L&T Infotech IPO Review – Should you invest?
Mumbai based, L&T Infotech IPO would open for subscription on 11 th July, 2016. L&T Infotech Limited is one of the India’s leading global IT services and solutions companies. The company revenues grew at 20% CAGR in last 5 years. This is the 13 th mainline IPO in India in 2016. What are the positive factors in a L&T Infotech IPO? What are the hidden factors about this IPO? Should you invest in this L&T Infotech IPO or not? In this article, I would do L&T Infotech IPO Review, would give reasons to invest and reasons not to invest. Myinvestmentideas is the unique blog that gives unbiased review about the IPO's in India.
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About L&T Infotech Limited
L&T Infotech is one of India’s leading global IT services and solutions companies. In 2015, NASSCOM ranked it as the sixth largest Indian IT services company in terms of export revenues. They are amongst the top 20 IT service providers globally in 2015 according to the Everest Group’s PEAK Matrix for IT service providers. Its clients comprise some of the world’s largest organisations, including 43 of the Fortune Global 500 companies. They offer an extensive range of IT services to its clients in diverse industries such as banking and financial services, insurance, energy and process, consumer packaged goods, retail and pharmaceuticals, media and entertainment, hitech and consumer electronics and automotive and aerospace. Its range of services includes application development, maintenance and outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions and platform-based solutions. They serve its clients across these industries, leveraging its domain expertise, diverse technological capabilities, wide geographical reach, an efficient global delivery model, thought partnership and “new age” digital offerings.
Issue details of L&T Infotech IPO
- IPO opens: 11-Jul-2016
- IPO closes: 13-Jul-2016
- Face Value: Rs 1 per share
- Issue price band: Rs 705 to Rs 710 per share (updated). Retail investors would get Rs 10 discount.
- Issue size: Rs 1,400 Crores on lower price band
- Market lot: 18 shares and in multiples of 18 shares therein
- Minimum investment: Rs 12,780 on lower price band (excl discount)
- Lead Managers: Citi Global, Kotak Mahindra, ICICI Securities.
- Listing: BSE / NSE
- Download L&T Infotech IPO Prospectus at this link.
Objects of the L&T Infotech IPO issue
- To achieve the benefits of listing the Equity Shares on the Stock Exchanges and
- To carry out the sale of up to 17,500,000 Equity Shares by the Selling Shareholder. The company would not get any proceeds.
- Issue expenses.
Company Financials (reinstated-Consolidated)
- The company generated revenue of Rs 2,462.68 Crores for the year ended Mar-11 and Rs 5,069.53 Crores for the year ended Mar-15. Revenues for the year ended Mar-16 are awaited.
- The company posted a profit of Rs 331 Crores for the year ended Mar-11 and profit of Rs 769.16 Crores for the year ended Mar-2015. Profits for the year ended Mar-16 are awaited.
- Its restated EPS for FY 2015 is Rs 47.21 and last 3 years average EPS Rs 43.77
Reasons to invest in L&T Infotech IPO
- Strong revenue growth of 20% CAGR in last 5 years.
- Good Profits of over 15% in last couple of years.
Reasons not to invest in a L&T Infotech IPO
- Company, its Directors, Subsidiaries, Promoter and Group Companies are involved in certain legal and other proceedings.
- Company business will suffer if they fail to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology and the industries on which they focus.
- Intense competition in the market for technology services could affect its pricing, which could reduce its share of business from clients and decrease its revenues and profitability.
- Company revenues, expenses and profitability may be subject to significant fluctuation and hence may be difficult to predict. This increases the likelihood that its results of operations could fall below the expectations of investors and market analysts, which could cause the market price of the Equity Shares to decline.
- Exchange rate fluctuations in various currencies in which they do business could negatively impact its business, financial condition and results of operations
- Company revenues are highly dependent on clients primarily located in North America and Europe, as well as on clients concentrated in certain industries, notably banking and financial services, insurance, energy and process, and consumer packaged goods, retail and pharmaceuticals. Its revenues are also dependent on two service lines; therefore, an economic slowdown or factors that affect the economic health of North America or Europe, these industries or these service lines could adversely affect its business, financial condition and results of operations.
- Company revenue depends to a large extent on a limited number of clients, and its revenue could decline if they lose a major client.
- Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 19 onwards.
Recommendation / Investment strategy – L&T Infotech IPO
- On the upper price band of Rs 710 and on FY15 EPS of Rs 47.21, P/E ratio works out to 15x. Similarly, on last 3 years EPS of Rs 43.77, P/E Ratio works out to 16.2x. Means company is asking the upper band of issue price of Rs 710 for a P/E ratio between 15x to 16.2x.
- Its listed peers like TCS is trading at a P/E ratio of 25, Infy at 20, Wipro at 17.8 and HCL at 17.7. Hence, the L&T Issue price of Rs 710 is reasonably priced. Retail investors would get Rs 10 discount on this price too. Means, retail investors would get this at Rs 703 on upper price band.
- Company revenues grew at 20% CAGR in last 5 years. Its margins are also good. Its issue price is reasonably priced. Considering all these factors, one can invest in this IPO from a long term perspective. If you are able to get good listing gains, you can have a party too.
Disclaimer : I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy this IPO. Please consult your investment advisor before you invest in such high risk investment options.
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