L&T Infotech Limited

Transcription

1 IPO NOTE Key Details: July 5, 2016 Issue Key Highlights: Price*: `705 - `710 Issue Opens: 11 th July 2016 Issue Size*: ` `1236 Cr Issue Close: 13 th July 2016 *A discount of Rs.10/- per share will be offered to retail individual bidders. Particulars No of No of Sh. at Shares higher at lower band price (Cr) band(cr) %age Higher band Amount (`Cr) Lower band Amount (`Cr) QIB % Non-Inst % Retail % Employees Total Issue % 1, ,227.6 Issue Details: Industry IT & ITeS Promoters: Larsen & Toubro Ltd Capital Structure: Pre Issue Equity (Rs.Cr.) Fresh Issue (@FV) NA Offer for Sale (@FV) 1.75 Post Issue Equity Capital Total Issue as % of total capital 10.30% (Post-Issue) Face Value Re.1 IPO Grade NA All Calculations at Cap Price Issue Route Book Build Issue Bid Lot (Shares) 20 Lead Managers Citigroup Global Markets India Pvt. Ltd, Kotak Mahindra Capital Company Ltd. and ICICI Securities Ltd Registered Office Registrar Listing Key Investment Details for Retail Investors: Min No. of Shares application by Retail Investor Amount to be paid on the Min. Application (`) (considering Retail Discount of Rs.10/-) ASBA Application is mandatory Mumbai, Maharashtra Link Intime India Pvt Ltd BSE, NSE 20 14,000 Offer for Sale: Company will not receive any proceeds from the Offer for Sale and all the proceeds will go to the Selling Shareholders. Business Overview: L&T Infotech Limited (LTIL), are one of India s global IT services and solutions companies. They offer an extensive range of IT services to its clients in diverse industries such as banking and financial services, insurance, energy and process, consumer packaged goods, retail and pharmaceuticals, media and entertainment, hi-tech and consumer electronics and automotive and aerospace. Their range of services includes application development, maintenance and outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions and platform-based solutions. They serve clients across these industries, leveraging their domain expertise, diverse technological capabilities, wide geographical reach, an efficient global delivery model, thought partnership and new age digital offerings. LITL growth has been marked by significant expansion of business verticals and geographies in which they do business. Besides India, they provide services globally and the percentage of revenue from continuing L&T Infotech Limited Wealth Management Subscribe operations from North America, Europe, Asia Pacific and the rest of the world amounted to 69.0%, 17.4%, 2.0% and 5.8% for FY16 respectively. Investment Rationale: Strong parentage and brand equity of our Promoter: The L&T brand is one of the respected brands in India, which provides them with a competitive advantage, particularly in: attracting talent and new clients; benefiting from Promoter s global network; exploring potential business opportunities; best corporate governance practices; accessing capital; and establishing as a thought partner with the top management of many global corporations. Established long-term relationships with our clients: Client relationships is the core of business, include many leading businesses, including 49 of the Fortune Global 500 companies. They have a track record of delivering an extensive range of solutions using their global delivery model, demonstrable industry and technology expertise, and sensitivity to their clients feedback that has helped them forge strong relationships with major clients. For example, in FY16, had 17 clients who generated above USD 10 mn in revenue, 10 clients who generated above USD 20 mn in revenue and 3 clients who generated above USD 50 mn in revenue which is reflective of such strong client relationships. They have a history of high client retention and derive a significant proportion of their revenues from repeat business built on successful execution of prior engagements. In FY 2016, 2015 and 2014, generated 96.9%, 98.1% and 96.9%, respectively, of revenue from continuing operations from existing clients across a range of business verticals. In addition, as of March 2016, had been engaged with over 100 clients for more than three years and had been doing business with two of largest clients for over ten years. Focus on a targeted client portfolio and having potential of higher total contract values: LTIL intend to continue building long-term sustainable business relationships with existing clients to generate greater revenues. This involves inter alia increasing the scope of engagements with existing clients; selling additional services to them; deploying project managers, delivery specialists and other professionals to provide value-added business solutions; and eventually become a thought partner with them in terms of their existing and future business needs by identifying priority solutions in consultation with industry experts. Also, targeting clients who have the potential to offer opportunities with large total contract values. They intend to originate large engagements by either identifying opportunities with existing client accounts or by targeting new clients whose existing engagements with IT vendors will be up for renewal. Expand our focus on infrastructure management service offerings: IMS service practice offers a wide spectrum of end-to-end services covering IT infrastructure consulting, design, managed services, migration services, operational support, desktop support, and Cloud enablement, hosting and migration. Aims to leverage their Business 1st approach with respect to IMS, which provides extensive services to clients inter alia using application development, maintenance, support and testing services, which collectively assist clients to automate their business processes through customised service delivery plans that are aligned with their business needs and objectives. Similar to approach in relation to emerging technologies, they have agreements with a number of players in delivering IMS service offerings in a technologically-agnostic way. Expand geographical presence: LTIL market and distribute solutions directly through their global delivery model. They have historically been dependent on North America and Europe for most of revenues. In FY 2016 & 2015, revenues originating from North America represented 69.0% and 68.6%, respectively of revenue from continuing operations. In FY 2016 and 2015, revenues originating from Europe represented 17.4% and 17.9%, respectively of revenue from continuing operations. While they intend to continue expanding their presence in the United States and Europe, and also plan to expand their geographical reach in other markets that they have identified as having potential, incl. Australia, Singapore, Japan, South Africa, India and the Middle East. Risks: LTIL has a large exposure to the BFSI space and may be subject to pressure if this segment underperforms, resulting in margin contraction. The Company has had to grapple with a significant proportion of employee attrition in the recent past and continuation of high attrition might pose a threat. Changes in visa regulations of various nations may affect the company. Outlook & Valuation: LTIL s revenue CAGR of 12.1% since FY12 and its PAT margin growth from 13.6% in FY12 to 15.8% in FY16 is comparable with its peers. The high ROE of 45.6% is because of large dividend payouts and this may be unsustainable. At the higher end of the price band, LTIL is available at 13.1x its FY16 EPS. Given these factors, we maintain a Subscribe on the issue from the long term perspective.

2 Software & services: Flat growth in : APAC sees fastest growth NASSCOM notes that 2015 saw continued demand for overall Indian IT-BPM exports for FY 2016 global sourcing IT-BPM exports to various countries in FY 2016 Expected increase in revenues of the Indian IT services industry Indian IT-BPM: On track to achieve its USD 225 billion target by 2020

3 Key Matrix: Particulars Business Verticals (Percentage of our revenue from continuing operations) Banking and Financial Services 26.30% 27.10% 26.00% Insurance 20.70% 20.00% 18.80% Energy and Process 12.70% 16.20% 22.00% Consumer Packaged Goods, Retail and Pharmaceuticals 9.30% 9.30% 8.40% Hi-Tech and Consumer Electronics 5.20% 6.90% 7.40% Automotive and Aerospace 6.80% 5.70% 4.20% Media and Entertainment 6.20% 5.40% 4.60% Others (Includes plant equipment, utilities, engineering and construction and travel and logistics.) 12.80% 9.40% 8.60% Service Lines (Percentage of our revenue from continuing operations) Application Development, Maintenance and Outsourcing 42.40% 43.40% 43.00% Enterprise solutions 23.70% 24.80% 27.50% Infrastructure Management Services 9.70% 8.70% 8.00% Testing 9.80% 9.50% 8.50% Digital Solutions (Digital Solutions includes AIM, Enterprise Integration and Mobility) 11.10% 9.50% 7.50% Platform-Based Solutions 3.30% 4.10% 5.50% Global Delivery Model (Percentage of export revenues) Onsite 52.30% 51.80% 53.90% Offshore 47.70% 48.20% 46.10% Geographical Segments (Percentage of revenue from continuing operations) North America 69.00% 68.60% 67.30% Europe 17.40% 17.90% 20.10% Asia Pacific 2.00% 2.40% 2.60% India 5.80% 4.20% 3.40% Rest of World 5.80% 6.90% 6.60% Revenue Concentration (Percentage of revenue from continuing operations) Top Client 14.90% 14.10% 13.10% Top 5 Clients 37.50% 37.20% 36.30% Top 10 Clients 52.70% 49.50% 46.80% Top 20 Clients 68.20% 63.60% 59.60% Number of clients and percentage of revenue from continuing operations Active Clients(1) New Clients(2) Revenues from new clients 3.10% 1.90% 3.10% Revenues from repeat business(3) 96.90% 98.10% 96.90% (1) Clients who contributed to our revenues in the indicated period and/or the preceding financial year. (2) Clients who contributed to our revenues during the indicated period but not in the preceding financial year. (3) Revenues excluding revenues from new clients. Brief Financials : L&T Infotech Limited Year Price (Rs.) Mcap Net Sales EBITDA Margin (%) PAT PAT Margin (%) EPS (Rs.) P/E ROE (%) P/BV FY , % % % , % % % 5.96 FY % % % FY % % % FY % % % FY % % %

4 Peer Comparison: Companies FY16 FY16 FY16 FY16 Price Mcap EPS P/E P/BV Revenue EBITDM PAT PATM ROE (%) (Rs.) (Rs.Cr.) (Rs.Cr.) (%) (Rs.Cr.) (%) (Rs.) L&T Infotech ,974 5, % % % ,059 5, % % % 6.0 HCL Technologies ,086 30, % 5, % % 3.8 Hexaware Tech ,915 3, % % % 4.8 Infosys 1, ,994 62, % 13, % % 4.4 Mindtree ,391 4, % % % 4.8 TCS 2, , , % 24, % % 7.5 Tech Mahindra ,898 26, % 3, % % 3.5 Wipro ,892 51, % 8, % % 3.0 CMP as on July 5, 2016 An Indicative timetable post issue closing: Particulars Indicative Timetable Finalization of Basis of Allotment with the Designated Stock Exchange On or about July 18, 2016 Initiation of refunds/un-blocking of ASBA Accounts On or about July 19, 2016 Credit of Equity Shares to demat accounts of Allottees On or about July 20, 2016 Commencement of trading of the Equity Shares on the Stock Exchanges On or about July 21, 2016

5 DISCLOSURES/ APPENDIX DISCLAIMER The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness. This document is for information purposes only. This report is based on information that we consider reliable, but we do not represent that it is accurate or complete, and one should exercise due caution while acting on it. Descriptions of any company or companies or their securities mentioned herein are not complete and this document is not, and should not be construed as an offer or solicitation of an offer to buy or sell any securities or other financial instruments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other information contained in the report, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject to SSSIL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Any unauthorized use, duplication, redistribution or disclosure of this report including, but not limited to, redistribution by electronic mail, posting of the report on a website or page, and/or providing to a third party a link, is prohibited by law and will result in prosecution. The information contained in the Report is intended solely for the recipient and may not be further distributed by the recipient to any third party. SSSIL generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, SSSIL generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein. Our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. The views expressed in this research report reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The compensation of the analyst who prepared this document is determined exclusively by SSSIL however, compensation may relate to the revenues of the Systematix Group as a whole, of which investment banking, sales and trading are a part. Research analysts and sales persons of SSSIL may provide important inputs to its affiliated company(ies). Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. SSSIL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. SSSIL and its affiliates, officers, directors, and employees subject to the information given in the disclosures may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation (financial interest) or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential material conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of the analyst and the Company may or may not subscribe to the views expressed therein. SSSIL, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall SSSIL, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The Company accepts no liability whatsoever for the actions of third parties. The Report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Report refers to website material of the Company, the Company has not reviewed the linked site. Accessing such website or following such link through the report or the website of the Company shall be at your own risk and the Company shall have no liability arising out of, or in connection with, any such referenced website SSSIL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any technical glitch to present the data. In no event shall the SSSIL be liable for any damages, including without limitation, direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by SSSIL through this presentation. Neither SSSIL, nor any of its other group companies or associates, shall be responsible for any decisions taken on the basis of this report. Investors are advised to consult their Investment and Tax consultants before taking any investment decisions based on this report. Systematix Shares & Stocks (I) Ltd. CIN : U65993MH1995PLC BSE SEBI Reg. No.: INB/F (Member Code: 182) NSE SEBI Reg. No.: INB/F/E (Member Code: 11327) MCX-SX SEBI Reg. No.: INB/F (Member Code: 17560) Depository Participant: IN-DP-CDSL (DP Id: 34600) PMS : INP AMFI : ARN Research Analyst : INH Regd. Office Address: J. K. Somani Bldg, 2nd Floor, British Hotel Lane, Fort, Mumbai Corporate Office Address: A , The Capital, BKC, Bandra (E), Mumbai, India