OBJECTS OF THE OFFER :
The IPO consists of a fresh issue of shares aggregating up to Rs3,500 mn and an offer for sale of 4 million shares. While the DRHP has indicated the approximate size of the fresh issue, the size of the OFS has been only indicated by the number of shares. Thus, the total size of the issue will be known only when the price band for the IPO is finalized.
The proceeds of the fresh issue will be used for redemption of debentures, repayment of debt, capital expenditure for purchase of new equipment, capital infusion into subsidiary as well as for working capital and also for general corporate purposes.
CORRTECH IPO ANALYSIS
CONSISTENT TRACK RECORD OF FINANCIAL PERFORMANCE:
The company’s revenues grown significantly in the fiscal gone by, from Rs5,607.33 mn in FY19 to Rs9,909.31 mn in FY21. The company’s EBITDA increased from Rs721 mn in FY19 to Rs906 mn in FY21. The company’s profit increased from Rs 244.71 mn in FY19 to Rs 285.55 mn in FY21.
CONSOLIDATED FINANCIAL SUMMARY OF CORRTECH INTERNATIONAL
|(`₹ in millions)||FY21||FY20|
|Revenue from Operations||9,909.31||7,782.19|
|EBITDA Margin (%)||9.14%||11.74%|
COMPETITIVE ANALYSIS: MARKET PEERS
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|Likhitha Infrastructure Limited||₹ 707 crore|
LONG TERM RELATIONSHIP WITH CLIENTS AND PRE-QUALIFICATION EXPERIENCE HELPS US IN SECURING PROJECTS
Corrtech Industries is one of the leading focused providers of pipeline laying solutions including hydrocarbon pipeline laying works in India (source: CARE Advisory Report). In addition to pipeline laying and construction, Corrtech has also emerged as the leading player in HDD and CPS over the years (source: CARE Advisory Report). The company has long-standing relationships with leading players in the Indian oil and gas sector including GAIL (India) Ltd,Indian Oil Corporation Ltd, Oil and Natural Gas Corporation Ltd, Hindustan Petroleum Corporation Ltd and with Bharat Petroleum Corporation Ltd.
The company has a large equipment base, technically qualified, experienced employee pool, and strong project management systems and capabilities, which enable them to execute large as well as complex projects for its clients in the oil and gas pipeline segment, including for pipeline laying jobs for large oil and gas companies in India. The company’s ability and track-record in offering comprehensive solutions including pipeline laying solutions, cathodic protection services and multi-purpose skids offers a relatively unique proposition to our customers, which helps them improve its share of business.
As part of the company’s manufacturing business, it has created a market for supply of components and services for GE gas turbines in after-market and has also been involved in supply of components to companies in aerospace and defence space in India. It has supplied components and services to Ethos Energy GmbH and ET International for over five years as well as were suppliers for certain components for one of the leading aerospace and defence companies in India.
The company’s long-standing relations with its customers and pre-qualifications help them win new business, bid for increasingly more complex projects, enables them to choose projects which match its margin expectations and help them expand its manufacturing business going forward.
ESTABLISHED TRACK RECORD OF COMPLETED PROJECTS AND GEOGRAPHICAL FOOTPRINT
Over the last two decades, the company has completed more than 50 Hydrocarbon pipeline laying projects spanning over 3,500 kms in more than 13 states across a variety of topographies and weather conditions including projects of over 229.00 kms of gas pipeline with 48” diameter and HDD crossing with individual crossing profile length of 2.2 kms. Over 39 years of operations, it has received numerous awards including certificate of appreciation from Engineers India Ltd as project management consultant, a letter from Indian Oil Corporation Ltd for our performance for mainline welding of 9.245 kms in a single day against a target of 5 kms welding in a single day.
It has developed an established track record of efficient project management and execution experience, involving trained and skilled manpower, efficient deployment of equipment and that prompted them to complete projects prior to or by scheduled timelines which helped grow its business. The company has executed projects across differing terrains including across desserts, mountains, cities and forests. The company’s quality of work and timely execution has allowed them to enhance its relationships with existing clients and to secure projects from new clients.
LARGE ORDER BOOK
Since the company’s incorporation, it has undertaken projects in Oil & Gas services business. As of December 31, 2021, it has an order book of over Rs24,400 mn, which is 2.63x the revenue from O&G services business for FY21. the company’s order book provides partial visibility of revenues from its O&G services business stream and enables them to plan our expansion and capital requirements in-line with growth in business.
- The company relies heavily on Oil & gas business for its revenues.
- The company is reliant on its contracts with limited businesses.
- Utilising economies of scale to expand into adjacent industries and segments could prove to be lucrative in the near future.
- Fostering relationships with current clients could lead to upselling the company’s services, increasing the average order value.
- Capturing markets in newer geographies can be profitable and provide a hedge to the company’s domestic operations.
- At present, Oil &Gas segment contributes to a major chunk of the company’s revenues. Any disruption in this segment could adversely affect the company’s profitability.
- This is a sector that faces its share of government regulation. A change in certain government policies could disturb its operations.
STRATEGIES GOING FORWARD:
CONTINUED FOCUS ON THE PIPELINE CONSTRUCTION BUSINESS FOR OIL AND GAS COMPANIES AND UNDERTAKE BIGGER PROJECT
As per CARE Advisory Report, the pipeline network in India is expected to expand to around 34,000 Kms over the medium to long term, putting in place most of the 100 national gas grid that would connect all major demand and supply centres in the country and this pipeline infrastructure is expected to entail a capex of around Rs46,000 crores. Corrtech intends to capitalize on this opportunity by leveraging its customer relationships, project expertise, fleet of equipment and trained manpower.
The company’s understanding of diverse geographic terrains and experience across complex projects will help them maintain and strengthen its market position. A key element of Corrtech International growth strategy is to seek to improve the performance and competitiveness of its existing activities. Its focus has been on increasing the scale and complexity of its projects in recent years and continue to focus on projects with higher contract values. The company believes that as complexity and size of underlying projects increase, the customers would prefer service providers like them who has an established track-record in the sector.
The company intends to invest in latest equipment and technology to support its expanding operations and intend to use part of net proceeds from the IPO towards augmenting its equipment base. Corrtech International subsidiary CEL is interested in the EPC space in the refinery and petrochemical sectors where it has recently completed a contract in a petrochemical complex. CEL is presently executing an EPC project in Kochi for one of the large companies in the oil and gas sector and has recently been awarded an EPC project by one of the large companies in the oil and gas sector for the Barauni refinery.
ENTERING INTO THE WATER PIPELINE BUSINESS SECTOR WITH FOCUS ON MICRO-TUNNELLING
Corrtech International expects infrastructure development to be a major driver for growth of the Indian industry in the foreseeable future due to ever increasing levels of the GoI’s focus and investment in infrastructure in India. The company has gained expertise in the pipeline construction for the O&G services business with more than 20 years of experience in pipeline laying. It also intends to diversify and bid for projects in the water pipeline sector. Expanding into new functional areas will help them consolidate its position in the infrastructure sector and effectively leverage our experience in executing EPC projects.
This will also help them gain experience in such sectors and be well positioned to strategically expand in these sectors in future. It has the requisite resources, teams and experience of laying pipelines beneath rivers, canals, using HDD techniques for its ongoing and completed projects in O&G services business. It intends to capitalize on its existing capabilities and venture into water and sewage projects throughout the country.
Corrtech also intends to utilise its experience in HDD to venture into micro-tunnelling. Micro-tunnelling is an underground construction technique for constructing utility tunnels of smaller diameter. It is similar to tunnel boring but with reduced diameter. The method is useful for laying pipelines beneath highways, railroads and other sensitive areas with minimum disruption to the surface, thereby minimizing the impact on landscape and environment. According to CARE Advisory Report, the growth of this construction technique has picked up due to robust pipeline projects in sectors such as railways, hydropower, roads and highways, water supply and sewage.
CAPITALISING ON ITS EXPERTISE TO GROW IN THE DEFENCE AEROSPACE INDUSTRY
Corrtech, through its subsidiaries CEL and CPOG cater to diverse industry segments including energy, defence and general manufacturing wherein It supply components and services. For instance, it has undertaken manufacturing of some components for use in defence planes for one of the leading aeronautics company and certain other projects for defence companies in the private sector.
According to CARE Advisory Report, for promotion of indigenous design and to focus on self-reliance in defence manufacturing, GoI has implemented various policies under “Make in India” initiative, and we intend to increase the quantum of production of components for the aerospace and defence sector. CEL intends to further expand its business through a combination of:
- capitalizing the business to meet its working capital needs and a part of the net proceeds from the IPO are intended to be invested into CEL for this purpose expand its equipment base which will help in maintaining/ expanding its competitiveness and help attract the global OEMs and Tier 1 Indian companies, for whom It can manufacture complex parts and supply in bulk
- seek global certifications like Nadcap (National Aerospace and Defense Contractors Accreditation Program) which will help them in expanding its aerospace business
Disclaimer - The content on this page is made available on the basis of the DRHP (draft red herring prospectus ) filed by Corrtech India Limited. The final content could change based on the Red Herring Prospectus (RHP) filed