Likhitha Infrastructure
Likhitha Infrastructure is coming out with a 100% book building; initial public offering (IPO) of 51,00,000 shares of Rs 10 each in a price band Rs 117-120 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on September 29, 2020 and will close on October 01, 2020.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 11.70 times of its face value on the lower side and 12.00 times on the higher side.
Book running lead manager to the issue is Unistone Capital.
Compliance Officer for the issue is Santhosh Kumar Gunemoni.
Profile of the company
The company was incorporated under the provisions of the Companies Act, 1956 as ‘Likhitha Constructions Private Limited’ on August 06, 1998, as a private limited company vide Certificate of Incorporation issued by RoC, Hyderabad, Andhra Pradesh. The company’s name was subsequently changed to ‘Likhitha Infrastructure Private Limited’ pursuant to a Fresh Certificate of Incorporation consequent upon change of name dated March 30, 2011 issued by RoC, Hyderabad, Andhra Pradesh. Subsequently, the company was converted into a public limited company and the name of the company changed to ‘Likhitha Infrastructure Limited’ pursuant to a shareholders’ resolution passed at the Extra-Ordinary General Meeting of the company held on January 11, 2019 and a Fresh Certificate of Incorporation dated February 12, 2019 was issued by the RoC, Hyderabad.
The company 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. It was founded in the year 1998 and has been engaged in the same line of business for over two decades. Over the years, it has diversified the gamut of services being provided by the company 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 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, it has laid approximately 800 kms of Oil and Gas pipelines for on-going projects. Further, it has increased the scale of its 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. Its main focus and vision is to sustain profitable growth by executing projects in time to the satisfaction of its clients. It is proud to has 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 supply of petroleum products.
Proceed is being used for:
Industry overview
The oil and gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy. India’s economic growth is closely related to energy demand; therefore, the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment. The Government of India has adopted several policies to fulfil the increasing demand. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India. According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), the petroleum and natural gas sector attracted FDI worth $7.82 billion between April 2000 and March 2020.
Gas pipeline infrastructure in the country stood at 16,981 km at the beginning of April 2020. Government of India is planning to invest Rs 70,000 crore ($9.97 billion) to expand the gas pipeline network across the country. Energy demand of India is anticipated to grow faster than energy demand of all major economies, on the back of continuous robust economic growth. India’s energy demand is expected to double to 1,516 Mtoe by 2035 from 753.7 Mtoe in 2017. Moreover, the country’s share in global primary energy consumption is projected to increase by two-fold by 2035. Crude oil consumption is expected to grow at a CAGR of 3.60 per cent to 500 million tonnes by 2040 from 221.76 million tonnes in 2017. Natural Gas consumption is forecasted to increase at a CAGR of 4.31 per cent to 143.08 million tonnes by 2040 from 54.20 million tonnes in 2017. Natural Gas demand has increased significantly in recent years due to the increase in the availability of gas, development of transmission and distribution infrastructure, the savings from the usage of natural gas in place of alternate fuels and the overall favourable economics of supplying gas at reasonable prices to end consumers. It has become easier for the power, fertilizer and CGD sectors, as well as industrial and commercial establishments, to switch over to natural gas for their energy requirements.
Pros and strengths
Strong presence in India and significant experience: The company is one of the well-established oil & gas pipeline infrastructure companies in India with diversified operations spread across various Geographical regions such as Karnataka, Delhi-NCR, West Bengal, Gujarat, Goa, Andhra Pradesh, Kerala, Tamil Nadu, Telangana, Madhya Pradesh, Jharkhand, Bihar, Chandigarh, Haryana, and Uttar Pradesh. Its experience and operations in these regions has enabled it to establish contacts with local clients and suppliers. The company enjoys an established track record for successful completion of the projects undertaken by it. Its Geographical diversity enables it to achieve operating efficiencies, focus on its Projects and Regions where it can be competitive and obtain adequate margins with the appropriate level of contractual and geo-political risk. Currently, it is working on multiple projects simultaneously which range from Cross-Country pipelines projects to City Gas Distribution projects and providing O&M services, each of which poses its own degree of complexity spread across the country.
Efficient business model: The company’s growth is largely attributable to its efficient business model which involves careful identification and assessment of the project with emphasis on cost optimization which is a result of executing its projects with careful planning and strategy. Generally, as per terms of the contract awarded, its client provides it with the sizable portion of the raw materials (gas meters, regulators, fuse & machines, generator sets, pipes and fittings, etc.) required for execution of the projects and a relatively smaller portion of the raw materials is required to be procured by the company resulting into low cost of operations and consequently, enables it to have better profit margins. Further, the scope for disputes and litigation with its client on account of installation of materials not being compliant with the technical specifications is reduced.
Long term relationship with clients and repeat business: The company enjoys a good reputation in its field and has received repeat orders from several of its prominent Clients, despite the increase in competition. Its Clients include major Oil and Gas Companies, spread across the country and it has been associated with some of them on long term basis. It constantly tries to address its clients’ requirements which help it to maintain a long-term working relationship with its Clients and improve retention strategy. Its existing relationship with its Clients represents a competitive advantage in gaining new Clients and increasing its business. The experience gained from execution of existing projects enables it to better understand its Client’s requirements, evaluate the scope of work and risks involved in future projects that it may bid for.
Strong project execution capabilities: The company’s large equipment base, technically qualified and experienced employee pool, comparatively lower cost center of operations and strong project management systems and capabilities enable it to execute large as well as complex projects. As of July 31, 2020, it has been engaged on more than 31 on-going projects across India. It has a significant equipment base including Pipe layers (Side-boom), Excavators, Horizontal Directional Drilling (HDD) Machines, etc. which enables it to quickly and effectively mobilise project works. Its strong project execution capabilities have enabled it to complete various large and complex projects within the stipulated delivery timelines. Its large equipment asset base, enabling rapid mobilization of high-quality equipment, its technical expertise and project execution capabilities are significant competitive advantages that enable it to prequalify for, effectively evaluate and bid for, and procure contracts for projects.
Risks and concerns
Dependent on continuing relationship with clients: The company’s business is dependent on oil and gas exploration, development, production and transportation projects undertaken by large conglomerates and governmental authorities. Its business is therefore significantly dependent on developing and maintaining relationships and pre-qualified status with certain major clients and obtaining a share of contracts from such clients. Its business and results of operations will be adversely affected if it is unable to develop and maintain a continuing relationship or pre-qualified status with certain of its key clients. The loss of a significant client or a number of significant clients may have a material adverse effect on its results of operations.
Business subject to seasonal fluctuations: The company’s business operations may be affected by seasonal factors which may restrict its ability to carry on activities related to its projects and fully utilize its resources. Heavy or sustained rainfalls or other extreme weather conditions such as cyclones could result in delays or disruptions to its operations during the critical periods of its projects and cause severe damages to equipment. In particular, the monsoon season may restrict its ability to carry on activities related to execution of projects and fully utilize resources, which may affect revenues and consequently, profit recognition to subsequent quarters. Adverse seasonal developments may also require the evacuation of personnel, suspension or curtailment of operations, resulting in damage to sites or delays in the delivery of materials. Such fluctuations may adversely affect revenues, cash flows, results of operations and financial conditions.
Rely on effective and efficient project management: The company’s project-based businesses depend on the proper and timely management of its projects. Although it focuses on project management in a number of ways, including by appointing project managers at its sites and by obtaining progress reports periodically, ineffective or inefficient project management could increase its costs and expenses and thus, materially and adversely affect its profitability. It typically enters into contracts which provide for liquidated damages for time overruns. Additionally, in some contracts, in case of delay, its clients may have the right to appoint a third party to complete the work and to deduct additional costs or charges incurred for completion of the work from the contract price payable to it. In case the company is unable to meet the performance criteria as prescribed by the clients and if penalties or liquidated damages are levied, its financial condition and results of operations could be materially and adversely affected.
Operate in competitive environment: The company operates in a competitive environment. Its competition varies depending on the size, nature and complexity of the project and on the geographical region in which the project is to be executed. It competes against major as well as smaller regional oil and gas infrastructure companies. While service quality, technological capacity and performance, health and safety records and personnel, as well as reputation and experience, are important considerations in client decisions, price is a major factor in most tender awards. The company is currently qualified to bid for projects up to a certain value and therefore, is unable to compete with large pipeline infrastructure conglomerates for high value contracts. Some of its competitors are larger than it and has greater financial resources. They may also benefit from greater economies of scale and operating efficiencies.
Outlook
Incorporated in 1998, Likhitha Infrastructure is an oil and gas pipeline infrastructure service provider in India. 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. It owns and maintains a diverse range of equipment such as Pipe Layers (Side-boom), Excavators, Horizontal Directional Drilling Machines, Compressors, Generator sets, Welding Machines, etc. which allows it to meet majority of the requirements for its on-going projects. The company’s management team has the requisite experience to manage the current scale of business as well as the expansion plans for the future. It strives to maintain a strong financial position with emphasis on having a strong balance sheet and increased profitability. On the concern side, most of the projects that company undertakes are by their nature long term and consequently expose it to a variety of implementation risks, including construction delays, delay or disruption in supply of raw materials, unanticipated cost increases, and cost overruns. The company is governed by various laws and regulations for its business and operations. It is are required, and will continue to be required, to obtain and hold relevant licenses, approvals and permits at the local, state and central government levels for doing its business.
The issue has been offered in a price band of Rs 117-120 per equity share. The aggregate size of the offer is around Rs 59.67 crore to Rs 61.20 crore based on lower and upper price band respectively. On the performance front, the company’s total revenue increased by 15.83% to Rs 16,279.02 lakh for the financial year 2019-20 from Rs 14,054.68 lakh for the financial year 2018-19. Its profit after tax increased by 11.33% to Rs 1987.93 lakh for the financial year 2019-20 from Rs 1785.51 lakh for the financial year 2018-19. The company’s objective is to expand and enhance its presence in regions where it has previously developed a strong base of operations by its established contracts with local clients and suppliers, and familiarity with local working conditions. It intends to strengthen its presence all over the country and play a bigger role in CGD system as the Government is focusing to substantially increase the CGD network and also to become a prominent player in O&M operations of CGD network.
