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Issue Details

L&T InfoTech has fixed a price band of Rs.705-710 per share of face value Rs. 1/- for its IPO which shall open on July 11 & close on July 13.At the upper end of the price band, the IPO size would be approx Rs. 1,240  crore.  The IPO does not entail raising any fresh capital and is a pure offer for sale wherein L&T is looking to divest about 10.85% of its stake in the company. The company is offering a discount of Rs.10 for retail investors.

Managers to the Issue : Kotak Mahindra Capital Company, Citigroup Global Markets India and ICICI Securities.

Issue Allocation: 50% QIB, 15% NII & 35% RETAIL.

Business

L&T InfoTech was incorporated in 1996 and is  headquartered in Mumbai.  The company has successfully leveraged the strengths and heritage of Promoter, Larsen & Toubro Limited, a leading Indian conglomerate in engineering, construction, manufacturing, finance and technology. The company offers IT services to  clients in diverse industries such as banking and financial services, insurance, energy and process, consumer packaged goods, retail and pharmaceuticals, media and entertainment, hi-tech and consumer electronics and automotive and aerospace. The range of services includes application development, maintenance and outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions and platform-based solutions.

As per sales as well as Exports , L&T InfoTech is ranked as 6th largest Indian IT services company. It is amongst the Top 20 IT service providers globally in 2015. The company has 22 delivery centres and 44 sales offices globally and more than 20,000 employees.

In terms of geographies addresses, L&T InfoTech derives the largest share of its revenue from North America (69.4%) followed by Europe (17.2%)  Asia Pacific ( 2.2%)  while the remaining 6.2% of the revenue is contributed by rest of the countries.

L&T InfoTech has acquired three firms till date — GDA Tech, a US-based electronic design company in 2007; the transfer agency business unit of Citigroup in Canada in 2011; and in 2015, Information Systems Research Centre.

Financials:

The financial figures for last 5 years are as follows

Particulars 2015-16 2014-15 2013-14 2012-13 2011-12
Revenue from operations 58470.6 49780.36 49204.98 38514.39 31820.15
Total income 61430.21 50695.36 48371.8 38735.43 31915.99
Operating profit 13315.76 10959.57 10639.65 8925.95 6993.47
Finance cost 103.57 104.19 305.34 208.12 342.42
Profit  before  extraordinary  items and tax 11472.67 9275.98 9034.56 7486.15 5602.42
Profit Before Tax 11472.67 9266.26 8541.36 6778.37 5602.42
Current tax 1649.17 1630.45 1681.03 1631 1289.27
Deferred tax 600.44 35.76 261.85 46.99 119.79
2249.61 1666.21 1942.88 1677.99 1409.06
Net profit after tax bef extra Ord 9223.06 7608.08 6962.43 5616.62 4193.36
Extraordinary item (net of tax) 79.08 3002.42
Net profit after tax as restated 9221.77 7691.61 9283.42 5737.26 4331.48
Share capital 169.82 161.25 161.25 161.25 161.25
Reserves and surplus 20057.02 20102.23 15941.68 13226.74 10892.35
Total equity 20226.84 20263.48 16102.93 13387.99 11053.6
Financial Ratios
Price 710 711 712 713 714
EPS 54.3 47.7 57.6 35.6 26.9
PE 13.1 14.9 12.4 20 26.5
Revenue % growth 14.9 1.2 21.7 17.4
Operating Profit Margin 22.8 22 21.6 23.2 22
Net profit Margin 15.8 15.3 14.1 14.6 13.2
Return on Net worth 45.6 37.5 43.2 42 37.9

 

 

How L&T Stacks against Biggies of  IT Industry (all figures in Rs. Crore)

 

Rank Name Sales (2016) Net Profit Face Val CMP Rs. Eq Cap Market Cap EPS P/E RONW Div yld%
1. TCS 1,08,646 24291 1 2,501 197.04 4,92,797 123.28 20.29 41.3 1.7
2. Infosys 62,441 13490 5 1,172 1144.00 13,41,226 58.96 19.88 25.2 2.1
3. Wipro 51,248 8960 2 559 494.10 2,76,152 36.27 15.41 21.4 1.1
4. HCL Technologies 30,781 5605 2 732 281.20 2,05,754 39.86 18.35 32.8 2.3
5. Tech Mahindra 26,494 3156 5 511 480.40 2,45,677 32.85 15.57 24.5 1.2
6 L&T Infotech 6,143 922 1 710 16.98 12,056 54.30 13.08 49.5 4.6 *
7 Oracle Fin.Serv. 4,092 1166 5 3,459 42.31 1,46,369 137.79 25.11 19.5 19.2
8 Mphasis 6,087 669.38 10 569 210.15 1,19,628 31.85 17.87 12.4 2.8
14 Cyient 3,095 314.79 5 486 56.18 27,301 28.02 17.35 20.6 0.6
  • Based on last year payout

L&T Infotech enjoys the highest RONW% among the top eight IT Players & PE at which it is being offered is reasonable.
Notable Points & Assessment:

  • In terms of revenues the company is the sixth largest in revenue and is placed just after Tech Mahindra even though Tech Mahindra revenues are  75x revenues of L&T Infotech
  • The company enjoys strong credibility due to professional image of its promoter company L&T. This also provides company unique strength in IT solutions for some areas like engineering, hydrocarbons, energy, construction etc.
  • L&T InfoTech is at  threshold of the prestigious $1 Billion milestone revenue.
  • Client Retention rates of L&T Infotech are impressive. In 2015, around 97.9% of its business was generated from existing clients across various verticals. The company has been engaged with over 100 clients for more than three years and had been doing business with two of its largest clients for over ten years.
  • L&T InfoTech has been historically dependent on North America and Europe for most of its revenues. In financial years 2016 North America contributed 69% and Europe contributed  4%.
  • L&T InfoTech looking at acquisitions in Germany, France and the Nordic region. The company said it would continue expanding its presence in the United States and Europe. It plans to expand its reach to other markets such as Australia, Singapore, Japan, South Africa, and West Asia
  • The company has received negative publicity when it delayed recruitment of several students who were issued letters as far as 2014 and there were several protests by the students.
  • L&T Infotech faces risks due to possibility of slowdown in demand due to Global turmoil, Brexit roll out, sharp currency fluctuations etc.
  • L&T InfoTech has grown at a decent CAGR of 10% in last 5 years. Profits have grown albeit at a slightly lower rate. However the IT industry outlook of late is bit hazy.
  • AS per some reports L&T InfoTech earlier planned to come at a higher premium but seems to have cut it down to arrive at present price.
  • L&T InfoTech enjoys the highest RONW of 49% among the top eight IT Players and is almost double of Tech Mahindra and even better than TCS and Infosys.
    • L&T InfoTech enjoys the highest RONW of 49% among the top eight IT Players and is almost double of Tech Mahindra and even better than TCS and Infosys.
    • The top five player’s in IT industry trade between a price to earning band of 20 and 15.4 with the lowest being that of  Wipro. However NIIT technology another company in line trades at a lower PE of 11.5.
    • Based on the IPO price, company’s financial parameters and valuations commanded by Other IT companies, the issue seems to be reasonably priced and management seems to have given some leeway for a small amount of potential listing gains.

    Disclaimer: I am likely to subscribe to this IPO and hence my opinion could be biased. Also I am not a research analyst and above exercise is purely academic or for my own interest. Please weigh in all factors before investing.

    .

Disclaimer: I am likely to subscribe to this IPO and hence my opinion could be biased. Also I am not a research analyst and above exercise is purely academic or for my own interest. Please weigh in all factors before investing.

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