L&T Infotech IPO Valuation and Review
Stock Market is in bullish trend and making new highs every day. We can see the same success in the latest listed company Mahanagar Gas which was subscribed 64 times and debuted with 30 percent premium on bourses.
Quess Corp which has just closed its IPO subscription window was subscribed massive 144 times and is going to be listed soon on bourses.
The latest in the IPO series is L&T Infotech which is going to open its IPO subscription window on 11th July to 13th July at a price band of Rs.705 to Rs.710 for public offer of up to 1.75 crore equity shares making issue size of around Rs.1,225 crore. Let us sail through the pros and cons of L&T Infotech IPO and decide whether to invest in L&T Infotech IPO or not?
Business Overview of L&T Infotech
Incorporated in 1996 and headquartered in Mumbai, L&T Infotech is one of the leading IT service provide in India having Larsen & Toubro Limited as its promoter which is India’s leading conglomerate in engineering, construction, manufacturing, finance and technology.
L&T Infotech provides various IT services including IT consulting, system integration, Custom application development and management, Network Consulting and Integration, Software Testing along with IT education and training.
According to NASSCOM, in 2015 L&T Infotech stood at the sixth largest Indian IT Services Company in terms of export revenue and amongst the top 20 IT services providers globally according to the Everest Group’s PEAK Matrix. Company’s clientage includes 49 of the Fortune Global 500 Companies engaged in banking and financial services, insurance, automotive, aerospace and pharmaceuticals sectors. As of 31st May, 2016 Company is maintaining 22 delivery centres and 41 sales offices globally.
For the year 2016 company has accounted 68.60% of its revenue from USA and remaining from Europe, Asia Pacific and Rest of the World.
Features of L&T Infotech IPO
- Issue Opens On: Monday July 11th, 2016
- Issue Closes On: Wednesday July 14th, 2016
- Issue Type:100% Book Building
- Issue Price Band: Rs.705–Rs.710 per share
- Discount: Rs.10 to Retail Category Only
- Face Value Per Share: Rs.1
- Minimum Bid Lot: 20 Equity Shares and in multiples of 20 equity shares thereafter
- Minimum Order Value: Rs.13,900 to Rs.14,000 (after discount)
- Issue Size: Rs.1,225 crore
- Proposed Listing: Bombay Stock Exchange and National Stock Exchange
- Lead Managers: Citigroup Global Markets India Private Limited, Kotak Mahindra Capital Company Limited and ICICI Securities Limited
- Registrar: Link Intime India Private Limited
- Company Promoters: Larsen and Toubro Limited
- Download L&T Infotech IPO Prospectus HERE
Objectives of L&T Infotech IPO
The public offering is purely an offer for sale with the parent firm Larsen and Toubro Ltd looking to divest about 10.3% of its stake in the company. The sole objective of the issue is to achieve the benefits of listing on the bourses and providing liquidity to the existing shareholders. Company’s public image and brand will also be enhanced after listing.
Apart from the above, net proceeds from the IPO would be utilized to pay the offer expenses including fees to book manager, listing fees and stationery.
Category wise Proportion of L&T Infotech IPO
|Allocation (% of Issue Size)||Percentage|
|Qualified Institutional Buyers (QIB)||50%|
|Non‐Institutional Buyers (NIB)||15%|
Financial Performance of L&T Infotech Limited
- From the past 5 years company is growing at CAGR of 13%. The revenue from operations have increased from Rs.3,182 crore in FY 2012 to Rs.5,847 crore in FY 2016.
- Company has able to operate at an awesome EBIDTA margins of 22.50% for the past 5 years. Higher EBIDTA margin shows the company potential to speed up the growth in future.
- Profits after Tax on sales i.e. funds attributable to shareholders for the past five years remains at an average of 15%. Company has increased PAT on sales from 13.60% in FY 2012 to 15.77% in FY 2016.
- Return on Net Worth has been outstanding at 45% for the last 3 years. Higher the RoNW better the chances of company’s attracting high Net-worth investors for long term.
- EPS of the company for the last Financial Year was Rs.56.13 i.e. rise of 37% from EPS of Rs.40.86 in FY 2014.
- Net asset value per Equity Share of the company as on March 31, 2016 on a consolidated basis is ₹ 119.11.
Turn-On Points of L&T Infotech IPO
- NASSCOM has ranked L&T Infotech as sixth largest company in India in terms of export revenue. Company has accounted more than 68% of its revenue through the North America which is one of the biggest importers of Indian IT services. The chart below shows the share of Indian IT-BPM exports to various countries in fiscal year 2016:
- Company’s strategy is to focus on existing customer rather than seeking new customers. Company has generated 96.9%, 98.1% and 96.9% in the year Financial Years 2016, 2015 and 2014 from the existing customers. This gives an impression of slow mover but financial performance of the company shows prioritising old customers seems to be working hugely in favour of company i.e. revenue from operations has almost doubled in last five years with high operating profit margins. Company has been working with two of its biggest clients for more than 10 years.
- L&T Infotech is a part of one of the biggest diversified industry in India. Being a part of L&T Group whose business ranges from hydrocarbons, aerospace, automotive, heavy engineering and oil and gases etc. company gets benefited from insight experience of the businesses that operates in these verticals.
- With the benefit of Business-to-IT Connect Model Company is focusing on emerging technologies such as cloud computing, Cognitive Computing, Business Process Digitisation and Enterprise Integration and has won several awards for its application such as in FY 2015 World Innovation Congress recognised company’s “ServiceFirst” application as the “most innovative Cloud platform as a service.
- Company has been working to expand its operations in new geographical areas including Australia, Singapore, Japan, South Africa, India, Germany, France, Nordic region and the Middle East.
Turn-Off Points of L&T Infotech IPO
- Company’s dependency on few customers and few geographical regions makes company’s vulnerable to a sever dip in revenue in case of any disputes.
- Company’s Directors, Subsidiaries, Promoter and Group Companies are involved in certain legal proceedings which may adversely affect the company if outcomes are against the company.
- Since most of the company’s revenue comes from export, company is exposed to exchange rate fluctuations which could negatively impact our business, financial condition and results of operations.
Should You Invest in L&T Infotech IPO
There is absolutely nothing to dislike in L&T Infotech IPO. Sustained growth, high EBIDTA margins, Huge Return on Net Worth and a Reputed Brand Image. L&T Infotech IPO has it all.
Regarding L&T Infotech IPO Valuation, at an asking price of Rs.695 to Rs.700, taking base of EPS of Rs.56.13 per share in FY 2016, PE works out to be 12.38X at floor price and 12.47X at cap price (after discount).
In comparison to the industry peers, L&T infotech stands above Wipro, HCL Technologies and Tech Mahindra which are trading at PE of 15.6X, 15.6X and 14.7X based on their EY 2016 EPS of Rs.36.20, Rs.52.30 and Rs.32.24 per share.
RoNW of these peer group companies of 20.30%, 28.60% and 23.40% also stands way lower than L&T Infotech of 45% in the preceding two financial years.
After taking view of the valuations, L&T Infotech IPO seems to be fairly priced which left some rooms for listing gains. I would highly advice in favour of bidding for L&T Infotech IPO to earn some quick bucks.