L&T Infotech IPO is set to hit Dalal Street on July 11.
L&T Infotech IPO is going to hit primary markets on Monday. The company is India’s sixth largest IT services firm by revenue of $887 million and an employee base of over 20,000 people. The holding company, Larsen & Toubro is already listed on BSE and NSE with market capitalisation of nearly Rs 1.5 lakh crore, while L&T Finance Holdings got listed over five years ago and commands a market cap of about Rs 14,000 crore. The issue will close on July 13.
In the wake of the IPO, conglomerate’s Group Executive Chairman A M Naik said during an interview that he doesn’t want to be compared with the companies like Infosys, Wipro, Cognizant and TCS, but wants the firm to be number one like other businesses of the group. Read more
L&T Infotech on Friday raised Rs 372.75 crore by allotting 52.50 lakh shares to 22 anchor investors at a price of Rs 710 per share.
Here are 10 things you should know before investing in L&T IPO:
1) Business and Background: The company generates majority of its revenue from banking, financial services and insurance, followed by energy and process, retail and pharma, automotive and aerospace, media and entertainment, and hi-tech and consumer electronics. Digital Services accounted for 11.1 per cent of revenue in FY16. L&T Infotech counts 49 Global Fortune 500 companies as clients with notable names like Citibank, Chevron Corp, Barclays, Honda North America and Time Warner.
2) Objectives of the IPO: The objectives of the issue are to achieve the benefits of listing, enhance brand name and provide liquidity to existing shareholders, apart from providing a public market for L&T Infotech’s (LTIL) equity shares in India. LTIL will not receive any proceeds from the offer as all proceeds will go to the parent, L&T. The entire offer consists of an OFS by L&T of 17.5 million shares.
3) Price Band: The price band of the IPO is fixed at Rs 705 to Rs 710 per share. Reliance Securities in a research report said, “At the upper end of the price band, the company’s market capitalisation works out at Rs 12,060 crore, while at the lower end, it is pegged at Rs 11,970 crore.” The shares will be listed on BSE & NSE.
4) Promoters’ stake: L&T Infotech’s parent Larsen & Toubro is India’s one of the widely known and highly admired brands. The parent company plans to sell up to 1.75 crore shares of its existing shareholding (16.1 crore shares, 94.94 per cent of total equity shares) through the OFS route. Post issue, L&T’s stake in L&T Infotech would decline to 84.6 per cent. Further, the company has offered a discount of Rs 10 per share on the issue price to the retail investors, who are entitled to at least 35 per cent of the issue size.
5) Lead managers: Citigroup Global Markets India, Kotak Mahindra Capital Company and ICICI Securities are the book running lead managers to the issue.
6) Financials: The company has reported a CAGR of 20.1 per cent and 23.1 per cent on the revenue and net profit fronts respectively over FY2011-2015. For the financial year ended March 31, 2016, L&T Infotech posted total revenues of Rs 5,908.1 crore, up 22.24 per cent compared with FY15. The company’s total expenses witnessed a 22.47 per cent increase at Rs 4,641.1 crore in FY16, compared with Rs 3,789.5 crore reported in FY15. The net profit for the previous financial year was up 21.27 per cent at Rs 938.1 crore from Rs 773.5 crore in FY15.
7) Risks: L&T Infotech generates around 15 per cent revenue from Citibank. Any reduction in IT spend from the client may lead to an adverse impact on LTIL, given its significant dependence on this client relationship. According to Reliance Securities, over 42 per cent of LTIL’s revenue comes from application development and maintenance (ADM), while around 24 per cent comes from ERP including SAP, Oracle & Microsoft. As these segments – ADM & ERP – are at risk from the digital disruption story, may drive revenue cannibalisation thus hampering growth prospects. Unfavourable currency fluctuations and event specific developments like Brexit are some other risks for the company.
8) Future plans: The mid-sized IT company is interested in buys in the US, Europe or even Indian market. “We are looking at the European and US markets predominantly as the acquisition has to cater to that market by selling to our 250-plus customers. We will also look at Indian companies that serve customers in the US and Europe,” Sanjay Jalona, CEO and MD of Larsen and Toubro Infotech said at a conference.
9) Valuations: According to Sharekhan, at a price band of Rs 705-710, the L&T Infotech IPO is priced at 13-13.1 times its FY2016 consolidated earnings per share (EPS) of Rs 54.3. The company’s valuation at the offer price looks attractive, given its strong parentage, healthy return ratios and high dividend payout. Continued traction in the key verticals like BFSI and improvement in the energy vertical, coupled with stronger growth in the digital and IMS space will be key earnings drivers for the company going forward.
10) Should you invest: Reliance Securities has ‘Subscribe’ rating on the issue on the back of redoubtable parentage, high return ratios and reasonable valuation.
According to Angel Broking, assuming that the company maintains its historical average rate of dividend payouts, it would translate into a yield of 4-5 per cent for the investor. Apart from the favourable prospects of the company, the brokerage house also foresee decent gains on listing. Angel Broking recommends a ‘Subscribe’ to the issue.
(With agency inputs)