percent in FY18.

Competitive strength

• Diversified geographical presence in India
• Strong client base
• Efficient business model
• Strong project execution capabilities  
• The company has a strong presence in India and significant experience; 
• Growth is largely attributable to its efficient business model which involves careful identification and assessment of the project with emphasis on cost optimisation which is a result of executing projects with careful planning and strategy; 
• Strong financial performance with emphasis on having a strong balance sheet and increased profitability; 
• Scalability of operations; 
• Strong Project execution capabilities
• Long term relationship with clients and repeat business; 
• Highly experienced management team; 
• Diverse fleet of sophisticated equipment.
  

Business Strategies:

• Continue to expand and enhance presence in regions where it has previously developed a strong base of operations;
• Further growth in operation & maintenance services offerings;
• Retaining skilled manpower;
• Company constantly endeavors to improve business operations to optimise the utilization of resources;
• Continue to develop client relationship and expand client base;
• Focus on performance and project execution;

Verdict:

This is a very small company coming up with very small IPO value. After analyzing its financial ratios it is very well concluded that company has debt/ taken heavy loan which is not good for such a small company. This company has no listed peers that's why business seems unique but this is not the fact as their are many companies available in market. This company don't have any long term orders available in its kitty. Doesn't have much pricing power to take projects. No fixed clients. Reported negative cash flows in FY 2017. 

Grey market price is also not available. In my view one should wait upto third day of IPO to see its subscription (By second day end atleast IPO subscription should be 2 to 3 times). This IPO can be avoided for listing gains as well as for long term investment.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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