Current Market price on the date of publishing this report: 292 Rs

Alert

While we typically avoid recommending companies with a relatively small track record, we recognize the potential of Likhitha Infrastructure in its emerging domain and its steady growth trajectory. Despite the market being at an all-time high, the company’s valuations remain reasonable. We have taken the initiative to suggest this company; however, it is essential for users to understand that investing in such a market environment may result in a longer time frame before witnessing meaningful returns. Investors should carefully consider their risk tolerance and be patient with their investment, acknowledging the potential for a prolonged wait for substantial gains.

Likhitha Infrastructure

Introduction

Established in the year 1998, Likhitha Infrastructure has been consistently engaged in its current line of business since inception. Our company specializes in the efficient and comprehensive services of Pipeline Laying, encompassing erection, testing, and commissioning of Oil & Gas Pipelines, City Gas Distribution Projects, as well as Operation and Maintenance (O & M) Services.

Likhitha Infrastructure operates through three principal business lines, which include:

(i) Cross Country Pipelines and associated facilities,

(ii) City Gas Distribution, including CNG Stations, and

(iii) Operation & Maintenance of CNG/PNG services.

With a strong foundation and years of expertise, Likhitha Infrastructure continues to play a vital role in the development and management of crucial energy infrastructure, contributing to the growth and sustainability of the Oil & Gas sector.

Likhitha Infrastructure is proudly promoted by Mr. Gaddipati Srinivasa Rao, a seasoned technocrat with an extensive technical background spanning over 3 decades in the domain of Cross-Country Pipeline laying for hydrocarbons and City Gas Distribution Projects. His profound knowledge, visionary outlook, and exceptional leadership skills have been instrumental in propelling the Company to remarkable achievements.

Leading the Way in Oil & Gas Pipeline Projects

Under his expert guidance, Likhitha Infrastructure has reached new pinnacles, delivering unparalleled services in the Oil & Gas transmission sector. Timely execution and adherence to international quality standards have become the hallmark of our operations. Promoter’s unwavering support and astute business strategies have been the driving force behind the continuous success and growth of our organization.

The company holds a pioneering position in the realm of Oil & Gas pipeline projects. Over the years, it has achieved significant milestones, successfully laying more than 1500 km of steel pipelines and an additional 1500 km of MDPE pipelines for oil & gas transportation.

One of the company’s noteworthy accomplishments was the execution of the First Trans-National cross-country pipeline in South-East Asia, establishing a vital link between India and Nepal in 2019. This groundbreaking project facilitated the seamless supply of petroleum products between the two nations. This groundbreaking endeavor highlights the company’s capability to handle complex and cross-border projects, reinforcing its position as a leader in the industry.

Currently, the company remains actively engaged in ongoing projects, and it is in the process of laying approximately 1000 km of oil & gas pipelines. This dedication to continuous expansion and growth solidifies its position as a leading player in the Oil & Gas pipeline industry.

Presence

Likhitha Infrastructure is a prominent player in the Indian pipeline laying industry, boasting over 20 years of extensive experience in the field. The company has established a remarkable presence with diversified operations spanning across various geographical regions in the states of Karnataka, Delhi, West Bengal, Gujarat, Andhra Pradesh, Telangana, Kerala, Madhya Pradesh, Jharkhand, Bihar, Chandigarh, Haryana, Orissa, and Uttar Pradesh. With a strong track record of successful projects and a commitment to quality and customer satisfaction, Likhitha Infrastructure has earned its reputation as one of the top pipeline infrastructure companies in India.

Likhitha Infrastructure’s commitment to excellence is evident through its ISO 9001:2015 certification, awarded by International Certification Services Pvt Ltd. This certification recognizes the company’s specialization in the design, construction of cross-country pipelines, city gas pipelines, and civil constructions, showcasing its adherence to international quality standards.

One of Likhitha Infrastructure’s key differentiators lies in its ownership of core assets. These assets provide the company with a competitive edge, enabling seamless execution of projects and reinforcing its status as a reliable and efficient player in the pipeline infrastructure domain.

Business products

The core business of the company revolves around two primary segments: Pipeline Infrastructure and Operation & Maintenance Services.

Pipeline Infrastructure

Under the Pipeline Infrastructure division, the company undertakes two key types of projects:

Cross-Country Pipeline Projects: The company specializes in laying pipelines for cross-country projects, catering to the efficient transportation of various resources.

City Gas Distribution Network: Additionally, the company is actively involved in setting up City Gas Distribution networks, providing a reliable supply of gas to urban areas. This includes the construction of necessary facilities to support the distribution network.

Operation & Maintenance Services:

In addition to its expertise in pipeline infrastructure, the company also offers comprehensive Operation & Maintenance services. This encompasses the upkeep, management, and regular inspection of pipelines and associated facilities, ensuring smooth operations and optimal performance throughout the project lifecycle.

The company’s Operations & Maintenance (O&M) services have emerged as a promising avenue with a relatively higher profit margin compared to pipeline infrastructure projects. Having secured its first O&M project in 2014, the company has made significant strides in this sector, resulting in a notable contribution to the top line.

Over the past few years, the O&M services segment has experienced steady growth, as evident from the rising revenue share. In FY22, O&M services accounted for approximately 10.4% of the total revenue, showcasing a slight decline from the previous fiscal year (FY20), where it constituted 21.25% of the revenue. Despite the recent dip, the long-term trajectory indicates consistent expansion in this domain.

While O&M services have shown impressive growth, the pipeline infrastructure business remains a dominant force with a stronger growth rate. The company’s expertise in laying pipelines for various projects continues to drive significant revenue and market presence.

A key advantage of the company’s O&M contracts is their tendency to get extended over time. This reliable pattern ensures a steady stream of revenue, providing stability and predictability to the company’s financial performance.

Clients

The company’s impressive clientele includes major Public Sector Undertakings (PSUs) and City Gas Distribution (CGD) companies throughout India. With successful collaborations with these entities, Likhitha Infrastructure has strengthened its market presence and cemented its position as a trusted partner in the pipeline industry.

Order book

The company had an outstanding order book as of the end of October 2022, which amounted to Rs 1457 crore, displaying a notable increase from Rs 1108.22 crore at the end of March 31, 2022. This order book consisted of a well-balanced portfolio, with 32% dedicated to city gas distribution projects, including CNG Stations, 67% allocated to cross country projects, and 1% designated for O&M projects.

During that period, the company celebrated two major order wins from GAIL, amounting to approximately Rs 365.13 crore. These significant contracts were scheduled for execution within a span of 14-15 months, contributing significantly to the company’s growth and solidifying its position as a leading player in the industry.

Financials

For the Quarter ended Q4FY23

• Consolidated sales surged by 50% to Rs 117.25 crore vs 78 crs in March 22
• Growth in operating profit moderated to 21% at Rs 23.41 crore vs 19 crs as of Q4FY 22 up
• Interest cost decreased by 10% to Rs 0.22 crore.
• PBT showed a growth of 20% at Rs 22.88 crore vs 19 crs in March 22.
• PAT increased by 17% to Rs 16.73 crore vs 14 crs in March 22.

For the year ended FY 23

• March 2023: Net Sales reached Rs. 365 crore, recording a 42% increase from March 2022 (Rs. 257 crore).
• March 2023: Net Profit rose to Rs. 60 crore, marking a 30% growth from March 2022 (Rs. 46 crore).
• March 2023: EBITDA stood at Rs. 83 crore, showing a 33% rise from March 2022 (Rs. 62 crore).
• Consistent OPM above 20% maintained by the company.
• As of March 2023, the company is debt-free.
• Cash and equivalents of the company amount to approximately Rs. 33 crore.
• Despite some dilution over the last few quarters, the promoter holding remains significantly high, instilling confidence in the company.
• The company boasts a solid ROCE of above 35%.

Management’s comments

Due to limited available information about the company and its operations, we regret that we are unable to provide specific details or insights. The absence of sufficient data restricts our ability to furnish any information about the company. We apologize for any inconvenience caused and remain at your service for any other queries or assistance you may require.

Sectorial Outlook

The worldwide demand for oil and gas is experiencing an upward trajectory, and pipeline transportation is increasingly favored for its cost-effectiveness and enhanced safety compared to ground transportation. India’s economic growth is closely intertwined with its energy demand, making the sector highly attractive for investment. As the need for oil and gas is projected to continue growing, the industry presents promising opportunities for investment. Furthermore, natural gas is gaining momentum as a significant alternative and an ideal fuel to facilitate the shift towards cleaner and more sustainable energy sources.

In addition, the Government of India has placed significant emphasis on transitioning towards a gas-based economy. With the Indian economy projected to grow five-fold by 2040, there is a concerted effort to substantially increase the share of natural gas in India’s energy mix. Under the recently announced Government policy, the Petroleum and Natural Gas Regulatory Board (PNGRB) has expanded the number of Geographical Areas (GAs) to 293, encompassing 617 districts across India. This expansion covers 96% of the Indian population and 86% of its geographical area, further supporting the push towards utilizing natural gas as a key energy resource.

The robust investment forecast in expanding both cross country and city gas distribution networks in the country bodes well for oil and gas infrastructure service providers like LIL. With a prominent presence in City Gas Distribution, the company is well-positioned to benefit from this trend and gain a competitive edge in accessing projects, including the construction of CNG stations. Given the significant investment in the O&G sector, particularly in pipeline transportation and distribution, the company foresees a steady influx of orders, presenting favorable growth prospects for its operations.

The company anticipates an improved order mix and increased operational efficiency, coupled with stable commodity prices, leading to reduced margin pressure. This favorable combination is expected to facilitate better operating margins, creating a positive outlook for the company’s financial performance.

Conclusion

Likhitha Infrastructure, a 25-year-old completely debt-free company, stands at the forefront of the evolving global demand for oil and gas. With a rising preference for pipeline transportation and a strong emphasis on transitioning to a gas-based economy, the company finds itself well-positioned to capitalize on the promising opportunities in the energy sector. Its dominant presence in City Gas Distribution and successful track record in project execution reinforce its competitive advantage, enabling access to bigger and more complex projects in the core O&G sector. Bolstered by a strong order book, improved efficiency, and stable commodity prices, Likhitha Infrastructure is poised for steady growth, making it a compelling choice for investors seeking a reliable and future-oriented partner in the oil and gas infrastructure domain.