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Issue details
Issue opens : July 27, 2011
Issue closes : July 29, 2011
Issue size : Rs1,245 crore
Face value : Rs10
Offer size : 21.1 cr to 24.4 cr equity shares
of which
Reservation for L&T : 4%
Finnance employees
Reservation for : 9.6%
L&T employees
QIB portion : 50% of net issue
Non-institution portion : 15% of net issue
Retail portion : 35% of net issue
IPO rating : 5/5 (CARE, ICRA)
Price band : Rs51-59 per share
Visit us at www.sharekhan.com July 25, 2011
L&T Finance Holdings (L&T Finance) is coming out with an
initial public offering (IPO) at a price band of Rs51-59 per
share (face value of Rs10) to mobilise Rs1,245 crore. Postissue,
the shareholding of the promoters in the company
will fall from 95.9% to 82.3-83.9% depending upon the issue
price. The company plans to use the proceeds to repay the
holding company’s inter-corporate deposit of Rs345 crore
and to augment the capital base of L&T Finance and L&T
Infrastructure Finance (L&T Infra) by Rs515 crore and Rs485
crore respectively.
Company background
L&T Finance is a financial holding company offering a diverse
range of financial products and services across the corporate,
retail and infrastructure finance sectors, as well as mutual
fund products and investment management services, through
its direct and indirect wholly owned subsidiaries. The
company is registered with the Reserve Bank of India (RBI)
as a Systemically Important Non-Deposit Taking Non-Banking
Financial Company (NBFC-ND-SI). Promoted by Larsen &
Toubro (L&T) the company is present in 23 states in India
with 837 points of presence across the country. The
operations of the company have been arranged into four
business groups, the Infrastructure Finance Group, the Retail
Finance Group, the Corporate Finance Group and the
Investment Management Group. In July 2011, the company
made a pre-IPO placement of 6 crore equity shares to the
MACE group at a price of Rs55 per share.
L&T Finance Holdings was incorporated in 2008 and is
registered with the RBI as an NBFC-ND-SI.
L&T Infra was incorporated in 2006 and is registered with
the RBI as an NBFC-ND-SI and is classified as an Infrastructure
Finance Company (IFC). The company provides financial
products and services to L&T Finance’s customers engaged
in infrastructure development and construction, with focus
on the power, roads, telecommunications (telecom), oil and
gas, urban infrastructure and port sectors in India.
L&T Finance was incorporated in 1994 and is registered
with the RBI as an NBFC-ND-SI and is classified as an asset
finance company (AFC). The company provides financing to
retail customers for the acquisition of income-generating
assets and comprises the segments of construction
equipment finance, transportation equipment finance, rural
product finance and microfinance. In addition, it also caters
to the non-financing needs of the retail customers through
the distribution of third party financial products such as
insurance and mutual funds. The company provides financial
products and services to the corporate customers of the
L&T group and comprises the segments of corporate loans
and leases (in the form of asset-backed loans, term loans,
receivables discounting, short-term working capital
facilities and operating and finance leases), supply chain
finance (which includes vendor and dealer finance products)
and capital market products.
India Infrastructure Developers Ltd (IIDL) was
incorporated in 1997 and is registered with the RBI as an
NBFC-ND. IIDL was originally established as a special purpose
vehicle (SPV) for financing a captive power plant for Indian
Petrochemicals. The company does not currently conduct
any material financing operations through IIDL, but plans
to do so in the course of FY2012.
L&T Investment Management, formerly DBS
Cholamandalam Asset Management Ltd, was acquired by
L&T Finance on January 20, 2010, together with DBS
Cholamandalam Trustees, the trustee company for DBS
Chola Mutual Fund. DBS Cholamandalam Asset Management,
DBS Cholamandalam Trustees and DBS Chola Mutual Fund
were renamed L&T Investment Management, L&T Mutual
Fund Trustee and L&T Mutual Fund respectively in February
2010.
Key investment positives
Diversified and balanced mix of high-growth businesses
The company has a highly diversified business model
covering a variety of many complementary, high-growth
business segments across its four core business groups,
including infrastructure finance, construction equipment
finance, transportation equipment finance, rural products
finance, microfinance, corporate loans and leases, supply
chain finance, capital markets finance, the distribution of
financial products and investment management products
and services. It offers a broad spectrum of financial products
and services, and is also able to cater to the needs of a
diverse customer base, from construction equipment
hirers, truck owners, farmers and shopkeepers in the small
business segment to medium-sized vendors, dealers,
contractors and fleet owners and large infrastructure
developers and companies, including multi-national
corporations. The company is planning to focus on
construction equipment finance, infrastructure finance,
rural finance and microfinance which are aligned with the
growth story of India.
Strong distribution network
The company has established its presence in 23 states in
India. It has 837 points of presence across the country.
This pan-India presence allows the company to cater to a
large customer base across various business segments, from
retail customers and small and medium enterprises to large
companies. The company has also established a strong reach
in rural areas in India where it maintains more than 500
points of presence in order to service the customers of the
rural product finance and microfinance segments of its retail
finance business
High quality loan portfolio
The company focuses on funding income-generating assets
and activities. For each of the businesses, the company
has established a strong credit check and asset valuation
framework to evaluate and monitor the credit risk at the
time of origination. The company lays emphasis on
financing income-generating activities and assets as a
means of controlling its portfolio quality.
Strong funding profile
The company has access to multiple sources of funding such
as non convertible debentures (NCDs), infrastructure bonds,
commercial papers, bank loans etc. The company carries
high credit rating from the rating companies which helps
to access funds at competitive rates thereby cushioning
the margins. L&T Finance had a CARE rating of AA+ and an
ICRA rating of LAA+. The RBI has granted L&T Infra the
status of an Infrastructure Finance Company (IFC), which
enhances the ability to raise funds at lower costs compared
to other NBFCs. The company in June 2011 was also given
a PFI status (public financial institution).
Lower NPA ratios
The provisioning and write-off policies of the company are
more stringent and conservative than those prescribed by
the RBI for NBFCs. For FY2011, the company had gross non-
performing asset (NPA) ratio of 1.11% as compared to 2.42%
for FY2010. The NPA of the bank has also reduced from
1.69% in FY2010 to 0.67% in FY2011.
Strong parentage and brand equity of L&T
The brand name of L&T provides the company with a
significant competitive advantage, particularly in attracting
new customers and talent as well as in accessing capital.
The L&T group also provides the company with management
talent and professionals with deep industry knowledge in
those sectors for which the company provides financing,
such as infrastructure and construction equipment.
Key risks
Exposure to the MFI sector
The company has micro finance institution (MFI) exposure
of about Rs400 crore of which the share of Andhra Pradesh
is about 50%. 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.
Macro risks
The key macro concerns can affect the company’s
performance. For example, a sharp increase in the interest
rates may squeeze the margins and contribute to its NPAs.
Valuations
The issue is priced at 2.3x FY2011 book value (BV; based
on post issue equity) 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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Issue details
Issue opens : July 27, 2011
Issue closes : July 29, 2011
Issue size : Rs1,245 crore
Face value : Rs10
Offer size : 21.1 cr to 24.4 cr equity shares
of which
Reservation for L&T : 4%
Finnance employees
Reservation for : 9.6%
L&T employees
QIB portion : 50% of net issue
Non-institution portion : 15% of net issue
Retail portion : 35% of net issue
IPO rating : 5/5 (CARE, ICRA)
Price band : Rs51-59 per share
Visit us at www.sharekhan.com July 25, 2011
L&T Finance Holdings (L&T Finance) is coming out with an
initial public offering (IPO) at a price band of Rs51-59 per
share (face value of Rs10) to mobilise Rs1,245 crore. Postissue,
the shareholding of the promoters in the company
will fall from 95.9% to 82.3-83.9% depending upon the issue
price. The company plans to use the proceeds to repay the
holding company’s inter-corporate deposit of Rs345 crore
and to augment the capital base of L&T Finance and L&T
Infrastructure Finance (L&T Infra) by Rs515 crore and Rs485
crore respectively.
Company background
L&T Finance is a financial holding company offering a diverse
range of financial products and services across the corporate,
retail and infrastructure finance sectors, as well as mutual
fund products and investment management services, through
its direct and indirect wholly owned subsidiaries. The
company is registered with the Reserve Bank of India (RBI)
as a Systemically Important Non-Deposit Taking Non-Banking
Financial Company (NBFC-ND-SI). Promoted by Larsen &
Toubro (L&T) the company is present in 23 states in India
with 837 points of presence across the country. The
operations of the company have been arranged into four
business groups, the Infrastructure Finance Group, the Retail
Finance Group, the Corporate Finance Group and the
Investment Management Group. In July 2011, the company
made a pre-IPO placement of 6 crore equity shares to the
MACE group at a price of Rs55 per share.
L&T Finance Holdings was incorporated in 2008 and is
registered with the RBI as an NBFC-ND-SI.
L&T Infra was incorporated in 2006 and is registered with
the RBI as an NBFC-ND-SI and is classified as an Infrastructure
Finance Company (IFC). The company provides financial
products and services to L&T Finance’s customers engaged
in infrastructure development and construction, with focus
on the power, roads, telecommunications (telecom), oil and
gas, urban infrastructure and port sectors in India.
L&T Finance was incorporated in 1994 and is registered
with the RBI as an NBFC-ND-SI and is classified as an asset
finance company (AFC). The company provides financing to
retail customers for the acquisition of income-generating
assets and comprises the segments of construction
equipment finance, transportation equipment finance, rural
product finance and microfinance. In addition, it also caters
to the non-financing needs of the retail customers through
the distribution of third party financial products such as
insurance and mutual funds. The company provides financial
products and services to the corporate customers of the
L&T group and comprises the segments of corporate loans
and leases (in the form of asset-backed loans, term loans,
receivables discounting, short-term working capital
facilities and operating and finance leases), supply chain
finance (which includes vendor and dealer finance products)
and capital market products.
India Infrastructure Developers Ltd (IIDL) was
incorporated in 1997 and is registered with the RBI as an
NBFC-ND. IIDL was originally established as a special purpose
vehicle (SPV) for financing a captive power plant for Indian
Petrochemicals. The company does not currently conduct
any material financing operations through IIDL, but plans
to do so in the course of FY2012.
L&T Investment Management, formerly DBS
Cholamandalam Asset Management Ltd, was acquired by
L&T Finance on January 20, 2010, together with DBS
Cholamandalam Trustees, the trustee company for DBS
Chola Mutual Fund. DBS Cholamandalam Asset Management,
DBS Cholamandalam Trustees and DBS Chola Mutual Fund
were renamed L&T Investment Management, L&T Mutual
Fund Trustee and L&T Mutual Fund respectively in February
2010.
Key investment positives
Diversified and balanced mix of high-growth businesses
The company has a highly diversified business model
covering a variety of many complementary, high-growth
business segments across its four core business groups,
including infrastructure finance, construction equipment
finance, transportation equipment finance, rural products
finance, microfinance, corporate loans and leases, supply
chain finance, capital markets finance, the distribution of
financial products and investment management products
and services. It offers a broad spectrum of financial products
and services, and is also able to cater to the needs of a
diverse customer base, from construction equipment
hirers, truck owners, farmers and shopkeepers in the small
business segment to medium-sized vendors, dealers,
contractors and fleet owners and large infrastructure
developers and companies, including multi-national
corporations. The company is planning to focus on
construction equipment finance, infrastructure finance,
rural finance and microfinance which are aligned with the
growth story of India.
Strong distribution network
The company has established its presence in 23 states in
India. It has 837 points of presence across the country.
This pan-India presence allows the company to cater to a
large customer base across various business segments, from
retail customers and small and medium enterprises to large
companies. The company has also established a strong reach
in rural areas in India where it maintains more than 500
points of presence in order to service the customers of the
rural product finance and microfinance segments of its retail
finance business
High quality loan portfolio
The company focuses on funding income-generating assets
and activities. For each of the businesses, the company
has established a strong credit check and asset valuation
framework to evaluate and monitor the credit risk at the
time of origination. The company lays emphasis on
financing income-generating activities and assets as a
means of controlling its portfolio quality.
Strong funding profile
The company has access to multiple sources of funding such
as non convertible debentures (NCDs), infrastructure bonds,
commercial papers, bank loans etc. The company carries
high credit rating from the rating companies which helps
to access funds at competitive rates thereby cushioning
the margins. L&T Finance had a CARE rating of AA+ and an
ICRA rating of LAA+. The RBI has granted L&T Infra the
status of an Infrastructure Finance Company (IFC), which
enhances the ability to raise funds at lower costs compared
to other NBFCs. The company in June 2011 was also given
a PFI status (public financial institution).
Lower NPA ratios
The provisioning and write-off policies of the company are
more stringent and conservative than those prescribed by
the RBI for NBFCs. For FY2011, the company had gross non-
performing asset (NPA) ratio of 1.11% as compared to 2.42%
for FY2010. The NPA of the bank has also reduced from
1.69% in FY2010 to 0.67% in FY2011.
Strong parentage and brand equity of L&T
The brand name of L&T provides the company with a
significant competitive advantage, particularly in attracting
new customers and talent as well as in accessing capital.
The L&T group also provides the company with management
talent and professionals with deep industry knowledge in
those sectors for which the company provides financing,
such as infrastructure and construction equipment.
Key risks
Exposure to the MFI sector
The company has micro finance institution (MFI) exposure
of about Rs400 crore of which the share of Andhra Pradesh
is about 50%. 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.
Macro risks
The key macro concerns can affect the company’s
performance. For example, a sharp increase in the interest
rates may squeeze the margins and contribute to its NPAs.
Valuations
The issue is priced at 2.3x FY2011 book value (BV; based
on post issue equity) 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.
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