Dharmic Bull

New Portfolio Entry: Likhitha Infrastructure Ltd.

Buy Price: 300

Likhita Infrastructure Ltd. Logo

Reasons for buying:

  1. Company is into Oil & Gas pipeline laying service and does maintenance.
  2. India’s peak Oil demand is still sometime away (approx. 2030-35) so till then robust growth is expected.
  3. The Government wants to increase the % of gas used in the economy hence the strong focus on providing gas to households. Gas is also less carbon intensive and cheaper than Oil.
  4. Company is a proxy play for Oil majors and City Gas distributors.
  5. Infrastructure is a hot theme because India is undergoing a major capital cycle.
  6. Fairly valued at a trailing PE of 20.
  7. High ROCE business with negligible liabilities, low fixed asset intensity and high sales growth.
  8. Continuous QoQ sales growth since last 11 quarters.
  9. Sustained high OPMs since September 2020.
  10. Company has sufficient funds: reserves + investments + cash and equivalents
  11. High promoter holding
  12. Ace investor Ashish Kacholia holds a 2% stake.

Risks:

  1. Success depends on capex size and timely tendering by government and private players.
  2. Success also hinges on low/manageable oil & gas price. If they rise too much, government will have to divert precious resources away from capex to curb inflation and provide relief to consumers.
  3. Long term outlook is not clear because government wants to boost energy output from renewables and wants more electrification. Company does lay canal pipelines but this is miniscule now and as investors, we need to be watchful of diversification into other verticals which could possibly strengthen the business.

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