L&T Infotech IPO: Anchor investor allotment today, issue opens on Monday; 7 points you must know

The sixth largest IT exporter L&T Infotech, a subsidiary of Larsen & Toubro, will allot equity shares to anchor investors on Friday followed by an initial public offering (IPO) in the primary market on Monday.

The issue has been offered in a price band of Rs 705-711 per equity share to mop up over Rs 1,200-crore.

As it is an offer for sale where L&T will look to divest about 10.30 per cent of its stake in the company, the proceeds generated will go to parent's coffers.
 
A discount of Rs 10 per equity share will be offered to retail individual bidders on the offer price.

We have compiled seven points about the company that you must know as you mull over investing in the IPO:
 
1) Low valuations

At the upper limit of the price band, the stock is available at about 13 times FY16's earnings per share (EPS). This is against a median P/E of 17.6 times for the IT industry. The return on equity (RoE) for FY16 stood at 49.52 per cent, which was highest among peers.

2) Concerns over revenue growth

L&T Infotech's revenues dropped to 13-14 per cent in FY16 from 17-18 per cent growth over the last five years. Sanjay Jalona, CEO & Managing Director of the company, however, attributed the fall to slowdown in the performance of the oil and gas sector because of depressed commodity prices. Otherwise, the revenues would have grown by 17 per cent in FY16, believes Jalona.
 
3) Client concentration

A major chunk of L&T Infotech's revenues come from top 10 clients. Top 20 companies contribute 68 per cent to its revenues, while it is 38 per cent for the top 5 companies. The company, in its red herring prospectus (RHP), said their revenues could decline if they lose a major client.

4) BFSI accounts for 47% revenue

Banking and Financial services and Insurance (BFSI) verticals contribute about 47 per cent to the company's revenues, which means any slowdown in any of the two verticals could pull down the overall performance.

5) Intense competition

IT sector is thriving on competition. But as the clients' pockets are getting shrunk, it is the cut throat competition that will decide the winners.
 
"Competition itself could affect pricing, which could reduce the share of business from clients and decrease the overall revenues and profitability of It firms," said the company in RHP.

On the sidelines of a press conference here, Jalona said the company is well prepared to 'meet or beat' the existing industry players in the IT sector.

6) Combination of IT & OT

The company is among the few IT service providers that are part of a diversified business conglomerate. This provides them with the benefit of strong domain experience and understanding of operational technology (OT) while proffering IT solutions. The company terms is 'Business to IT connect'.

7) Edge over peers on Brexit concerns
 
Europe accounts for 17 per cent to the company's overall revenues. Of that, Nordic markets such as Norway, Finland and Denmark contribute around 11 per cent of the total revenue, while the UK carries mere 2 per cent share in its revenue pie.
 
Management believes the lower exposure to European Union gives them an edge over its peers at a time when clouds of uncertainty over Britain's exit from EU looms over its competitors.

Jalona, in fact, pointed out that Brexit may turn out to be a blessing in disguise, as trade agreements between the UK and Europe would demand for change in technology solutions, creating more opportunities for the firm.