LIL, with more than 20 years of existence, has spread its geographical presence across more than 16 states and two union territories in India such as Delhi, West Bengal, Telangana, Gujarat, Andhra Pradesh, Madhya Pradesh, Bihar, Chandigarh, Haryana, Kerala, Orissa, Uttar Pradesh, etc. The company has a strong client base in India including both the private and public players such as ONGC, HCG, Indian Oil, GAIL, etc.

The pipeline infrastructure business comprises of undertaking projects for laying of pipelines in Cross-Country Pipeline projects as well as for setting up City Gas Distribution network and construction of associated facilities.

The Operation and Maintenance (O&M) Services business of the company includes management services for CGD networks, other repairs, modernization, scheduled shutdowns, as well as overhauling and maintenance of existing pipelines. The company provides Operations & Maintenance Services to CGD Companies in various regions in Delhi-NCR and Bengaluru.

Of the total proceeds of around Rs 60 crore from the issue, Rs 47 crore will be utilised towards meeting working capital requirement of the company and balance towards general corporate expenses and issue expenses.

Strengths

The company has strong competence and experience in the field of pipeline infrastructure especially for oil & gas. LIL with over 20 year of experience has successfully laid around 600 Kms of Oil and Gas pipelines including steel and Medium-Density Polyethylene (MDPE) network in the last 5 Fiscals. Additionally, the company has laid approximately 800 kms of Oil and Gas pipelines for on-going projects. The company having undertaken projects in about 16 states and 2 UTs have worked under different terrain and geological conditions and has successful track record of timely completion. The company 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.

Unexecuted order book of the company as end of July 31, 2020 was Rs 662.59 crore and of which about Rs 605.18 crore (or 92.83%) were pipeline infrastructure projects and balance Rs 46.73 crore (or 7.17%) was O&M service contracts. Order book being nearly 4 times of FY20 revenue, provides strong visibility. As of July 31, 2020, LIL is engaged on more than 31 on-going projects across India and of which 6 are already 100% completed. The company has put in bids for projects estimated worth Rs 450 crore of which about Rs 400 crore were for pipeline infrastructure projects and balance is of O&M Services.

Steady rise in O&M Services over the last three fiscal years from about 7.38% of revenue in FY2017-18 to about 21.25% in FY19-20. Based on the past track record, majority of the O&M contracts get extended, from time to time providing steady stream of revenue. Margin of O&M services is relatively higher compared to pipeline infrastructure projects.

The Petroleum and Natural Gas Regulatory Board (PNGRB) has increased the number of Geographical Areas (GAs) for laying CGD networks from initial 30 cities to about 228 comprising of 402 districts spread over 27 States and Union Territories, covering 70% of Indian population and 53% of its area. India, currently, has a network of about 13,000 km of natural gas transmission pipelines with a design capacity of around 337 MMSCMD. This pipeline network is expected to expand to around 28,000 Kms with a total design capacity of around 721 MMSCMD in next 5-6 years. These will provide lucrative opportunities for work execution company such as LIL. The company based on expected strong demand growth is planning to expand its pipeline laying execution capacity to a range of 250-300 kms per year.

The company has low fund-based borrowings.

Weaknesses

LIL depends on a limited number of clients for a significant portion of its revenue as number of players in the O&G distribution business are limited. The loss of any of major client due to any adverse development or significant reduction in business from any major client may adversely affect the prospects of the company.

LIL 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. Ticket size of the orders so far bagged by the company is in the range of Rs 100 crore. Some of the competitors of the company are larger than the company, have greater financial resources and have the benefit of greater economies of scale and operating efficiencies leading to intense competition when there are not enough orders for all. Given its size and balance-sheet, prequalification for the company's ability to bid for larger pipeline projects is restricted.

Ability of the company to pass on any increase in the costs to the client may be limited under the contracts with limited or no price escalation provisions.

Valuation

Operating revenues of the company for the fiscal ended March 2020 was up by 16% to Rs 161.24 crore. But with operating profit margin (OPM) contracting by 230 bps to 18.4%, the growth at operating profit was restricted at 3% to Rs 29.67 crore. After accounting for higher other income, lower interest and higher depreciation, the PBT was up by 6% to Rs 26.77 crore. Gained by lower tax incidence the PAT was eventually up by 11% to Rs 19.88 crore.

The EPS for FY2020 on post issue equity stood at Rs 10.1 and that leads to a PE of 11.9 at upper price band of Rs 120.

Jaihind Projects, which was the nearest comparable company, went into insolvency and its resolution plan has been recently approved. There is no other listed player focused only on laying O&G pipeline and O&M services. Kalpataru Power and L&T are also in this field but for them this line of business is small compared to their overall size.

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