Day 3: Larsen & Toubro Infotech IPO oversubscribed, should you invest?

By: | Updated: July 13, 2016 9:54 AM

L&T Infotech IPO hit capital markets on Monday. The company has fixed a price band of Rs 705-710 per equity share for the public offer.

L&T infotech IPOL&T Infotech IPO hit capital markets on Monday. The company has fixed a price band of Rs 705-710 per equity share for the public offer.

L&T Infotech IPO hit capital markets on Monday. The company has fixed a price band of Rs 705-710 per equity share for the public offer. It has plans to raise Rs 1,234-1,243 crore at the lower and upper end of the price band, respectively.

Th issue was subscribed 3.58 times on the second day of offer, with investors bidding for 4.38 crore shares compared with 1.22 crore shares on offer.

L&T Infotech is a global IT services conglomerate promoted by Larsen & Toubro, which has 94.9 per cent stake (pre-issue) in the company, which will reduce to 84.6 per cent post issue. The public offer hit the market at a time when the post Britain’s exit from European Union (EU) there are uncertainties for select domestic software companies. L&T Infotech is the 6th largest IT company in India in terms of export revenues and among top 20 IT service providers in the world.

Read more: L&T Infotech IPO: 10 things to know

According to Choice Broking, the impact of Brexit is likely to be muted for L&T Infotech as its exposure to Europe is 17.4 per cent of its revenue. Of this, Denmark, Finland, Sweden and Iceland account for 11 per cent of revenue.

The company’s clients comprise some of the world’s largest and well-known organisations, including 49 of the Fortune Global 500 companies. Company’s growth has been marked by significant expansion of business verticals and geographies in which it does business.

The company has registered revenue CAGR (compounded annual growth rate) of 16.4 per cent over FY12-16. In the financial year 2015-16, it has reported a net profit margin of 15.8 per cent. Management of L&T Infotech is confident of doubling its revenue in next three years.

On the debt front, L&T Infotech is almost debt free. In the previous financial year, it has a return on equity of 45.6 per cent, which is higher than its peers.

Market experts are bullish on the IPO, Choice Broking in a research note said, “Declining margins and high revenue concentration are a risk for the company, given its strong parentage, business model, muted impact of Brexit, history of client retention and attractive valuation, we assign ‘Subscribe’ ration for the issue.”

Reliance Securities has given ‘Subscribe’ rating to the IPO on the back of scale, redoubtable parentage, high return ratios and reasonable valuation. Read more

Hem Securities said, “At price band of Rs 705-710 per share ( including Rs 10 discount to retail investor), the price-to-earnings (p/e) multiple will turn out to be 12.98-13.07 on post issue FY16 eps of Rs 54.31 of company. The company looks reasonably priced when compare to its peer Infosys (p/e of 20), Mindtree (p/e of 18), TCS(p/e of 20), Tech Mahindra (p/e of 16), Wipro (p/e of 15), HCL Tech (p/e of 14). Therefore on valuation parameter , L&T Infotech looks attractive to deploy the funds in. Hence, we are recommending ‘Subscribe’ on issue.”

Retail investors are offered a discount of Rs 10 equity share.

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