Likhitha Infrastructure IPO Financial Analysis (Avoid)

Likhitha Strengths

Geographically well diversified.
Large equipment asset base, technical expertise and project execution capabilities are significant competitive advantages that aids inprocuring contracts for projects.
Strong financial performance.

Likhitha Challenges

Dependent on a few clients; significant reduction in purchase orders from such clients could adversely affect its business and financials.
Delay in completion of projects may adversely affect the financial performance.

Likhitha IPO size

Incorporated in Andhra Pradesh in the year 1998, Likhitha Infrastructure is coming up with IPO of 51,100,000 equity shares of face value of Rs 10 each amounting to Rs 61.20 crore. It comprises of:

Fresh issue of 51,100,000 equity shares of Rs 10 each.

Likhitha price band

Rs 117- Rs 120 per equity share.

Likhitha Open and close date

Open Date: 29^th September
Close Date: 1^st October

Objects of the offer

For working capital requirements (Rs 47 crore)
For general corporate purposes.

BRLM of Issue:

Unistone Capital Pvt. Ltd.

Registrar to the issue

Bigshare Services Pvt Ltd.

About the company - Likhitha Infrastructure

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. They provide diversified services ranging from CrossCountry Pipeline Projects (CCP); City Gas Distribution (CGD) Projects to providing Operation &Maintenance (O&M) Services to CGD Companies. The client base comprises of established players in the Oil and Gas Industry, both in public and private sector.

Likhitha Infra has presence (including past operation) in more than 16 states and 2 Union Territories in India. Likhitha Infra has successfully laid over 600 kmsof Oil and Gas pipelines including steel and Medium-Density Polyethylene (“MDPE”) network in past 5 fiscals. Likhitha Infra 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.

Likhitha Infra business can be divided into:

Pipeline Infrastructure projects: Comprises of undertaking projects for laying of pipelines in CrossCountry Pipeline projects as well as for setting up City Gas Distribution network and construction of associated facilities. It includes works related to civil works at site, mechanical and piping works, electrical, instrumentation and optical fibre works.
Operating and maintenance services: LIPL has commenced O&M services business in the year 2014 and have generated revenues of Rs. 6.43 crore, Rs. 19.79 crore and Rs. 34.26 crore for the fiscal 2018, 2019 and 2020respectively, representing 7.38%, 14.40% and 21.25% respectively of total revenue from operations during such periods. Likhitha Infra presently provides comprehensive O&M services in various regions in Delhi-NCR and Bengaluru.

Contracts are primarily awarded through “Competitive Bidding” Tender method based on combination of factors amongst which technical qualifications, proposed project team, schedule, past performance on similar projects, the bid amount are the major determining factors.

Financial Review/Financial Performance of Likhitha Infrastructure

Financial performance of Likhitha Infra is strong; it has shown consistent and strong financial performance indicators since the last three fiscals.The total revenue for FY 20 has increased by 15% to Rs 162.8 crores. PAT has increased to 19.8 crore in FY 20 from 17.9 crore in FY 19. Operating and net margins are strong at 19.18% and 12.14% in FY 20 and FY 19 respectively. Likhitha posted healthy RoNW of 28.24% in FY 20. Cash flow from operations has plummeted in FY20 (in the year of IPO) to Rs 19.16 crore from Rs 3.19 crore in FY19!

Likhitha Infra has no listed peers as per the RHP. Its EPS for FY20 is Rs 13.59 and at upper price band the P/E is Rs 8.83. With NAV of Rs 47.83P/BV comes at Rs 2.51.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	FY2020	FY2019	FY2018
Total Revenue	162.79	140.55	88.60
PAT	19.76	17.88	7.18
EBITDA	31.22	29.97	12.71
Total Accets	100.86	84.57	67.23
Cash flow from operating activities	19.16	3.19	4.02
Operating Margin	19.18%	21.32%	14.35%
Net margin(%)	12.14%	12.72%	8.10%
EPS	13.59	39.68	15.92
Return on new worth(%)	28.24%	25.54%	22.14%

Conclusion

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. However, dependency on few customers and project execution delays remain its key challenges. Being a small-sized company, it could be more vulnerable to market risks and sentiments. Also, the BRLM associated with the IPO has handled two issues of which one has listed below the listing price. Hence Investors may avoid this IPO and can invest post listing for the long term.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 14th Sep 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

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 prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.