Larsen & Toubro Infotech IPO - A Worthy Bet (Apply)

Larsen & Toubro Infotech Ltd, (LTIL) is an associate of Larsen & Toubro group. It is one of India's global IT services and solutions companies. In 2015, NASSCOM ranked it as the sixth largest Indian IT services company in terms of export revenues. LTIL is amongst the top 20 IT service providers globally in 2015 according to the Everest Group's PEAK Matrix for IT service providers. The company's clients comprise some of the world's largest and well-known organizations, including 49 of the Fortune Global 500 companies.

LTIL offers 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, hi-tech 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. The company serves 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.

Company's growth has been marked by significant expansion of business verticals and geographies in which it does business. Besides India, it provides services globally and the percentage of its revenue from continuing operations from North America, Europe, Asia Pacific and the rest of the world amounted to 69.0%, 17.4%, 2.0% and 5.8% for Financial Year 2016 and 68.6%, 17.9%, 2.4% and 6.9%, for Financial Year 2015, respectively. As of May 31, 2016, LTIL had 22 Delivery Centres and 41 sales offices globally. Its 97 per cent plus revenue comes from third party contracts, rest is from the group companies

The company is coming out with a maiden public offer of 17500000 equity share of Re. 1 each via book building route for listing benefits. The price band for the offer is Rs. 705 – Rs. 710. Thus the company hopes to mobilize Rs. 1233.75 cr. to Rs. 1242.50 cr. based on lower and upper price band. The company is offering a special discount t of Rs. 10 per share to retail investors. The offer constitutes 10.30 per cent of the post offer paid up equity capital of the company. Minimum application is to be made for 20 shares and in multiples thereon, thereafter. Issue opens for subscription on 11.07.16 and will close on 13.07.16. Post allotment, shares will be listed on BSE and NSE. BRLMs' to the offer are Citigroup Global Markets India Pvt Ltd, Kotak Mahindra Capital Co. Ltd and ICICI Securities Ltd. Link Intime India Pvt Ltd is the registrar to the issue. Since this IPO is made as offer for sale, its paid up equity remains same at Rs. 16.98 crore. Average cost per share of promoters is Rs. 8.33.

On performance front, the company has (on a consolidated basis) posted turnover of Rs. 3873.54 cr., Rs. 4837.18 cr., Rs. 5069.54 cr. and Rs. 6143.02 cr. and net profits of Rs. 561.61 cr., Rs. 996.41 cr., Rs. 768.53 cr. and Rs. 922.18 cr. for the fiscal 2013, 2014, 2015 and 2016 respectively. For the fiscal 2014 it has other one time income of Rs. 300.24 cr. Latest earnings shows EPS of Rs. 54.30 and thus asking price is at a P/E of around 13 plus that augurs well as industry composite P/E is around 17. Thus offer price appears to be reasonable. Management is confident of doubling its revenue in next three years. . It has a track record of liberal dividend payouts, however, post IPO, being listed entity, it will have new dividend policy as reported by the management.

On BRLM's front, three merchant bankers associated with this IPO have handled 21 IPOs in the past three years and out of which 7 IPOs closed below issue price on the listing day, as reported in RHP.

Conclusion: Group's fancy among investors across the board and reasonable pricing makes this IPO a worthy bet for medium to long term.