L&T Finance IPO: Should you go for it, or not?
Wed, 27 Jul 2011 01:29:26 -0600
Brokerage Nirmal Bang says the issue does not offer a potential upside on listing.
The IPO of L&T Finance Holdings, L&T Group’s financial services holding company, and a subsidiary of Larsen & Toubro, opened on July 27 at the price band of Rs 51-59 per equity share.
The Issue includes a reservation of equity shares for subscription by eligible employees aggregating up to Rs 50 crore and reservation of equity shares for subscription by L&T shareholders aggregating up to Rs 120 crore.
This is the biggest IPO issue of this financial year and the company expects to Rs 1,092 crore out of the total issue size of Rs 1,245 crore.
But given the weakness that has set in the market and the many headwinds the financial sector faces, is it a good idea to go for the IPO?
Brokerage Nirmal Bang has advised investors with long term perspective to 'subscribe' to the initial public offering of L&T Finance Holdings. "The issue looks fairly priced for the near term," the brokerage said, but warned that it does not offer a potential upside on listing.
Brokerage Sharekhan finds the valuatution reasonable as at 2.3x FY2011 book value, which is at a marginal premium to
players like IDFC, PFC etc though the business model is not strictly comparable. The company is present in high growth businesses (construction equipment finance, transport
equipment finance, infrastructure, micro finance and rural finance) through its four subsidiaries and would generate higher return on equity (RoE) in future.
"In addition the company is favourably placed in terms of funding due to high credit rating and a diversified funding mix which will aid margins," the brokerage said.
The bid/issue will close on July 29. The minimum bid lot is of 100 equity shares and in multiples of 100 equity shares thereafter. The anchor investor
bidding date was July 26. The company has raised around Rs 160 crore by selling shares to cornerstone investors on Tuesday.
The company in consultation with the joint global coordinators and book running lead managers, the book running lead managers and the co-book running lead manager, has decided to offer Rs 2 discount to the issue price for eligible employees.
The Issue has been graded by Credit Analysis & Research and ICRA and has been assigned "CARE IPO Grade 5" indicating "Strong Fundamentals" and "IPO Grade 5" indicating "Strong Fundamentals", respectively.
At least 50% of the net issue shall be allotted on a proportionate basis to qualified institutional buyers, provided that the company may allocate up to 30 per cent of the QIB portion to anchor investors on a discretionary basis out of which one-third shall be reserved for domestic mutual funds only. About 5 per cent of the net QIB Portion shall be available for allocation on a proportionate basis to mutual funds only, and the remainder of the net QIB portion shall
be available for allocation on a proportionate basis to all QIBs, including Mutual Funds, subject to valid Bids being received at or above the Issue Price.
Not less than 15% of the Net Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 35% of the Net Issue shall be available for allocation on a proportionate basis to Retail Individual Bidders subject to valid Bids being received at or above the Issue Price.
L&T Finance Holdings Limited is a financial holding company offering a diverse range of financial products and services through its subsidiaries. Its operations are arranged into four business groups, being the Infrastructure Finance Group, the Retail Finance Group, the
Corporate Finance Group and the Investment Management Group.
LTFH has four operating subsidiaries through which the different businesses are managed. These are L&T Finance Limited that focuses on asset financing in the corporate, retail and rural segments; L&T Infrastructure Finance Company Limited that focuses on infrastructure
financing; India Infrastructure Developers Limited that proposes to focus on working capital financing for corporate borrowers and L&T Investment Management Limited that operates a SEBI registered Mutual Fund business. LTFH is headquartered in Mumbai, and has presence in 23 states in India. As at May 31, 2011, it had 837 points-of-presence across India through its subsidiaries. Across its various business entities it employed 4,395 people as of May 31,
Key risks to the company includes its exposure to the microfinance sector. The company has microfinance institution (MFI) exposure of about Rs 400 crore of which the share of Andhra Pradesh is about 50 per cent. Regarding the MFI exposure, the company has made a provision of Rs60 crore during FY2011 of which Rs54 crore is for the loans expended to the state of Andhra Pradesh.
Another key macro concerns can affect the company’s performance. For example, a sharp increase in interest
rates may squeeze the margins and contribute to its NPAs.
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