AM Naik Close to His Dream of Listing Larsen & Toubro Infotech 

Larsen & Toubro Ltd. Chairman AM Naik's decade-old dream of listing the Rs 1.44 lakh crore conglomerate's technology arm is about to come true.

L&T Infotech announced an initial public offering of 17,500,000 equity shares at a price band of Rs 705 – 710 per share, valuing the company at close to Rs 12,000 crore.

The promoter, L&T holds 94.94 percent stake in the company and is offering to sell 10.85 percent of its stake via the IPO.The issue will open on July 11 and close on July 13. L&T will raise close to Rs 1,230 crore at the upper end of the price band, after providing a Rs 10 per share discount to retail investors.

L&T Infotech's IPO is an offer for sale made through the book building process. Fifty percent of the issue has been reserved for qualified institutional buyers, 15 percent for high net-worth individuals and 35 percent for retail investors.

Revenue Matrix

L&T Infotech earns 95 percent of its revenue from clients outside India. But since it services its clients from India via the outsourcing model, 42 percent of its expenses is in rupees.

The company gets 69 percent of its revenue from North America, 17.4 percent from Europe and the remaining from India and the rest of the world.

Revenue from application development, maintenance and outsourcing, and enterprise solutions service lines amounts to 42 percent of the overall revenue.

Financial Highlights

• Net worth: Rs 1,863.27 crore.
• Debt free company, with cash balance of Rs 203.36 crore.
• Revenue for the financial year 2015-16: Rs 6,143 crore.
• Compounded annual growth rate (CAGR) of 17.8 percent between 2011 and 2016.
• Net profit for the financial year 2015-16: Rs 922.2 crore.
• CAGR of 20.8 percent between 2011 and 2016.
  

At the upper end of the price band, i.e., Rs 710, the earning per share and price to earnings ratio for financial year 2015-16 are Rs 56.13 and 12.64 times, respectively.

At the lower end of the price band, i.e., Rs 705, the P/E multiple stands at 12.56 times.

Peer Comparison

The information technology industry has companies like Infosys Ltd., Tata Consultancy Services Ltd., HCL Technologies Ltd., Tech Mahindra Ltd. and Mindtree Ltd.

L&T Infotech is comparable with Mindtree in terms of market capitalisation. Mindtree has a market capitalisation of around Rs 11,300 crore. The IPO values L&T Infotech at around Rs 12,000 crore.

L&T Infotech's earnings margin before tax, interest, depreciation and amortisation (EBITDA) remained flat over the past two years at 21.6 percent. Meanwhile Mindtree's earnings margin slipped in financial year 2015-16 to 20.8 percent.

The L&T subsidiary's total revenue and net profit grew at a CAGR of 17.8 percent and 20.8 percent respectively in the financial year 2011-12 to financial year 2015-16 period. That's lower than Mindtree's 25 percent growth in revenue and 28.9 percent growth in profit, over the same period.

According to data compiled by BloombergQuint, for the financial year 2015-16, L&T Infotech has a price to earnings ratio of 12.64 times at the upper end of the price band, compared to 18.70 times for Mindtree. If the company maintains a CAGR of 20.8 percent for its net profit in the financial year 2016-17, the company's price to earnings ratio is expected to be at 10.75 times, compared to Bloomberg consensus estimate of 16.40 times for Mindtree.

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