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Larsen & Toubro Ltd.
L&T Finance PIPE deal adds
only 1% to PO
L&T Finance places 4% equity @Rs3.3bn; Raise PO 1%; Buy
L&T Finance, 100% subsidiary of L&T (6% of SOTP), did a pre-IPO private equity
(PIPE) deal at pre-money valuation of Rs78bn implying 2.6x pre-IPO FY11A P/BV
vs BofAMLe of Rs60bn. We raise our PO to Rs2100 (Rs2070), or +1%, to factor
in the valuation of the PIPE deal. Buy on inexpensive valuation (15x FY13E), as
the stock has been a market-performer (down 6% YTD), and EPS CAGR of 23%
(FY11-13E) driven by backlog +30%YoY. Creation of growth vehicles in power
equipment, shipyard, defense, nuke, aerospace domains and concession wins
support our Buy rating. Capex in lower RoE infra assts – Rajpura Power,
Hyderabad metro etc. are risks.
L&T Finance places 4% equity @Rs55/share in a PIPE deal
L&T finance plans to raise 17.5bn in its IPO, possibly in July.
It did the Rs3.3bn PIPE deal to sell 4% of equity (19% of IPO) with Capital
International. This deal establishes a pre-money valuation of Rs78bn @ 2.6x
pre-IPO FY11A P/BV, which was a premium to our Rs60bn estimate.
With this deal, L&T management demonstrates its value creation strategy
from its investments in unrelated subsidiaries to its core E&C business and
also limits its future cash calls on the parent by tapping public markets.
Improving execution, value creation at Subs key catalysts
Backlog at Rs1.3tn +30%YoY should help drive sales (24%YoY) over FY11-13E
and EPS CAGR of 23% (FY11-13E). We raise our PO by 1% to Rs2100 (vs
Rs2070) on re-rating of L&T Finance to PIPE deal valuations, i.e. 1.75x P/BV one year
forward (FY13E) v/s our 1.6x.
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