Rating Rationale
July 10, 2024 | Mumbai
Likhitha Infrastructure Limited
'CRISIL A/Stable/CRISIL A1' assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore
Long Term RatingCRISIL A/Stable (Assigned)
Short Term RatingCRISIL A1 (Assigned)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed rationale

CRISIL Ratings has assigned its ‘CRISIL A/Stable/CRISIL A1’ ratings to the bank loan facilities of Likhitha Infrastructure Limited (LIL; a part of the Likhitha group).

 

The ratings reflect the extensive experience of the promoters in the oil and gas infrastructure segment, its established market position with a strong order book and healthy financial risk profile. These strengths are partially offset by the moderate scale of operations, large working capital requirement, susceptibility to tender-based operations, economic and industrial cycles.

Analytical approach

CRISIL Ratings has considered the combined financials of LIL and its majority-owned Joint Venture, CPM Likhitha Consortium and Joint Venture, Likhitha Hak Arabia Contracting Company. This is because the entities, together referred to herein as the Likhitha group, are being managed by the same team and operate in the same line of business.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key rating drivers and detailed description

Strengths:

  • Extensive experience of the promoters and established market position: The Likhitha group is being promoted by Mr. Gaddipati Srinivasa Rao and his family members. Mr. Gaddipati Srinivasa Rao, a first-generation entrepreneur and managing director of LIL, has more than four decades of experience in the Oil and Gas infrastructure segment. The expertise of the promoters, their strong understanding of market dynamics and healthy relationships with suppliers and customers should continue to support the business.

 

LIL is one of the top Oil and Gas infrastructure providers in India and has vast experience in diversified operations across several geographies such as Karnataka, Delhi, West Bengal, Gujarat, Andhra Pradesh, Telangana, Kerala, Madhya Pradesh, Jharkhand, Bihar, Haryana, Odisha, Uttar Pradesh, Assam, Chattishgarh, Punjab, Tamilnadu, Tripura and Goa. LIL is the first company from India to execute the first-ever Trans-National Hydrocarbon (Multi-product) pipeline project between India and Nepal. LIL is qualified technically and financially (at the highest level) for all the tenders floating in the country in this segment.

 

  • Strong order book providing revenue visibility: The group has an order book of Rs 1,600 crore as of March 31, 2024, which is to be executed over the next 24-36 months. Healthy order book provides revenue visibility over the medium term.

 

  • Healthy financial risk profile: Networth was strong at Rs. 310 Crore while total outside liabilities to adjusted networth (TOL/ANW) ratio was healthy at 0.14 time as on March 31, 2024. The capital structure has been supported by the absence of any yearly maturing debt, yielding low TOL/ANW ratio of below 0.2 time during the three fiscals ended March 31, 2024. Capital structure is expected to remain strong over the medium term as well due to healthy accretion to reserve and the stance of the management to remain debt free. The debt protection metrics were also healthy, with an interest coverage ratio of 73 times for fiscal 2024.

 

Weaknesses:

  • Moderate scale of operations and large working capital requirement: The scale of LIL continues to be moderate, despite being present in the industry for more than two decades and registering strong growth during the past few fiscals. Revenue was Rs 422 crore in fiscal 2024 (which has grown from Rs. 162 Crore in fiscal 2020), supported by healthy execution capabilities coupled with a strong orderbook. Scale has been modest owing to free issue of materials, a model under which pipeline laying contracts under the Oil and Gas infrastructure segment works. The pipelines, which are a major raw material, are being provided by the principal as they want to ensure high quality and hence is not a part of the agreement between LIL and the principal; therefore, this component is not being billed to the customer. Operations are moderately working capital intensive, as indicated by gross current assets of 240-275 days for the three fiscals through 2024. This is majorly driven by higher receivables as the majority of the revenue is being booked during the quarter ends and higher work in progress as the bills are raised on a milestone basis.

 

However, the working capital is efficiently managed with nil reliance on external debt, yielding healthy return on capital employed ratio of 32.52% in fiscal 2024, which is estimated to remain more than 25% over the medium term.

 

  • Susceptibility to tender-based operations and economic and industrial cycles: Revenue and profitability entirely depend on the ability to win tenders. Also, entities in this segment face intense competition, thus requiring bidding aggressively to get contracts. Any downturn in the capex cycle or changes in government policies for the sector could impact order inflow and, hence, the credit risk profile of the group. However, the healthy market position and expertise of LIL coupled with the established relationship with the customers offset the risk to some extent as LIL is likely to receive repetitive orders from the established clientele. Also, growth is strongly correlated with industrial development and investments in key sectors as 100% of revenue comes from clients in the Oil and Gas sector. These sectors also face cyclicality amid fluctuations in crude and gas prices. Given the cyclicality inherent in the industry, the ability to maintain profitability margin through operating efficiency becomes critical.

Liquidity: Strong

In the absence of any yearly maturing debt over the medium term, the entire cash accrual -- projected at Rs. 90-140 crore per annum – will aid financial flexibility. Fund-based working capital limit was not utilised, and the average non-fund-based bank limit utilisation was 92% for the 12 months through March 2024. Unencumbered fixed deposits and cash balances stood at Rs 48 crore and current ratio at 8.10 times as on March 31, 2024. Low gearing and strong networth should also support liquidity.

Outlook: Stable

LIL will continue to benefit from the extensive experience of the promoters, their established relationship with clients and its healthy orderbook position.

Rating sensitivity factors

Upward factors:

  • Significant improvement in the order book along with efficient execution of orders resulting in substantial revenue growth and an increase in net cash accrual to Rs 140-150 crore.
  • Sustenance of strong financial and liquidity risk profiles

 

Downward factors:

  • Decline in revenue and/or operating margin, leading to net cash accruals below Rs 40 crore.
  • Further stretch in the working capital cycle or significant cash outflow in the form of dividends

About the Likhitha group

LIL was incorporated in 1998 and is engaged in the business of pipeline laying providing comprehensive erection, testing, and commissioning of Oil and Gas pipelines, city gas distribution projects, tankage and operations and maintenance services. It is based in Hyderabad, Telangana. The company is listed on the Bombay Stock Exchange and National Stock Exchange. Mr. Srinivasa Rao Gaddipati and his daughter, Mrs. Likhitha Gaddipati, are the promoters.

Key financials Indicators

Consolidated

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

421.68

364.96

Reported profit after tax (PAT)

Rs crore

65.23

60.30

PAT margin

%

15.47

16.52

Adjusted debt/adjusted networth

Times

0.00

0.00

Interest coverage

Times

73.11

108.99

 

Standalone

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

422.09

350.77

Reported profit after tax (PAT)

Rs crore

66.03

60.04

PAT margin

%

15.64

17.11

Adjusted debt/adjusted networth

Times

0.00

0.00

Interest coverage

Times

72.98

106.12

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank guarantee NA NA NA 55 NA CRISIL A1
NA Bank guarantee NA NA NA 75 NA CRISIL A1
NA Bank guarantee NA NA NA 23 NA CRISIL A1
NA Overdraft facility NA NA NA 5 NA CRISIL A/Stable
NA Overdraft facility NA NA NA 5 NA CRISIL A/Stable
NA Overdraft facility NA NA NA 3 NA CRISIL A/Stable
NA Proposed non-fund-based limit NA NA NA 34 NA CRISIL A1

Annexure - List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Likhitha Infrastructure Ltd

Full consolidation

Common management, same line of business, operational and financial fungibility in operations.

CPM Likhitha Consortium

Likhitha Hak Arabia Contracting Company
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 13.0 CRISIL A/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 187.0 CRISIL A1   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 55 ICICI Bank Limited CRISIL A1
Bank Guarantee 75 YES Bank Limited CRISIL A1
Bank Guarantee 23 Kotak Mahindra Bank Limited CRISIL A1
Overdraft Facility 5 YES Bank Limited CRISIL A/Stable
Overdraft Facility 5 ICICI Bank Limited CRISIL A/Stable
Overdraft Facility 3 Kotak Mahindra Bank Limited CRISIL A/Stable
Proposed Non Fund based limits 34 Not Applicable CRISIL A1
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

Media Relations
Analytical Contacts
Customer Service Helpdesk

Aveek Datta
Media Relations
CRISIL Limited
M: +91 99204 93912
B: +91 22 3342 3000
AVEEK.DATTA@crisil.com

Prakruti Jani
Media Relations
CRISIL Limited
M: +91 98678 68976
B: +91 22 3342 3000
PRAKRUTI.JANI@crisil.com

Rutuja Gaikwad 
Media Relations
CRISIL Limited
B: +91 22 3342 3000
Rutuja.Gaikwad@ext-crisil.com


Himank Sharma
Director
CRISIL Ratings Limited
D:+91 124 672 2152
himank.sharma@crisil.com

Nagarjun Alaparthi
Associate Director
CRISIL Ratings Limited
B:+91 40 4032 8200
nagarjun.alaparthi@crisil.com

Tom Cyriac
Senior Rating Analyst
CRISIL Ratings Limited
B:+91 40 4032 8200
Tom.Cyriac@crisil.com		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.


About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 



About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. 

It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.

It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.

It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.



DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') provided by CRISIL Ratings Limited ('CRISIL Ratings'). For the avoidance of doubt, the term 'report' includes the information, ratings and other content forming part of the report. The report is intended for use only within the jurisdiction of India. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings provision or intention to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

The report is a statement of opinion as on the date it is expressed, and it is not intended to and does not constitute investment advice within meaning of any laws or regulations (including US laws and regulations). The report is not an offer to sell or an offer to purchase or subscribe to any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way.

CRISIL Ratings and its associates do not act as a fiduciary. The report is based on the information believed to be reliable as of the date it is published, CRISIL Ratings does not perform an audit or undertake due diligence or independent verification of any information it receives and/or relies on for preparation of the report. THE REPORT IS PROVIDED ON “AS IS” BASIS. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, CRISIL RATINGS DISCLAIMS WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR OTHER WARRANTIES OR CONDITIONS, INCLUDING WARRANTIES OF MERCHANTABILITY, ACCURACY, COMPLETENESS, ERROR-FREE, NON-INFRINGEMENT, NON-INTERRUPTION, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR INTENDED USAGE. In no event shall CRISIL Ratings, its associates, third-party providers, as well as their directors, officers, shareholders, employees or agents be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

The report is confidential information of CRISIL Ratings and CRISIL Ratings reserves all rights, titles and interest in the rating report. The report shall not be altered, disseminated, distributed, redistributed, licensed, sub-licensed, sold, assigned or published any content thereof or offer access to any third party without prior written consent of CRISIL Ratings.

CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains or its associates. Ratings are subject to revision or withdrawal at any time by CRISIL Ratings. CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors.

CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For more detail, please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.  Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the Securities and Exchange Board of India regulations (and other applicable regulations, if any), are made available on its websites, www.crisilratings.com and https://www.ratingsanalytica.com (free of charge). CRISIL Ratings shall not have the obligation to update the information in the CRISIL Ratings report following its publication although CRISIL Ratings may disseminate its opinion and/or analysis. Reports with more detail and additional information may be available for subscription at a fee.  Rating criteria by CRISIL Ratings are available on the CRISIL Ratings website, www.crisilratings.com. For the latest rating information on any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301. 

 

CRISIL Ratings uses the prefix 'PP-MLD' for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisilratings.com/en/home/our-business/ratings/credit-ratings-scale.html