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L&T Finance Holdings IPO opens: Should you subscribe?

Published on Wed, Jul 27, 2011 at 07:37 | Source : Moneycontrol.com

Updated at Wed, Jul 27, 2011 at 09:58

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A subsidiary of engineering & construction major Larsen and Toubro - L&T Finance Holdings is set to open its initial public offering for subscription on Wednesday, July 27. The company is going to raise about a Rs 1,092 crore out of total issue size of Rs 1,245 crore, a after successful pre-IPO placement.

Experts as well as broking firms advise subscribing the issue, citing company's good growth in previous years and L&T's brand name behind it. However, Rajesh Tambe of Suresh Rathi Securities holds a contrarian view.

Investment advisor SP Tulsian has recommended subscribing the IPO at the upper end of price band of Rs 51-59 per share.

"At the upper band, shares are being offered to public on a price-to-book value (PBV) of 2.23x, on a post-money basis. IDFC, India's leading infra financer with Rs 37,000 crore of outstanding infra loans, is ruling at a historic PBV of 1.9x 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," Tulsian explained.

He also said, "With NBFCs currently being the flavour of the season among marketmen, coupled with L&T's unparallel brand and parentage, the company looks promising given its historic growth and the impetus which the additional capital inflow will provide to the business in the coming quarters."

Now bids are expected to be in the price band of Rs 55-59 instead of Rs 51-59 a share as Rs 330 crore pre-IPO placement was done at Rs 55 a share while anchor book has seen subscription at Rs 56 a share today. The company received commitment of nearly Rs 153 crore from anchor investors.

Manish Bhatt of Prabhudas Lilladher too said one should subscribe the issue with short to long term view. He sees listing gains of Rs 6-12 a share.

"During the period FY09-11, the consolidated loan book of the company has grown at a CAGR of 56.6%, while the infrastructure financing book and retail & corporate book grew at a CAGR of 78.1% and 41.2% respectively," Bhatt said.

He said, "At the holding company level, the RoE's are around 15% levels. However, we believe RoE's could improve further to around 16-18% levels as the company leverages its balance sheet on an enhanced capital base and continues to grow at a pace faster than the industry."

L&T Finance Holdings has reserved Rs 50 crore worth of shares for employees, with a discount of Rs 2 to final IPO price and Rs 120 crore worth of shares for L&T shareholders. The issue will close on July 29.

The company has a presence in 23 states, with having 837 points-of-presence across India. It has reported a net profit of Rs 392.57 crore in the year ended March 2011 - a growth of over 49% compared to Rs 263 crore in FY10.

Broking firm Unicon Investments said, "The regulatory risks in the sector and the other macro factors are concerns, but we believe with diversified credit portfolio, better accounting norms L&T Finance can weather these issues better than its peers. Considering promoter's leadership position in the market, visible brand, better operational parameters & diversified credit portfolio, we expect L&TFH can command higher premium going ahead."

SMC Capital has advised subscribing the issue with long term view. "The company has a strong balance sheet and a well established infrastructure finance business. The company's financial product distribution business is also growing at a rapid pace. The strong promoter background also helps in raising funds at competitive rates. The issue price is priced at a premium to other listed peers," it explained.

The company's current net worth is around Rs 2,900 crore. Karvy Stock Broking said post issue net worth including a 30% growth for FY12 would come be around Rs 4,700 crore. "Assuming further profits of Rs 800 crore for FY13, net worth might increase to Rs. 5,500 crore; giving it a per share book value of Rs. 32.5. Since the RoE is around 15%, we would value the company at 2 times FY13 book arriving at a value of Rs 65/share implying an upside of 10% over the upper end of the IPO price band," it said.

Issue proceeds are proposed to be used for augmenting the capital base of L&T Finance and L&T Infra to meet the capital requirements arising out of expected growth in their assets, primarily the loan portfolio.

JM Financial Consultants Private Limited, Citigroup Global Markets India Private Limited and HSBC Securities and Capital Markets (India) Private Limited joint global co-ordinators as well as book running lead managers to the issue.

Barclays Securities (India) Private Limited and Credit Suisse Securities (India) Private Limited too are book running lead managers. Equirus Capital Private Limited is the co-book running lead manager.

Sunil Matkar

sunil.matkar@network18online.com