Construction major Larsen & Toubro and Canadian pension fund manager Canada Pension Plan Investment Board (CPP) have sold their 100% stake in L&T IDPL, infra asset ownership entity, for `6,000 crore EV. `2,720 crore is the gross equity receipts with L&T’s 51% share implying `1,390 crore receipt.
Buoyant equity markets is helping L&T with its monetisation drive as management is always focussed on selling assets at a reasonable valuation. Over the next 12-36 months, we believe Nabha Power and Hyderabad Metro are the incremental ones being targeted.
Reduction of IDPL’s annual loss of `100-150 crore will help EPS: L&T IDPL reflected as a JV investment for L&T and hence there will be no debt reduction for the consolidated B/S from this sale. L&T’s investment value is approximately `1,100-1,150 crore, and the gain of `240-290 crore on sale post tax will be a one off gain. However, between reduction of IDPL’s annual loss in JV and other income from the `1,300 crore proceeds post tax, L&T’s FY24-25estimates EPS could see 1.5-2% accretion.
Transaction could take 1-2 quarters to be completed. L&T is in a sweet spot as both domestic and middle east prospects are looking bright. FY22-25 estimates, we anticipate the core E&C Ebitda to rise at 22% CAGR vs 16% in FY15-19 when it traded at 12x EV/Ebitda. Our SOTP based PT of `2,455 is based on 12x core EV/ Ebitda Sept. 24E. Downside risks: (i) Management not following prudent capital allocation (ii) Govt reducing focus on capex spend.
