L&T Technology Services IPO, which hit the capital markets on Monday, subscribed by 18 per cent on the first day of offer till 5 pm. The company has fixed a price band of Rs 850-860 for the public offer. The public offer will close on Thursday, September 15, 2016. It has garnered over Rs 268 crore on Friday from anchor investors by selling shares at upper price band of Rs 860. The issue received bids for around 5.68 lakh shares against 72.80 lakh shares offered by the company till 5.00 pm, according to the data available with stock exchanges.
The company has allotted 31,20,000 equity shares to anchor investors which includes JP Morgan, DSP BlackRock, ICICI Prudential Life Insurance and Morgan Stanley. L&T Technology Services is an arm of engineering conglomerate Larsen and Toubro (L&T). L&T Technology provides innovative engineering as well as research and development services across sectors and has revenues worth of around $500 million.
For the year ended March 2016, The company reported a bottomline of Rs 434.24 crore, up 37.78 per cent, against Rs 315.18 crore a year ago. The company’s total income increased by 14.84 per cent to Rs 2,969.40 crore in 2015-16 as compared to Rs 2,585.62 crore in 2014-15.
According to Sharekhan, at a price band of Rs 850-860, the L&T Technology IPO is priced at 20.7-21.0 times 2015-16 consolidated earnings per share (EPS) of Rs 41. The company has better return ratio and earning profile than peers and some of the pure mid-cap IT service companies. At the upper price band of Rs 860, the PER valuation stands at 21x based on the FY2016 earnings.
Ajcon Global has given ‘Subscribe’ rating to the issue. The brokerage firm in a research note said, “At the upper end of the price band of Rs 860, the IPO is valued at a price-to-earnings ratio of 41 times at post issue 2015-16 EPS of Rs 40.96 which is in line with its immediate peers like Tata Elxsi. With due consideration to factors like underpenetrated corporate ER&D market, leading global pure – play ER& D services company, niche business model with very few players in India, well diversified player with multi – vertical industry expertise and long standing customer relationships, focused on driving innovation through in – house R&D, IP and strategic alliances, strong L&T parentage and long history of engineering expertise, marquee global clients, no Brexit impact as major operations in North America, robust ROE of 38.85 per cent, we recommend to ‘Subscribe’ to the issue for long term.
Other brokerage firms such as Angel Broking and KR Choksey have also given ‘Subscribe’ rating to the issue for long term.