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IPO Analysis: Likhitha Infrastructure

Shashikant Singh
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IPO Analysis: Likhitha Infrastructure

IPO Rating - Avoid

Likhitha Infrastructure

About the issue

Likhitha Infrastructure, an oil & gas pipeline infrastructure service provider based out of Hyderabad, is entering the primary capital market with its initial public offer (IPO) of equity shares of the face value of Rs 10 each. The price band has been fixed between Rs 117 and Rs 120 and the minimum bid lot is 125 equity shares, in multiples of 125 equity shares thereafter.

The size of the IPO at the upper price band is around Rs 61 crore. For a change from the current trend, the entire IPO consists of a fresh issue of up to 51,00,000 equity shares. This represents 25.86 per cent of the post-issue shareholding. The proceeds of the IPO will be utilised by the company towards its working capital requirements so as to capitalise on the growing demand from the oil & gas sector as well as for general corporate purposes.

The issue shall remain open from September 29, 2020, to October 01, 2020.

Likhitha Infrastructure IPO Details

IPO Date

Sep 29, 2020 - Oct 1, 2020

Issue Type

Book Built Issue IPO

Issue Size

51,00,000  equity shares of Rs 10
(aggregating up to Rs 61.2 crore)

Fresh Issue

51,00,000  equity shares of Rs 10
(aggregating up to Rs 61.2 crore)

Face Value

Rs 10 per equity share

IPO Price

Rs 117 to Rs 120  per equity share

Market Lot

125 Shares

Min Order Quantity

125 Shares

Listing At

BSE, NSE

 

About the company

Likhitha Infrastructure is an oil & gas pipeline infrastructure service provider company, focussed on laying pipeline networks along with the construction of associated facilities and providing operations & maintenance services to the city gas distribution (CGD) companies in India. The company is led by Srinivasa Rao Gaddipati, a first-generation entrepreneur with around three decades of technical experience and co-promoted by his daughter, Likhitha Gaddipati.

The company has a presence in more than 16 states and 2 union territories of India. It has successfully laid over 600 km of oil & gas pipelines, including steel and medium-density polyethylene (MDPE) networks in the past five years, ending FY20. Additionally, the company has laid approximately 800 km of oil & gas pipelines for the ongoing projects.

The company has executed the first trans-national cross-country pipeline of South-East Asia connecting India to Nepal in the year 2019, for the supply of petroleum products. The company has a strong client base consisting of leading gas distribution companies in India, including both the private & public players, and a strong order book. At the end of July 31, 2020, the company had an order book (i.e. the unexecuted portion of the much larger total contract value) of approximately Rs 663 crore.

 

Order book

Operation

Number of Projects

Outstanding order value (Rs Cr)

 Per cent of total outstanding order value

Pipeline infrastructure projects

28

615.86

92.95

O&M Services

3

46.73

7.05

Total

31

662.59

100

 

Financials 

Between FY15 and FY20, the company’s income from operations increased at a CAGR of 38.96 per cent from Rs 31.1 crore in the fiscal year 2015 to Rs 161.24 crore in FY20, while the profit after taxation, as restated, increased at a CAGR of 58.56 per cent from Rs 1.98 crore in the fiscal year 2015 to Rs 19.88 crore in the fiscal year 2020.

For the financial year 2019-20, the company clocked the total revenue of Rs 162.79 crore, EBIDTA of Rs 31.22 crore, profit after tax of Rs 19.87 crore, and operating cash flow of Rs 19.15 crore. For the financial year 2019-20, the company’s efficiency ratios are-Average ROCE  of 58.53 per cent, Avg. RONW  of 33.06 per cent, EPS (Rs per share) of 13.59, working capital (days) of 31.30 days, PAT margin (per cent) of 12.21 per cent, and EBIDTA margin (per cent) of 19.18 per cent.

Financials

Particular(Rs Cr)

FY20

FY19

FY18

Total Revenue (Rs Cr)

162.79

140.55

88.6

PAT (Rs Cr)

19.76

17.88

7.18

Operating Margin (%)

19.18%

21.32%

14.35%

Net Margin (%)

12.14%

12.72%

8.10%

EPS (Rs)

13.59

39.68

15.92

RoNW (%)

28.24%

25.54%

22.14%

 

Valuation and Recommendation

At the higher end of the price band of Rs 120, the issue, after accounting for the dilution in the IPO, is demanding a market cap to sales of 1.46 times, which looks cheap as compared to other listed players (engaged into construction and infrastructure development) that are trading at the market cap to sales of more than five times. In terms of price to earnings ratio, the issue is available at 11.97 times of its expanded equity. Other listed players (not engaged in the same line of business but into infrastructure development) with better financials are available at PE of a higher single digit. For example, PNC Infratech is available at PE of 9.5x.

Looking at the higher valuation and other options available, we currently advise our readers to ‘avoid’ the issue.

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