L&T Technology IPO opens for subscription on 12 September and will close on 15 September. The Vadodara-based engineering research and development (ER&D) arm of Larsen & Toubro (L&T) aims to mobilize INR894.4 crore (INR8.94 billion) by selling 10.4 million shares in the price band of INR850 – 860 per share. Shares of the company are proposed to be listed on NSE and BSE on 23 September.
Here are some important points for retail investors to know about the company before making an investment decision.
History: Very young. L&T Technology Services was incorporated in 2013 and the subsequent years have been eventful. The company acquired PES (Product Engineering Services) businesses from L&T Infotech in 2014 while parent L&T also passed on its IES (Integrated Engineering Services) business to L&T Technology Services in the next year. Nevertheless, a little over two years is a very short time and L&T Technology Services also acknowledges this.
OFS issue: As parent L&T owns 100% in the engineering research and development arm, L&T Technology IPO will be a pure offer for sale (OFS) public offer. This will be India’s fourth pure OFS IPO this year. As a result, L&T Technology will not get any proceeds from the IPO.
Business verticals: As mentioned above, the company offers engineering research and development services to clients in manufacturing, technology and process engineering industries. L&T Technology primarily operates in five industry verticals – Transportation (29.9% of revenues in FY2016), Industrial products (25.2%), Telecom and Hi-tech (19.8%), Process industry (18.7%) and Medical devices (6.3%).
Client concentration: L&T Technology Services has a fairly diversified base of 200 clients. Top 5 customers generated 22.8% on a combined basis in FY2016 while top 10 clients accounted for 36.2%. Business from top 20 customers accounted for 53.8% of L&T Technology’s revenues in FY2016. Calsonic Kansai, Caterpillar, Danaher, Eaton, Intel, John Deere, P&G, Rockwell Automation, Scania, Shell and UTC are among the major customers.
Geographic concentration: L&T Technology generated around 80.2% of its revenues in FY2016 from customers in North America and Europe. With a share of 60.4%, North America is simply the largest market for L&T Technology, while Europe accounted for 19.8% in FY2016. India contributed only 8.3% of revenues while rest of the world contributed 11.5%.
Profitable growth: In its limited operating history, L&T Technology has fared well to expand the business. L&T Technology Services generated revenue of INR3,142.7 crore (INR31.42 billion), marking a growth of 18.9% from the previous year. Similarly, its profits after tax (PAT) surged 34% in FY2016 to INR416.6 crore (INR4.16 billion).
Valuation: In the recently concluded financial year, L&T Technology Services generated diluted earnings per share (EPS) of INR32.1. Accordingly, the upper price band of INR860 per share values L&T Technology IPO at a price to earnings (P/E) ratio of 26.8. This compares with a PE ratio of 14.7X for Cyient Limited and 37.8X for Tata Elxsi Limited. L&T Technology Services has a high return on net worth (RONW) of 38.85% which compares with 17.4% for Cyient Limited and 40.1% for Tata Elxsi Limited.
In the coming days, we will publish our review of the upcoming IPO, so keep coming back to IPO Central or follow us social media. Meanwhile, refer to our page on L&T Technology IPO to participate in a lively discussion.