Another of L&T’s subsidiary
opened its IPO yesterday. This time around its L&T Technologies going for
an IPO, which opened yesterday and will close on 15-Sep-2016. The company being
a fully owned subsidiary of L&T will offer 10.4 million shares on sale with
a price range of INR850-INR860 per share. The issue will be ‘Offer of Sale’ by
L&T. Shares can be applied in lots of 16 shares and the retail investors
will be allotted 35% of the total issue. The company will not get any proceeds
from the IPO as promoters are selling a stake from the company.
This company was incorporated
only towards the end of 2013 even though it has existed for a long time before
that. Prior to this incorporation, the company was part of L&T and L&T
Infotech as 2 different divisions. Following the restructuring of the organization
in 2013, they were merged as a single entity and the new company was
incorporated. The company offers engineering R&D in the fields of
manufacturing, technology and process engineering industries in the verticals
of Transporation, Industrial Products, Telecom and Hi-tech, Processing Industry
and Medical Devices. The first 2 verticals account for 55% of the total
revenues.
Almost 95% of the revenues for
2016 for L&T Technologies are from repeat businesses (it was about 99% in
2015.) Top 20% of the customers account for about 54% of the company’s revenues
whereas the company has more than 200 clients in its roster.
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L&T Infotech’s consolidated financial performance (in
INR Million)
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|||||
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Details
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FY12
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FY13
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FY14
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FY15
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FY16
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Total revenue
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NA
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NA
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NA
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26438.00
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31427.00
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Operating Profit
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NA
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NA
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NA
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4239.00
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5966.00
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Net Profit
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NA
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NA
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NA
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3109.00
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4166.00
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Net Profit Margin
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NA
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NA
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NA
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11.70%
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13.20%
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Since the company was
incorporated only in late 2013, there are no financial performances available
prior to FY2015. Based on the last 2 years’ performance, the revenue has grown
by about 19% while profits have grown by about 34% in FY 2016 compared to the
previous year. The profit margin has also grown by 150 basis points to 13.20%
in 2016. This is a definite plus. The company’s RONW is also high at 38.85% on
par with Tata Elxsi. The company also has a very strong balance sheet (0.18% is
the Debt-Equity Ratio).
The company’s business is
dependent on North America and Europe with them contributing to 80% of the
revenue especially with North America contributing 60% to the total revenues.
This is definitely a concern as there are various risks associated with too
much dependence on a single territory.
The company had a diluted EPS of
Rs. 32.1 per share for the year ending March 2016 giving a PE (Price to
Earnings) range of 26.8 higher spectrum of the issue price. There are 2 listed
companies that operate in the same space as L&T Technologies, Cyient and
Tata Elxsi. The former trades at a PE of 14.7 while latter trades at a PE of 37.8.
L&T Technologies stands mid-way between the two.
L&T technologies seem to have
good robust growth story and engineering research as a business model seems to
get strong as time goes by. That said, the current environment in India doesn’t
distinguish this from the other IT services. Also, the overall IT climate seems
to have a bearish outlook for the next couple of years. Considering all these
factors, go for it if you are willing to take the risk of the listing at a
discount else wait until it lists. I am willing to take this risk. :)
