L&T Infotech IPO: Should you subscribe?

Smart investor has published by L&T Infotech IPO: Should you subscribe?

Anil Manibhai Naik, Group Executive Chairman of Larsen & Toubro Limited speaks during a press conference announcing the IPO plans for L&T Infotech in Mumbai on Monday Photo: PTI

L&T Infotech Ltd’s initial public offer (IPO) opens today for subscription. On offer are 17.5 million shares, which will result in 10.3% dilution in promoter stake to 84.6%. At the price band of Rs 705 to Rs 710, the IPO size is over Rs 1,200 crore. The issue closes July 13.

Also Read: L&T Infotech: Low valuations, but lower growth too

Out of total offered shares – up to 8.75 million shares are for qualified institutional buyers (QIBs), at least 2.6 million shares for non-institutional investors and at least 6.1 million shares are under ‘retail’ category.

While the Larsen & Toubro (L&T) parentage is a key positive, the subsidiary has been struggling with issues surrounding its senior management stability and has among the highest attrition rates in the sector.

Also Read: L&T Infotech will grow in line with industry in FY17: A M Naik

So, should you subscribe to the IPO? Here is what leading research houses and brokerages across the country suggest:

ANGEL BROKING

L&T Infotech has reported a strong CAGR of 20.1% and 23.1% on the revenue and net profit fronts respectively over FY2011-2015. At Rs 710, which is the upper end of the offer price band, the company is available at 13x its FY2016E earnings, which is at a slight discount to its mid-cap peers trading at an average PE of 15x FY2016E earnings. Plus, assuming that the company maintains its historical average rate of dividend payout, it would translate into a yield of 4-5% for the investor. Apart from the favourable prospects of the company, we also foresee decent gains on listing. We recommend subscribing to the issue.

Also Read: 10 things to know in L&T Infotech IPO

RELIANCE SECURITIES

L&T Infotech is 24% & 83% larger than Mindtree and Hexaware, respectively in terms of revenue, and earns substantially higher return on equity (RoE). In our view, Mindtree will continue to command a growth premium, given industry - beating revenue growth and substantial digital exposure. 

We believe L&T Infotech with its revenue size, high return ratios and redoubtable parentage should command around 10% PE discount to Mindtree on inferior growth, while the IPO price band indicates a much larger discount. Thus, we believe the promoters have left something on the table for the investors in terms of valuations, which we view as a major positive factor in favour of the IPO. We recommend ‘SUBSCRIBE’ on the back of scale, redoubtable parentage, high return ratios and reasonable valuation.

Also Read: L&T Info hunts for a buy in US, Europe

IDBI CAPITAL

L&T Infotech has allayed concerns over senior management exits and plans to further strengthen its senior management bandwidth. Further, it also has positives including – 1) L&T groups domain expertise across sectors, 2) High dependence on BFSI vertical (47% of revenue, FY16-17 CAGR of 12%), 3) 49 Fortune 500 clients which have account mining potential and 4) High dependence on the US (69% of revenue) and negligible exposure to the UK, though cross-currency volatility remains a risk.

Also Read: L&T Infotech plans to go shopping with IPO funds

M&A is a key focus area for L&T Infotech especially in Digital services. It has net cash of almost Rs2bn. Further, it has the option to raise capital through equity. The promoter shareholding post the IPO would still be 85%. Stock options to the extent of 7% of its equity capital would vest in the next 3 years. Thus it can potentially raise funds through equity capital for M&A and also meet listing norm of 75% promoter holding.

Also Read: After Flipkart fiasco, L&T Infotech now withdraws offer letters to 1,500 students

L&T Infotech’s reasonable valuation is the key reason for our recommendation. However, we believe that its undifferentiated business model would limit any substantial re-rating in the near term. M&A would be an upside trigger as discussed above.

SHAREKHAN

Banking and financial services (26.3% of total revenues), insurance (20.7%), and energy & process (12.7%) contribute more than half of L&T Infotech’s total revenue. Any significant fall in the revenues of any one of these verticals may reduce the demand for the company’s services, besides adversely affecting its revenue and profitability. 

The company’s valuation at the offer price looks attractive, given its strong parentage, healthy return ratios and high dividend payout. Continued traction in the key verticals like BFSI and improvement in the energy vertical, coupled with stronger growth in the digital and IMS space will be key earnings drivers for the company going forward.

GEOJIT BNP PARIBAS

The company's revenue and profit after tax (PAT) has grown at a CAGR of 13% & 18% respectively over FY14-16. Also, the company has been consistently maintaining strong return on earnings (above 40%) and EBITDA margin (more than 15%) over the years. We are positive on the stock given the rising contribution of digital business, focus on expanding presence, leveraging parentage and increasing use of automation across projects to bring in operational efficiencies. At upper price band of Rs710, it is available at an attractive valuation of 13x FY16 earnings as compared to its peers. Hence, we recommend “Subscribe" to the issue, with a medium-to-long term perspective.

What News affect commodity Gold Prices

What News affect commodity Gold Prices : 

What is the relationship between dollar costs and gold costs?

Under
normal circumstances, the estimation of the US dollar and cost of gold
are inversely related. A more stronger dollar normally makes gold less
expensive. This is because global costs of gold, in the same way as
other commodities, are named in dollars. f the dollar strengthens, it
makes such commodities costly in alternate currencies. The resultant
drop demand after sets off a fall in costs. 

What does a interest cost climb mean for the dollar?

A
interest cost climb in the US could trigger a dollar flight from rising
nations, for example, India. A rate climb in the US would encourage
foreign, especially US-based funds, to move cash out of India to more
secure areas closer home. Worldwide funds park cash taking into account
desires of yields. With short-term rates ruling at almost 0 for about a
decade, India and other developing markets offering higher returns were
the favored hotspots. With US interest costs set to rise, most funds
might want to move cash out of these business sectors. This desire is
making the dollar pick up in worth. 

What different reasons are influencing gold costs?

Notwithstanding
the slowing down of the US Fed Reserve's bond purchasing program,
slowing down of China, one of the world's greatest gold customers, is
decreasing gold demand and in this manner influencing costs. 

How do monsoon rains or the lack of effect gold costs in India?

Rustic
spending on most things from TV sets to gold goes up or down contingent
upon the rainstorm as rains are essential for the mid year sown kharif
crop. About 60 Percent of aggregate gold demand in India originates from
country ranges, the greater part of which is purchased amid weddings. 

How big is the Indian jewellery market? 

India
is the biggest business sector for gold jewellery, representing the
majority of the nearly1,000 tonns of gold imports in 2012. As indicated
by World Gold Council (WGC), 75 Percent of ladies say they are
continually searching down new designs. 

What drives this demand?

More
than half of gold gems is purchased for weddings. The celebration of
Dhanteras and Akshaya Tritiya have customarily made a solid regular
surge in deals. The inspiration for a gems buy can be inseparably
connected to value, wealth preservation and development as opposed to
unadulterated adornment – there is hence little distinction in the
middle of venture and gems demand buys identifying with Indian weddings
normally represent half of yearly gems demand. With half of the Indian
populace under 25 and around 150 million weddings expected in the
following decade, the WGC gauges that wedding-related acquiring will
drive roughly 500 tons a year. A further 500 tons of existing gold would
be gifted.

Supply versus Demand

Archaeologists
claim that people have been digging and desiring gold for no less than
5,000 years, and this valuable metal is prone to stay valuable
regardless of the fact that the cost varies frequently. On the off
chance that you plan to purchase gold, you have to comprehend that the
price is affected by production costs, cash supply, comfort or distress
with money related or geopolitical strength, the demand produced by
jewelry and industry, and moves made by central banks. In other words,
gold is a limited asset and when worldwide monetary conditions make gold
more appealing, gold demand increases, making the cost of gold ascent.
Be that as it may, the actual value of gold remains genuinely stable
over the long grow. Example:- 

What set off the fall in gold costs on Monday?

There
were reports of huge selling of gold in China on Monday. As indicated
by a few reports, more than 30 tons of gold were sold in the Shanghai
spot market on Monday. The strong selling activated worldwide costs to
fall forcefully.

Government Reserves

Central
banks, similar to the U.S. Federal bank, hold both gold and paper
currency for reserve. Truth be told, the United States and a few
European nations hold the heft of their reserves in gold, and they have
been purchasing more gold for these reserves as of late. Different
nations that hold gold incorporate France, Germany, Italy, Greece, and
Portugal. At the point when these central banks begin to purchase gold
in more noteworthy amounts than they sell, it drives gold costs up. This
is on the grounds that the supply of currency increments and accessible
gold turns out to be all the more rare.

Interest costs

Gold
doesn't pay premium like treasury bonds or savings accounts, yet
current gold costs frequently reflect increments and decreases in
interest fees. As interest costs build, gold costs might soften as
individuals offer gold to free up funds for other speculation
opportunities. As interest costs diminish, the gold cost might increment
again on the grounds that there is a lower open opportunity expense to
holding gold when contrasted with different ventures. Low interest costs
compare with more noteworthy attraction in gold.

Worldwide Crisis

Since gold costs movement to grow when people need trust in governments or monetary markets, it frequently gets called a crisis commodity.
World events regularly affect the cost of gold since gold is seen as a
wellspring of security in the midst of monetary or geopolitical tumult.
For instance, the cost of gold spiked directly after the Russians moved
into the Ukraine as individuals got to be dubious about geopolitical
strength in the area. In different cases, military activity might really
expand consolation with geopolitical circumstances. For instance, the
gold cost diminished toward the start of Gulf War I. The main issue is
that political disarray compares to more interest for gold as a safe
haven.

About the Author

Swastika Investmart Stock Broking Company India it is aspires to make derivatives trading a simple and gainful risk for its investors.

Tips Safe trading in mcx market

Tips Every Trade -

It is very crucial to tail a few guidelines to pick up benefit in commodity market. Since, "Money Saved is the Money Earned". In Commodity Market a few concepts can be useful to recuperate lost cash and to win benefit in secure way.

Decide Target, S/L(Stop Loss) and Quantity to Trade. Don't exchange on any item without knowing the hazards connected with it. Decide Number of Lots to exchange with Risk and Target.

Sell/Buy One Market/Commodity -

Risk Only what you can bear to Lose. Trade in one Bazar or Commodity. Since in some jerky market momentum, we can recoup our loss if exchanging single commodity. Some of the time a particular commodity may confront high gap or change.

Sell/Buy with Patient and Time -

Some of the time we put exchanges hustle without holding up to market movement, and once in a while we clear positions without holding up. Always wait after placing a trade for market movement. Do not Clear position without a decent reason. Market UP/DOWN circumstance are average occurrence, So do not clear or place order in typical development.

Stop Loss -

Always consider S/L(stop loss), it critical to put stop loss to recoup the cash from sudden bazar changes. Safe Traders utilize Small Stop Loss with Fixed Target.

Wait for Market Movement -

Now and again we put exchanges rush without holding up to market development, and in some cases we clear positions without holding up.Do not Trade in typical market development. For Safe exchanging just put a call after legitimate high or fall movement. 

Do not Trade Beyond Capacity -

Do not Trade in average market movement.Only deal in limit, and have cash available for later to put another calls if jerky Bazar movement happened.

Do not be Greedy to earn huge profit -

Do not evaluate benefit. Clear position after a decent benefit and secure position. Carry an deal just if decent reason is there. Only deal/trade in limit, and have cash for possible later reserve to put another calls if sudden market movement happened.

Day commodity hedging:- hedging within same commodity purchase silver jan. and sell silver dec. with 300 pt sl.(stop loss) this is safe.

Share Shoppe Offering Lowest Brokerage Trading Account with Avail 25 times Limits in Cash mkt, 10 times in Commodities & F&O. Margin funding facility also available (thr. NBFC) for carry-over. 

Source link : Tips Safe trading in mcx market