Corrtech International Limited IPO

Corrtech International Limited has filed its DRHP with market regulator SEBI on Feb 10, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue only and Offer for Sale. The size of Fresh Issue is up to [●]Equity Shares aggregating up to ₹3,500 million up to 4,000,000 Equity and OFS of up to 4,000,000 Equity Shares aggregating up to ₹ [●] million. As part of OFS, the selling shareholders are Amit Indrasen Mittal, Sandeep Indrasen Mittal and Amit Indrasen Mittal jointly with Kavita Amitbhai Mittal.

Business Model of the Company

Corrtech International Limited is one of the leading focused providers of pipeline laying solutions including hydrocarbon pipeline laying works in India. In addition to pipeline laying and construction, the Company has also emerged as amongst the leading players in horizontal directional drilling (“HDD”) and cathodic protection solutions (“CPS”) over the years(source: CARE Advisory Report).

The Company, through its subsidiary, Corrtech Energy Limited (“CEL”), manufactures precision components and provides products and services to the gas turbines and steam turbines operators along with services to the aerospace and defense sectors (source: CARE Advisory Report). CEL is also engaged in providing EPC solutions towards process facilities for material and feed handling in oil and gas refineries and petrochemical complexes. The Company also manufactures equipment like conditioning skids, pressure vessels, material handling equipment and cathodic protection materials like sacrificial anode for connectivity of oil and gas networks through its other wholly owned subsidiary Control Plus Oil & Gas Solutions.

The Company was incorporated on June 8, 1982 as a CPS provider and ventured into laying of pipeline projects in 2002. The Company is one of the pioneers in pipeline construction, HDD and CPS and offering wide basket of services in pipeline industry (source: CARE Advisory Report), till date the Company 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 over 229 kms of gas pipeline with 48” diameter and HDD crossing with individual crossing profile length of 2.2 kms.

Management of the Company

(i) Amit Indrasen Mittal, aged 55 years, is the Promoter and Chairman and Managing Director of the Company. He holds a bachelor’s degree in commerce from Gujarat University. He is responsible for strategy and overall management of the Company. He has been a director of the Company since March 21, 1997 and has over 24 years of experience in the oil and gas sector.

(ii) Sandeep Indrasen Mittal, aged 53 years, is the Promoter and Wholetime Director of the Company. He holds a bachelor’s degree of engineering (industrial electronics) from Amravati University and passed the final examination in Master of Business Administration from B. K. School of Business Administration, Gujarat University. He is responsible for overall operational matters of the group with special focus on the manufacturing business of the Company. He has been a director of the Company since August 18, 1997 and has over 24 years of experience in the oil and gas sector.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Offer

The Company proposes to utilize the Net Proceeds from the Issue towards augmenting its capital base to meet future capital requirements.

1. Redemption of debentures

2. Repayment or pre-payment, in full or in part, of certain borrowings availed by the Company

3. Financing the capital expenditure for purchase of new equipment

4. Infusion of equity into subsidiary company

5. Funding incremental working capital requirements of the Company

6. General corporate purposes.

Risks in the IPO

The Company derives majority of the revenue from the oil and gas services

The O&G Services Business depends significantly on the ability to bid for and be awarded the projects across cathodic protection services, laying of cross-country pipeline, horizontal directional drilling, construction services for city gas distribution as well as for petrochemical complexes. For the six months period ended September 30, 2021, and Fiscals 2021, 2020, and 2019, the revenues from the O&G Services Business was ₹4,117.86 million, ₹9,303.27 million, ₹7,524.65 million and ₹5,334.75 million, respectively, which contributed to 85.92%, 93.88%, 96.69% and 95.14% respectively, of the revenue from operations and financial condition would be materially and adversely affected if the Company fails to obtain new contracts.

Risk of losing major customers

Currently the business is primarily dependent on projects in India undertaken or awarded by oil and gas companies, and the Company derives majority of the revenues from contracts with a limited number of customers. The inability to manage relationships with the major customers and any adverse changes in the government policies may lead to the contracts being terminated or renegotiated, which may have a material effect on the business and results of operations.

The Order Book may not necessarily translate into future income

The Order Book may not necessarily translate into future income in its entirety or could be delayed. Some of the current orders may be modified, cancelled, delayed or not fully paid for by clients, which could adversely affect the business reputation, which could have a material adverse effect on the business, financial condition, results of operations and future prospects.

The Company has defaulted in payment of certain loans in the past

The Company, in the past, defaulted in payment of certain loan facilities including those amounting to ₹3,406.80 million availed from UCO Bank, Axis Bank Limited and IDBI Bank Limited. The Company approached the lenders to restructure the debts under the corporate debt restructuring (“CDR”) scheme and the CDR forum approved the restructuring of the loan facilities on September 25, 2014.

Competitive bidding process

As a part of the business and operations, the Company bids for projects on an on-going basis. Most of the projects in O&G Services Business are awarded following a competitive bidding process and satisfaction of prescribed qualification criteria. The Company may not always be able to qualify for, compete and win projects, which could adversely affect its business and results of operations.

Financial Performance

As per the financial statements of the Company, here are Financial Highlights for FY21 compared to FY20:

Income

The company’s total income witnessed a significant increase of 26% from the previous fiscal year, reaching Rs. 995 crore compared to Rs. 784 crore in FY20.

Expenses

Total expenses incurred by the company surged by 30% in FY21, amounting to Rs. 956 crore, as opposed to Rs. 733 crore in FY20.

Profit before tax

The company’s profit before tax experienced a decline of 22% in FY21, dropping to Rs. 39 crore from Rs. 50 crore in FY20.

Profit after tax

Similarly, the profit after tax also saw a decrease of 17% in FY21, with the company earning Rs. 28 crore in contrast to Rs. 34 crore in FY20.

Assets

The company’s total assets remained unchanged at Rs. 618 crore throughout FY21, maintaining the same value as FY20.

Equity and Liabilities

Just like the total assets, the company’s total equity and liabilities also stood at Rs. 618 crore in FY21, exhibiting no change from FY20.

Cash Flow

Cash generated from operating activities declined in FY21, amounting to Rs. 60 crore, down from Rs. 80 crore in FY20.

However, the company’s cash generated from investing activities experienced a positive shift, totaling Rs. 14 crore in FY21, as opposed to the cash used amounting to Rs. 49 crore in FY20.

The company utilized Rs. 63 crore from financial activities in FY21, showing an increase from the cash used of Rs. 29 crore in FY20.