Research Recommendation of Avoid Likhitha Infrastructure Limited IPO

Likhitha Infrastructure is an Oil & Gas pipeline infrastructure service provider in India, focused on laying pipeline networks along with construction of associated facilities; and providing Operations & Maintenance services to the City Gas Distribution (“CGD”) Companies in India. The company has presence (including past operation) in more than 16 states and 2 Union Territories in India. Is has successfully laid over 600 Kms. of Oil and Gas pipelines including steel and Medium-Density Polyethylene (“MDPE”) network in past 5 fiscals.

Promoter Selling Shareholder- The President of India, acting through the Ministry of Defence, GoI.

Financial Performance:

Shareholding Pattern:

Source: DRHP, EWAL Research

Strengths:

• Have a strong presence in India and significant experience

• Client provides the sizable portion of the raw materials which result into low cost of operations, consequently, enables it to have better profit margins.

• Strong balance sheet, high ROCE, positive operating cash flows.

• Strong Project execution capabilities

Key Highlights:

• Between fiscal 2015 and 2020, income from operations increased at a CAGR of 38.96% from Rs. 31.12 crore to Rs. 161.23 crore.

• RONW (Return on Net worth) in fiscal 2018, 2019 and 2020 was 24.83%, 43.16% and 33.06%, respectively.

• Have experienced a significant growth in O&M Services business in recent years which grew at a CAGR of 297.51% between fiscal 2017 and fiscal 2020.

• As of March 31, 2019, long-term debt equity ratio was 0.03:1 while it was 0.01:1 on March 31, 2020.

• Debtor holding period was 79.71, 36.53 and 31.36 days in the fiscal 2018, 2019 and 2020 respectively.

• Realization period for debtors has been expected to increase to 60 days for the Financial Years 2020-21 and 2021-22 as per RHP.

Risk Factors:

• Business of the company is dependent on a few clients and the loss of, or a significant reduction in purchase orders from such clients could adversely affect business and financials of the company

• Company may not be able to realize the amounts reflected in order book which may materially and adversely affect

• Face competition in business from other oil and gas infrastructure companies.

• Company does not have any formal long-term arrangements with its suppliers.

Outlook:

Likhitha Infrastructure is an Oil & Gas pipeline infrastructure service provider in India. It has a strong client base in India including both private and public players such as ONGC, HCG, Indian Oil, GAIL among others. Likhitha Infra is geographically well-diversified and has an efficient business model required for growth. It has a strong balance sheet aided by healthy margins and profitability. India’s Gas 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. At the higher end of the price band of Rs. 120, the stock is be available at a PE multiple of 8.83x on FY20 EPS. There are no listed companies in India which are engaged in the same line of business as of Company. Considering adverse effect of  COVID- 19 on the business of company, we would recommend avoid to this IPO however investment could be made post listing for the long term.

 DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014

Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more

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