Industry Structure and Development
Indian Economy
The Indian economy demonstrated robust growth in the fiscal year 2022-23, with a GDP
expansion of 7.2%. This figure surpassed both the second estimate of 7% and the
governments forecast of 7%. It also outperformed the 8.7% growth achieved in the previous
financial year. The driving forces behind Indias economic growth were private consumption
and capital formation, which not only contributed to the expansion but also facilitated
job creation.
India, currently the third-largest economy in the world based on Purchasing Power
Parity (PPP) and the fifth-largest in terms of market exchange rates, has reaffirmed its
belief in its economic resilience. Despite internal and external challenges, such as
mitigating external imbalances resulting from the Russian-Ukraine conflict, the country
has managed to sustain its growth momentum.
As a result, manufacturing and investment activities gained momentum. While export
growth moderated, the rebound in domestic consumption, particularly in contact-intensive
services such as trade, hospitality, and transportation, bolstered Indias economic
progress.
Furthermore, construction activity witnessed a significant increase in FY23, driven by
the substantial capital budget (Capex) allocated by the central government and its public
sector enterprises. Notably, direct tax revenue collections remained buoyant, along with
GST collections, indicating a revival in private-sector investment.
Despite these global challenges, the Indian economy has admirably confronted the
adversities brought about by the pandemic, achieving a complete recovery ahead of numerous
other nations. As we look ahead to the forthcoming fiscal year, FY2023-24, India is poised
to reclaim its pre-pandemic growth trajectory, reaffirming its resilience and potential
for sustained economic expansion.
Outlook
Indias recovery from the pandemic has been relatively swift, and the upcoming years
growth will be supported by robust domestic demand and an increase in capital investment.
Encouragingly, there are early indications of a new cycle of private sector capital
formation, which compensates for the cautious approach in private sector capital
expenditure. To stimulate growth, the government has significantly raised capital
expenditure, as noted in the Economic Survey 2022-2023. Budgeted capital expenditure has
risen 2.7 times over the last seven years, from FY16 to FY23, reinvigorating the capital
expenditure cycle.
In the Union Budget 2023-24, there has been a substantial 33% increase in the capital
investment outlay for the third consecutive year, reaching 10 lakh crore, equivalent to
3.3% of GDP. This figure is nearly three times the outlay recorded in 2019-20. Structural
reforms, including the implementation of the Goods and Services Tax (GST) and the
Insolvency and Bankruptcy Code, have enhanced the efficiency and transparency of the
economy, ensuring financial discipline and improved compliance.
According to the International Monetary Fund (IMF), India is projected to grow by 5.9%
in FY 2023-24 and maintain an average growth rate of 6.1% over the next five years.
Strong domestic demand, coupled with high commodity prices, may lead to an increase in
Indias total import bill and potentially widen the current account deficit (CAD). These
factors may be exacerbated by a decline in export growth due to weakened global demand,
putting pressure on the Indian currency and potentially leading to depreciation.
Furthermore, persistent inflation may prolong the tightening monetary policy, resulting in
higher borrowing costs for the economy. Consequently, global growth in FY24 is expected to
be modest, which will inevitably impact the Indian economy. However, the possibility of
low oil prices and a potentially better-than-projected CAD provide some positive factors
for consideration.
Industry Overview
Depletion of easily accessible onshore oil and gas reserves has led exploration and
production companies to seek opportunities in less explored areas. Deepwater and
ultra-deepwater oil and gas wells have garnered attention due to their vast deposits and
untapped potential. With the increasing prices of crude oil, the future of these projects
appears promising. Consequently, the expansion of exploration and production activities
will drive market growth in the foreseeable future.
The market for oil and gas pipelines is benefiting from advancements in pipeline
inspection technology. One notable advancement is the use of intelligent drone vehicles,
which are integrated with the Internet of Things. These drones provide a cost-effective
solution for visual pipeline inspection, contributing to the overall improvement of
pipeline inspection capabilities.
The demand for natural gas has experienced a significant increase, primarily driven by
its growing use in various industries such as power generation and transportation. This
upward trend is expected to continue in the coming years, leading to substantial
development in gas pipeline infrastructure. By 2030, natural gas is projected to witness
substantial growth among all fuel types, driven by the environmental benefits it offers
and the pursuit of energy security in regions like the Middle East, Africa, and the
Asia-Pacific.
Government Initiatives For Gas Pipeline Infrastructure
As part of its commitment to address climate change in COP21, the Government of India
has pledged to reduce carbon emissions by 45 percent by 2030. However, balancing the need
to meet the energy demands of a billion people while mitigating environmental pollution
poses a significant challenge. In light of this, the government is actively promoting the
transition to a gas-based economy.
Recognizing the importance of shifting towards a gas-based economy, the Government of
India has prioritized this transition. With the Indian economy expected to grow five-fold
by 2040, the focus is to more than double the share of natural gas in Indias energy mix.
To achieve this objective, the government is heavily emphasizing the development of a
robust city gas distribution infrastructure.
The Petroleum and Natural Gas Regulatory Board (PNGRB) has expanded the number of
Geographical Areas (GAs) to 293, encompassing 617 districts in India, which cover 96% of
the Indian population and 86% of the countrys area. The concluded bidding rounds for city
gas distribution projects are estimated to attract investments of approximately Rs 1.2
lakhs crore.
A gas-based economy has been identified as crucial for achieving Atmanirbhar Bharat
(self-reliant India) and a lot of work is being done on One Nation, One Gas Grid.
Infrastructure development, coupled with market reforms, presents significant potential
for increased natural gas utilization across various sectors in India. The government of
India has set a target to expand the gas pipeline infrastructure to 34,500 kilometers by
2024-25. Furthermore, there are plans to connect all states with the trunk natural gas
pipeline network by 2027. As of December 2022, the operational gas pipeline network in the
country spanned 22,335 kilometers.
In the Union Budget for 2023, the government has allocated Rs 35,000 crore for priority
capital investments aimed at transitioning to green energy, achieving long-term net-zero
goals, and ensuring energy security. Additionally, Rs 10,000 crore has been allocated to
compressed biogas plants. As part of its global climate change commitments made in COP21,
the government is committed to reducing carbon emissions by 45% by 2030. The government
has also taken significant steps to facilitate the transition to a gas-based economy.
Atmanirbhar Bharat has identified this as a priority and is promoting market-driven
incentives and policies to encourage relevant initiatives.
With various indicators pointing towards India emerging as a $5 trillion economy within
the next five years, and the objective of becoming the worlds third-largest economy,
efforts are underway to at least double the natural gas component in the overall energy
mix. Consequently, there is a strong emphasis on developing a robust city gas distribution
network across the country.
The Government of India is actively implementing initiatives to support the development
of gas pipeline infrastructure. These efforts are driven by the commitment to address
climate change, promote energy security, and pave the way for a sustainable and
self-reliant future.
Key Drivers of Oil and Gas Pipeline Market
The oil and gas pipeline market is projected to witness substantial growth, with an
expected increase from USD 27.3 billion in 2023 to USD 41.9 billion by 2032. This reflects
a compound annual growth rate (CAGR) of 5.50% during the forecast period of 2023-2032. The
key drivers contributing to market growth include the growing demand for pipelines to
transport oil and gas, as well as the increasing utilization of renewable energy sources.
The market for oil, gas, and natural gas liquids (NGL) pipelines is anticipated to
experience rapid expansion until 2030. The shift towards gas-based power plants and the
rising demand for natural gas liquids like propylene and ethylene are major factors
motivating investments in infrastructure development. To ensure the smooth operation of
oil and gas pipelines, the incorporation of advanced security technologies and preventive
measures against disruptions will further enhance the industrys statistics, making
operations secure, cost-effective, and efficient.
Opportunities Ahead - Advantage India
India, as the third-largest energy consumer globally, has a strong correlation between
its economic growth and energy demand, particularly in the oil and gas sector. This makes
the sector highly attractive and conducive to investment, leading to expectations of
robust growth. In fact, the upcoming period is often referred to as a "Gas-based
Economy" in the Indian context.
Infrastructure development, especially the establishment of a gas pipeline grid across
the country, has been a major focus area. In February 2021, Prime Minister Narendra Modi
announced a plan to invest 7.5 trillion in oil and gas infrastructure over the next five
years. The goal is to create a national gas grid, and currently, authorization has been
given for a 35,000 km natural gas pipeline network. Of this, 20,238 km is operational as
of September 2021, and 14,930 km is under development.
Indias per capita consumption of natural gas is relatively low, at around 29 standard
cubic meters (SCM), compared to the global average of 363 SCM. Recognizing the benefits of
natural gas and the need to increase its share in Indias primary energy mix, which
currently stands at 6.2%, the government has expressed its commitment to raising the gas
share to 15% by 2030. This commitment is supported by various policy directives and
regulatory changes to facilitate the achievement of this goal.
Significant work is underway to develop the PNG/CNG infrastructure across India,
including the laying of gas pipelines. An investment of 88,000 crore is allocated for
pipeline infrastructure development, utilizing methods such as Horizontal Directional
Drilling (HDD) and the "Open Trench" approach. The demand for HDD machines is
high as leading EPC pipeline contractors undertake large-scale projects to develop gas
pipeline infrastructure in more than 400 cities across the country. These contractors are
actively contributing to the development of the gas pipeline infrastructure in India.
Challenges Ahead
Stakeholders in the oil and gas industry recognize the importance of diversifying
Indias energy sources to sustain its growth trajectory. To support the transition to a
gas-based economy, it is crucial to establish a robust infrastructure. Currently, Indias
gas pipeline infrastructure spans 22,000 km, with a target of reaching 35,000 km in the
next five years.
The recent Ukraine crisis has underscored the significance of energy security,
prompting governments to prioritize the secure supply of gas at affordable prices.
Despite government interventions, the exploration and production sector has not
attracted significant foreign direct investment (FDI) participation, except for the
involvement of a few companies. To encourage greater investment, the government needs to
ensure that gas is provided to City Gas Distribution companies at affordable rates,
enabling them to achieve reasonable profit margins.
Company Overview
The Company is a prominent service provider specializing in oil and gas pipeline
infrastructure. Our primary focus revolves around laying extensive pipeline networks,
constructing associated facilities, and providing comprehensive operations and maintenance
services to oil and gas companies throughout India. With a wide-ranging presence, we
operate in over 19 states and 2 union territories and Nepal. The Company has successfully
expanded its global footprint into new geographical areas by incorporating a Joint Venture
Company in the kingdom of Saudi Arabia in 2023. we have achieved remarkable milestones,
successfully completing numerous projects encompassing more than 1500+ kms of oil and gas
pipelines. These projects include the installation of both steel and medium- density
polyethylene (MDPE) networks. Currently, we are actively involved in ongoing projects,
having laid approximately 1000+ kms of oil and gas pipelines. Our company prides itself on
a stellar track record of executing projects in a timely manner, ensuring high-quality
standards, and satisfying our clients.
In 2019, we accomplished a significant feat by executing the first trans-national
cross-country pipeline of South-East Asia, connecting India to Nepal for the supply of
petroleum products. This achievement further solidified our reputation as an industry
leader. With a robust client base consisting of prominent gas distribution companies in
India, including both private and public entities, we have secured a strong order book.
Our commitment to excellence is evidenced by our ISO 9001:2015 certification awarded by
International Certification Services Pvt Ltd for our Quality Management system. This
certification recognizes our expertise in designing and constructing cross-country
pipelines, city gas pipelines, and civil constructions.
Our company is guided by a highly skilled and experienced management team. Their
collective knowledge spans technical, operational, and business development aspects of the
industry. This expertise empowers us to capitalize on existing market opportunities while
remaining well-positioned for future growth.
At the helm of the company is Mr. Srinivasa Rao Gaddipati, a first-generation
entrepreneur with nearly three decades of technical experience. Co-promoting the company
alongside him is his daughter, Mrs. Likhitha Gaddipati.
SWOT Analysis
Strengths
• High Revenue and Profit Growth with High Return on Capital Deployed (ROCE) and
Low PE ratio
• Company with low debt
• Annual Net Profits improving for last 2 years
• Book Value per share Improving for last 2 years
• Company with Zero Promoter Pledge Weaknesses
• Availability of skilled technical manpower for projects
• Inflation
Opportunities
• Expansion of the business based on new Government initiatives
• Potential global expansion of the company
Threats
• Increase in competitive bids for procuring the projects
• Any future pandemic lock-down extensions would affect
Operational Highlights
Order Book
The Companys outstanding order book position is ^1,42,593.92 Lakhs as on March 31,
2023, which includes ^97,585.55 Lakhs from Cross-country pipelines and associated
facilities, ^32,480.92 Lakhs from City Gas Distribution including CNG Stations, Rs.452.79
Lakhs from Operation & Maintenance of CNG / PNG services and ^12,074.65 Lakhs from
tankage projects, thereby increase in growth of order book by 28.67% as compared to the
previous financial year ended on March 31, 2022.
Order Book Distribution Chart to be provided percentages
Management Outlook
The Company is one of the leading companies in its industry space with over 25 years of
experience, presently working with major Oil & Gas companies across India. The Company
is planning to expand the capacity to execute work of laying Oil & Gas pipelines above
400 kilometers per year. In view of the PNGRB (Petroleum and Natural Gas Regulatory Board)
expansion plan, the Company is gearing up to increase its presence across the country.
Future Outlook
Our Company is currently executing tankage projects for IOCL and NOCL in Nepal and
expects to bid on more tankage projects in the future. Additionally, the Company is
exploring opportunities in the Middle East, Africa, and other similar countries where
there is a significant demand for pipeline infrastructure companies.
To further expand its presence, Likhitha Infrastructure Limited has registered a Joint
Venture in the Kingdom of Saudi Arabia and is looking forward to bidding on and executing
projects in the region.
Risk Management
The company operates in a dynamic environment and is exposed to a variety of risks that
can affect the business continuity. The Companys risk management assessments, policies,
and processes are established to identify, analyze and monitor the risks that might occur.
The policies and company activities are reviewed regularly by the Board of Directors, Risk
Management Committee, and Audit Committee according to the changes in market conditions.
Risks |
Description |
Mitigation |
Occupational Health and Safety |
Occupational Health and Safety involves
safety for not only people but also the environment. It is important for companies to make
their operations safe and prevent any harm to the people and environment. Any mishandling
of safety- related parameters can lead to a negative on the health and environment. |
To address the risks associated with
employee health and safety, the company is implementing the following approach: |
|
|
Risk: Safety Training and Education:
Providing comprehensive safety training programs to employees to ensure they have the
necessary knowledge and skills to perform their tasks safely. |
|
|
This includes regular safety briefings,
hazard identification, and emergency response training with a goal of zero accidents. |
|
|
Safety Equipment and Infrastructure:
Investing in appropriate safety equipment, protective gear, and infrastructure to minimize
the risk of accidents and injuries. This includes regular maintenance and inspections of
machinery and equipment to ensure they are in safe working condition. |
Human Resource Risk |
One of the fundamental value of the
Company is to Respect human rights. |
The company is committed to cultivating
an empathetic positive culture. This dedication is reflected in the companys various
corporate policies, which include the Whistle Blower Policy, policy on prohibition of
Sexual Harassment, Code of Business Conduct and ethics. Furthermore, the company is
actively implementing various initiatives to support this culture, such as conducting
Training programs to ensure awareness and compliance with company policies, fostering a
diverse and inclusive work environment, increasing womens representation in senior
leadership positions and promoting their professional growth and advancement. |
|
Compliance with the human rights laws
and regulations is critical for the company. Failing to do so can lead to legal
consequences and damage the reputation and brand image of the company. |
|
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|
The Company has adequate resources on
permanent basis and would constantly scale resources based on the requirements of the
projects from time to time. |
Competition
risk |
The Company might face competitive
risks from other players in the market depending on the size, nature, and complexity of
the project. |
Technical and financial qualification
of the Company would be one of the major criteria in determining the eligibility for the
project. |
|
|
The Company is constantly enhancing
technical and financial aspects along with performance, quality, timely completion of the
projects and technical qualifications which provides edge over competitors. |
Risks |
Description |
Mitigation |
Regulatory
regime |
The Complex nature of infrastructure
projects includes interference with various regulators/ authorities throughout the project
life cycle, making them especially vulnerable to regulatory action. Failure to comply with
these requirements may result in liability. |
The regulatory compliance such as site
permissions, clearances from the Governments, local bodies, and other such associated
compliance responsibilities will be on the client. |
|
|
The Company also has a regulatory
compliance review mechanism in place through which the Company reviews the applicability
of laws and regulations and complies on a realtime basis. |
Liquidity Risk |
Liquidity risk is that the Company
might be unable to meet its financial obligations. |
The Company has strong financial
background through which it meets its financial requirements on timely basis. Management
regularly reviews the financial obligations and ensures to meet them in time. |
Data privacy and security |
Loss of sensitive and confidential
information and impact on the reputation of the Company. |
The company has mapped possible areas
of such breaches and have implemented corrective measures through employee training on
cybersecurity awareness, regular security assessments, incident response plans and
essential protocols for data storage, backup, retrieval, access, and other important
activities are established and followed on regular basis. |
Internal Controls and its adequacy
The Company has strong internal control procedures commensurate with its size and
operations. The internal control system ensures that all assets are safeguarded and
protected against loss from unauthorized use or disposition and that transactions are
authorized, recorded, and reported correctly.
The Companys internal control systems are further supplemented to internal audit which
carries out extensive audits throughout the year, across all functional areas, and submits
its reports to Management and Audit Committee about the compliance with internal controls
and efficiency and effectiveness of operations and key processes risks.
The Company has clearly laid down policies, guidelines, and procedures which form part
of its internal control system. The Companys internal control system is designed to
ensure management efficiency, measurability and verifiability, reliability of accounting
and management information, compliance with all applicable laws and regulations, and the
protection of the Companys assets. This is to timely identify and manage the Companys
risks (operational, compliance-related, economic and financial).
The Audit Committee of the Company consists of independent directors who possess expert
knowledge and vast experience in the field of their area of operations. They periodically
review accounting records and various statements prepared by the Accounts Department. They
advise the senior management of the Company for any precautionary steps to be taken as
required from time to time. During the year, the Audit Committee reviewed the internal
control mechanisms of the Company and initiated necessary follow-up actions thereon.
FINANCIAL HIGHLIGHTS
Revenues
Revenue from the operations increased by 36.41% in FY 2022-23 recording Rs.35076.61
Lakhs against Rs.25713.67 Lakhs in FY 2021-22 on standalone basis.
Revenue from the operations increased by 41.89% in FY 2022-23 recording Rs.36495.50
Lakhs against ^25721.17 Lakhs in FY 2021-22 on consolidated basis.
Profits
EBITDA increased by 31.41% in FY 2022-23 recording Rs.8501.48 Lakhs against Rs.6469.37
Lakhs in
FY 2021-22 on standalone basis. EBIDTA increased by 32.89% in FY 2022-23 recording
Rs.8730.80 Lakhs against Rs.6570.06 Lakhs in FY 2021-22 on consolidated basis.
Net profit after tax increased by 32.06% in FY 2022-23 recording Rs.6004.38 Lakhs
against Rs.4546.57 Lakhs in FY 2021-22 on standalone basis. Net profit after tax increased
by 30.73% in FY 2022-23 recording Rs.6029.68 Lakhs against Rs.4612.07 Lakhs in FY 2021-22
on consolidated basis.
Net worth
Net worth increased by 30.18% YoY to Rs.25007.69 Lakhs as against Rs.19208.92 Lakhs in
the previous year on standalone basis. Net worth increased by 29.84% YoY to Rs.25008.05
Lakhs as against ^19261.32 Lakhs in the previous year on consolidated basis.
Earnings Per Share
Earnings per share are up from Rs.11.52 as of March 31,2022, to Rs.15.22 as of March
31,2023 on standalone basis.
Distribution of Income
( Rs.in Lakhs)
Raw Material Consumed |
5,844.26 |
Construction Expenses |
19,628.91 |
Changes in Inventories of
Work-in-Progress |
(2,326.89) |
Employee Benefits |
3,153.54 |
Depreciation |
507.21 |
Finance Cost |
77.66 |
Other Expenses |
1,060.22 |
Tax Expenses |
1,912.24 |
Human Resources
The Company has total payroll of 871 employees as on March 31, 2023. The Company
recognizes that our human resources are fundamental to the achievement of our objectives.
Our HR and Operations teams work closely with senior management to devise strategies that
attract top talent and enhance our capabilities. By empowering, inspiring, and motivating
our employees, we foster an environment that drives higher levels of performance. It is
the unwavering commitment of our employees that propels us forward and enables us to
fulfil our vision.
We believe that our employees are our most valuable asset. We strive to create a
supportive and inclusive work environment that encourages growth, innovation, and
collaboration. By investing in the well-being and development of our employees, we
strengthen our collective capabilities and pave the way for continued success.
Key Ratios
In accordance with the SEBI (Listing Obligations and Disclosure Requirements)
(Amendment) Regulations 2018, the Company is required to provide details of significant
changes (i.e. change of 25% or more as compared to the immediately previous financial
year) in key financial ratios, along with detailed explanations therefore.
During the year under review, there are no significant changes in the financial ratios
as compared to previous financial year except for Debt Equity ratio and Current ratio.
1. Debt Equity Ratio was increased by 46.74% on Standalone basis and 46.47% on
Consolidated basis due to increase in Shareholders Equity during the current year and also
decrease in debt for the current year.
2. Current Ratio was decreased by 30.90% on Standalone basis and 29.72% on Consolidated
basis due to increase in trade payables during the current financial year.
The details of other ratios reproduced in note no. 42 of Standalone financial
statements and note no. 41 of Consolidated financial statements.
Details of any change in return on net worth as compared to the immediately previous
financial year along with a detailed explanation:
• Return on Net worth increased to 1.44% on Standalone basis and 0.40% on
Consolidated basis due to increase in Shareholders Equity during the financial year
2022-23.
Cautionary Statement
This report may contain certain statements that the Company believes are or may be
considered to be forward-looking statements which are subject to certain risks and
uncertainties. These estimates and judgments relating to the financial statements have
been made on a prudent and reasonable basis, in order that the statements reflect truly
and fairly, the state of affairs and profits for the year. Actual results may differ
materially from those expressed or implied. Significant factors that could influence the
Companys operations include government regulations, tax regimes, market access-related
regulatory compliances, patent laws, and domestic and international fiscal policies.
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