Should one subscribe to L&T Finance IPO?

July 26, 2011   ·   0 Comments

Ltd (LFHL) is financial holding company offering a diverse range of financial products and services across the corporate, retail andInfrastructure finance sectors, as well as mutual fund products and investment Management services, through its direct and indirect wholly owned subsidiaries. LFHL is registered with the RBI as an NBFC-ND-SI. It is promoted by Larsen & Toubro Limited (“L&T”), one of the leading companies in India, with interests in engineering, construction, electrical and electronics manufacturing and services, information technology and financial services. As of May 31, 2011, the market capitalization of L&T was Rs 1001 billion

www.stockssavvy.comInvestor Base & Anchor Investors: L&T Finance Holdings is entering the capital market on 27th July 2011 to raise Rs. 1,245 crore via a fresh issue of equity shares of Rs.10 each, priced between Rs. 51 to Rs. 59 per share. While Rs. 120 crore of the issue size is reserved for L&T shareholders, Rs. 50 crore is reserved for L&T group employees, the employees alone being offered a discount of Rs. 2 per share, reducing the net IPO size to Rs. 1,075 crore. The issue represents 12.5% of the fully diluted post issue paid-up capital of the company at the upper end of the price band and closes on 29th July. It will open for anchor investors a day earlier, on July 26. The company is aiming for a 17% stake dilution. The issue will list by August 10-12, a banker said.

Issue Snapshot:

Issue Open: July 27, 2011 – July 29, 2011

Price Band: Rs 51 – Rs 59

Issue Size: Rs 1245 crs (including employees – Rs.50 cr and L&T shareholders – Rs.120 cr)

Issue Size: 21.1 – 24.4 crs shares

QIB upto 50% eq sh

Retail atleast 35% eq sh

Non Institutional atleast 15% eq sh

Face Value: Rs 10

Book value: Rs 20.40 (March 31, 2011)

Bid size: 100 equity shares and in multiples thereof 100% Book built Issue

Capital Structure:

Pre Issue Equity: Rs. 1477.02 crs

*Post issue Equity: Rs. 1748.04 crs

*Assuming the issue is subscribed at the upper price band

Listing: BSE & NSE

Lead Managers: JM Financial Consultants Pvt Ltd, Citigroup Global Markets India Pvt Ltd, HSBC Securities & Capital Markets (India) Pvt Ltd, Barclays Securities (India) Pvt Ltd, Credit Suisse Securities (India) Pvt. Ltd

Co- Book Lead Manager: Equirus Capital Pvt Ltd.

Registrar to issue: SharePro Services (India) Pvt Ltd

Shareholding Pattern

Pre Issue Post Issue
Promoters & 

Promoter Group

95.94 % 81.06 %
Public (includin institutions 

& employees)

4.06% 18.94%

*Assuming the issue is subscribed at the upper price band

CARE & ICRA IPO grading: CARE IPO Grade 5 and ICRA IPO Grade 5 indicating Strong Fundamentals.

Objects of Issue:

The objects of the Issue are:

  • Repayment of inter-corporate deposit issued by its Promoter to LFHL
  • To augment the capital base of L&T Finance and L&T Infra, to meet the capital adequacy requirements to support the future growth in their business
  • Benefit of listing of the Equity Shares on the Stock Exchanges.
  • General Corporate Purposes

What stands for L&T Finance:

  • Diversified and balanced mix of high growth businesses
  • Strong distribution network, with a presence throughout India:
  • Experienced management team and employees with a proven track record of establishing and growing new lines of business
  • High quality loan portfolio comprising the funding of mainly income-generating assets and activities
  • Good financial and capital position, as well as access to multiple sources of capital
  • Strong parentage and brand equity of L&T
  • Continue to expand its business to include new products and services, as well as entirely new lines of business
  • Increase the market penetration of its existing products and services
  • Continue to focus on two key Indian growth stories: infrastructure and rural development
  • Continue to focus on the growth of its retail loan portfolio:
  • Continue to attract and retain talented professionals

Company Financials:

Particulars FY11 FY10 % Chg
Total Income 2114.84 1423.92 48.52
PAT 392.57 263.01 49.26
EPS (on pre-issue equity) 2.66 1.78 49.26
EPS (on fully diluted equity) 2.25

Peer Comparison of L&T Finance:

PAT EPS BV PE PBV
Shriram Transport Fin 1217.11 53.81 216.19 12.98 3.23
Chola Investment 99.03 8.29 88.98 21.36 1.99
IDFC 1281.65 8.77 76.87 16.14 1.84
L&T Finance 392.57 2.87 20.40 At Rs 51 – 17.77 

At Rs 59 – 20.55

At Rs 51 – 2.50 

At Rs 59 – 2.89

IDFC, India’s leading infra financer with Rs. 37,000 crore of outstanding infra loans, is ruling at a historic PBV of 1.84x while the country’s largest commercial vehicle financing NBFC Shriram Transport Finance with AUM of Rs. 36,000 crore is currently ruling at PBV of 3.2x. M&M Financial Services, another NBFC with strong retail presence and AUM of Rs. 15,200 crore, is quoting at PBV of 2.9x. Thus, taking a composite view on the price-to-book multiple, the IPO pricing seems attractive.

L&T Finance Holding Analysis:

L&T Finance Holdings has a strong retail reach with 837 points-of-presence spread across 23 states. It reported total income of Rs. 2,111 crore and earned PAT of Rs. 393 crore in FY11, resulting in EPS of Rs. 2.87 on equity of Rs. 1,417 crore, as of 31-03-11. With a networth of Rs. 2,891 crore and BVPS of Rs. 20.40, the company’s loan book stood at Rs. 17,400 crore of which 41.44% was towards infrastructure financing and balance towards retail and corporate financing. For FY11, company’s RoE stood at 13.58%

Coming onto the valuations of the issue, at the upper band of Rs. 59 per share, shares are being offered to public on a price-to-book value (PBV) of 2.23x, on a post-money basis. On listing, company will command a market cap of Rs. 9,960 crore, at a price of Rs. 59 per share. This is an attractive valuation for an NBFC, when compared with other listed peers. Although no apple-to-apple comparison can be made with L&T Finance Holdings since no company, presently in the listed space, offers both infra and retail and corporate loans on a significant basis, a blended valuation of few NBFCs will help in the benchmarking.

Verdict: Company gives an opportunity for the Retail investors who have been sitting on side-lines or for those Retail investors who wants to start investing in Stock market but don’t know where to start from. L&T has a past year on year track record where they have taken care for their investors. Investors should invest in the stock. Similarly, Stock should list around 65 Rs. by watching grey market premium which is quite excited about this issue. This could increase if the interest comes more than anticipated. As the issue is large, one can expect good amount of stock allotment though Issue will be subscribed multiple times.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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