L&T Finance Holding Company IPO Analysis Report

L&T Finance Holding Company IPO Review

Issue Highlights

Issue opens on: 27 July 2011

Issue closes on: 29 July 2011

Issue Type: 100% book building

Face value: Rs. 10 `

Market Lot: 100 equity shares

Price Band: Rs. 51-59

Maximum Retail Limit: 33 lots (1,94,700 Rs.)

Objectives of the issue:

·         For repayment of ICD (Inter-Corporate Deposit) issued by the promoter L&T

·         To augment the capital base of L&T Infra and L&T Finance

·         To meet the CAR (Capital Adequacy Requirement)

·         To achieve the benefits of listing on stock exchanges

·         For general corporate purposes and expenses of the issue

Company Profile

As the name reveals L&T finance holding company (earlier known as L&T Capital Holding Company) is a financial holding company offering a diverse range of financial products and services across corporate, retail and infrastructure finance sectors; besides this company offers mutual fund products and investment management services through its wholly owned subsidiaries.

The company  conducts business operations through its subsidiaries viz. L&T Finance, L&T Infra ,IIDL (India Infrastructure Developers Limited) ,L&T IM (Investment Management),L&T Mutual Fund etc. ,but first two subsidiaries make the most of holding company’s business.

Apart from this company holds stake in Federal Bank (5%), City Union Bank (5%), Invent ARC (8.9%), NAC Infrastructure and Equipment Limited (30%).

This company operates  in 23 states of India and L&T is the soul promoter.

The company was incorporated on May 1, 2008 and has got diversified business model with core business groups namely infrastructure, finance and construction equipments finance.

Strengths

·         Company with diversified business model operates in various business segments like infrastructure finance, construction equipment finance, transportation equipment finance, rural product finance, microfinance, supply chain finance, corporate loans and leases and many more

·         Pan –India presence in 23 states with 890 POP (Points of Presence)

·         Good credit ratings of its subsidiaries

·         Strong parentage and brand equity of L&T which is viable for growth

Threats

·         NPA’s of company’s infrastructure finance group, retail corporate finance group and corporate finance group have increased and might continue to increase in future.

·         Interest rate volatility and rising interest rates scenario are detrimental to the profitability

·         In case of any credit downgrade by rating companies in future might increase the cost of funds resulting in a dent on the profitability

Financial Analysis #

Parameter	FY 11	FY 10
EPS	2.33 ì	1.78 ì
Book Value (BV)	17.12 ì	15.89 ì
P/E Ratio	25.37	33.1
P/B Ratio	3.45	3.71
ROE	13.58%	11.21%
ROCE (Return on Capital Employed)	1.08%	1.16%
M-Cap/Reserve Ratio	6.76	12.13
Debt/Equity Ratio	5.5	4.14
Net Profit Margin	18.81%	18.71%
Interest Cover	1.59	1.58
M-Cap/Sales Ratio	4.77	6.2
Current Ratio	1.5	2.62

# Post issue equity is used for the calculation of BV, EPS.

## Calculations at upper price band using consolidated result data

No too much data is available for the analysis; company came in profit from FY 10; sales and profit increased by 48% and 88% respectively in FY 11. This indicates potential of the company to grow in the future.

Cash flow from operations is negative for last 3 years but this is not unusual for finance companies. CAR (Capital Adequacy Ratio) of L&T Finance and L&T Infra for FY 11 were 16.34% and 16.5% respectively, which are satisfactory.

Comparison with peers

Company	P/E	NPM %	ROE %	Interest cover
L&T Fin Holding	25.37	18.81	13.58	1.59
Shriram Transport Fin Ltd.	12.91	22.92	25.28	1.84
M&M Financial Services	15.83	23	18.61	2.06

Inference

Present Financials of the company are good but not impeccable. Post issue company is expensive than its peers but it has got huge potential to grow which is evident from sales and profit growth for the FY 11. Besides this, very high brand equity of promoter L&T and integrity of its management shall ensure overwhelming response from QIB’s and HNI’s.

With growing Indian economy, infrastructure and finance sectors too shall grow in tandem opening new vistas for L&T Finance Holding Company. Considering strong management and bright growth prospects, investors should apply for this IPO availing ASBA facility.

Disclaimer

Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.