L&T Finance Holdings IPO Analysis

L&T Finance Holdings, subsidiary of L&T group is coming up with an Initial Public Offer (IPO) to raise upto Rs.1245 crores. This is first public issue since L&T listed way back in 1950!

The IPO opens on July 27 and closes on 29, has been priced in the range of Rs.51 to Rs.59

L&T Finance Holdings is a fully-owned subsidiary of engineering giant L&T. L&T Finance Holdings owns five subsidiaries namely L&T Infrastructure Company, L&T Finance, India Infrastructure Developers, L&T Investment Management and L&T Mutual Fund Trustees.

Combined assets of these group companies as of FY11 are at Rs.18,800 crore. It was up from Rs.12,000 crores in FY10. The company had a PAT of Rs.392 crores last fiscal, it had grown from Rs.262 crores in the previous fiscal.

The proposed 17% equity dilution values L&T Finance Holdings between Rs.8,800 crore and Rs.9,900 crores. The proceeds from this IPO will be used to fund the expansion of subsidiaries L&T Finance and L&T Infra Finance.

In July, L&T Finance Holdings has raised Rs.330 crores through a pre-IPO placement. It sold a 4% stake to Capital International Group at Rs.55 per share.

IPO Valuation
L&T Finance Holdings' FY11 EPS on post-issue equity stands at Rs. 2.28 and Rs.2.33 on post-issue equity of Rs. 1721.02 crore (lower band of Rs. 51) and Rs. 1688.02 crore (on higher band of Rs. 59). At the price band of Rs. 51 to Rs. 59, P/E works out to 22.4 to 25.3 times.

Current book value of L&T Finance Holdings is Rs. 19.6. Pre issue P/BV at issue price of Rs. 51 comes out to 2.6, while at issue price of Rs. 59 it is 3.0.

Post-issue BV works out at Rs.24.1 and Rs.24.5 at issue price of Rs.51 and Rs.59, respectively. P/BV at both the bands works out to 2.1 and 2.4 times, respectively.

CARE / ICRA has assigned an IPO Grade 5 to L&T Finance IPO. This means as per CARE / ICRA, company has 'Strong Fundamentals'.

This IPO price does not looks very high when looked at from long term perspectives. The stock should give good returns in coming 3-4 years. Listing gains may not be very high. Cautious investors may look at the listing of IPO and then decide when to buy stocks of this holding company from engineering giant.