 L&T Infotech may list in 2008: DeosthaleePublished on Fri, Jun 01, 2007 at 10:47 | Source : Moneycontrol.com Updated at Mon, Jun 04, 2007 at 16:26 110865 Investors following Larsen. Share this News with them.
Y M Deosthalee , CFO of L&T, said the Larsen Infotech IPO is likely to come in 2008, though there are no definite time plans for listing of L&T IDPL and the finance arm. Most projects under IDPL will be commissioned by 2009 and L&T IDPL may list in 2009, he said. The asset base of L&T Financial will be raised to Rs 7,000-8,000 crore in two-to-three years, he added.
Excerpts from CNBC-TV18's exclusive interview with Priyanko Panja and Y M Deosthalee: Q: Have you done any analysis of how much value is captured in the subsidiaries and by when they can start getting unlocked? Panja: In terms of Larsen's subsidiaries, joint ventures and associates, it's a very complex web. We expect somewhere around three IPOs, in terms of IDPL, its finance subsidiaries put together, and Larsen Infotech, over the next two-three years. They are likely to be at a base value of a billion dollars each and in a slightly phased manner, given that the first one of the block could be Larsen Infotech. Q: Do you have a roadmap, which you can share with us, of the kind of value unlocking plan you may have as a management whether through IPOs or any other route?
As far as other companies are concerned, there is no definite time plan. L&T IDPL has more then 30 odd companies and SPVs under its fold. What's important is that many of these SPVs are generating cash, which is accruing to L&T IDPL. Apart from that, we have some more projects. It becomes a continuous cycle and there is a visibility in cash flow. By 2009, we expect most of these projects to be commissioned; especially the five large road projects which we are currently implementing, the airport project, which is under implementation, and a couple of hydel projects. They are likely to be completed by 2009. In 2007, we expect some more projects to come our way, as there is some bidding, which is going to take place in the next few months. If that happens, we will have a portfolio churning cycle and a visibility in terms of cash flow. That's why we are saying that may be three years down the line we will look at listing these entities. However, if some positive developments take place in between, we may accelerate the pace as well but as of now it's going to be around 2009. As far as financial services' subsidiaries are concerned, there are two of them and it's very important that we have robust business model over there. The asset base of these companies has to grow significantly.
For instance, L&T Finance has an asset base of Rs 3,000 crore at present. We are planning to take it to about Rs 7-8,000 crore in the next two years. Once that happens, we will have reasonable large market share and then we will look at listing. I do not think that it is going to take place before 2009.
Q: For IDPL, what sort of land bank does it have or rather what sort of land bank do the subsidiaries, which is the urban infrastructure development part of the company, hold at this point? Deosthalee: IDPL does not have a land bank. It has a subsidiary called L&T Urban Infrastructure, which is a joint venture between L&T IDPL and HDFC , and that is promoting projects in the real estate sector. We have not been acquiring land over the last few years, as that's not the business model which we work with. We have partnerships with people who have a land bank or have land and we jointly develop these projects. That's the way we go about it. As present, we have about 30 million sq ft of property under development and they are in various cities, so we are not aggressively acquiring land. In the last one-year, we have taken some steps in terms of acquiring land parcels in some parts of the country but they are not very large. We typically do joint developments with some other promoters or entrepreneurs.
Q: For these three businesses - Infotech, Finance, and IDPL - what sort of per share value have you ascribed? Panja: It would contribute somewhere around 20%, based on our current calculations of the stock valuation. As we approach ramp ups on project portfolios, the additional asset bases, that some of these subsidiaries gather, would potentially be somewhere around 30% of the stock valuation over a period of time. Q: What could be the current value because investors would try to value these independent businesses - L&T Infotech and IDPL? What kind of a ballpark valuation could one ascribe to these subsidiaries? Deosthalee: I can't talk on valuations; it's for analysts to really look at valuations. I can only provide information to them. I think it's for the market and analysts to really value these entities. We don't make any guess work on valuations.
Q: Perhaps you could tell us the size of the businesses of IDPL and L&T Infotech?Deosthalee: Last year, L&T Infotech clocked a turnover of about Rs 1,280 crore. There are two other small entities, which are not part of L&T Infotech, but they are sitting in L&T Holding Company. They are into engineering services and embedded systems. If you take all of them together, the total revenues will be in the range of Rs1,500 crore. The combined profitability of all these entities will be in the range of about Rs 175 crore. Margins have improved smartly and there is a significant growth of almost 60% last year vis-เ-vis the previous year. The profit of L&T Infotech, which was around Rs 70 crore in 2005-06, has increased to Rs 150 crore during March 2007.
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Deosthalee: As far as L&T Infotech is concerned, we are looking at 2008 as the probable year for listing and we are still working on that time plane. The company has done exceptionally well last year, and we now need to ensure that there is sustainable growth and continuous improvement in terms of profitability, so that when we go to the market, we have a good story to talk about. At present, we are sticking to our plan of late 2008.
Q: Which of these businesses excite you as an analyst and in terms of value unlocking? Can you talk a little bit about how you foresee things shaping up for L&T Finance in specific?
Panja: Larsen's IDPL portfolio and the entire infrastructures project portfolio are very exciting. From a near-term trigger view point it is not going to show any dramatic improvement as Deosthalee said it is going to take time to ramp up. Over a period of time, some of these projects start showing significant amount of cash and they will be basically self-feeding their growth going forward.
In terms of improvement of margins, Larsen Infotech has a fantastic growth trajectory that they have been charting for sometime. The understanding that we have got from the management also looks very exciting.
For Larsen Finance, my understanding is that it basically supports the core and auxiliary business at this point of time for L&T. Going forward, we will start look more at the third parties side of the business.
What excites me the most is L&T's core business from a one-to-one-and-a-half years perspective.
This given the fact that multiple layers of verticals and business drivers, on an L&T's group perspective, is opening up in sectors like defense, air space, energy on the overseas front to coal-bed methane, large airports, transportation and infrastructure. The company is also building up a strong engineering portfolio, which is the most exciting thing to watch out for in the near- to medium-term perspective. Over a period of time, as some of the subsidiaries start unlocking value, it would be the second layer of triggers that we would be riding on the stock from a stock valuation viewpoint from a medium- to a longer-term perspective.
