Should You Subscribe : L&T Technology Services Ltd IPO

L&T Technology Services LTD – A long term tech play

About the issue:
  • L&T TS is coming up with an initial public offering (IPO) of around 10.4mn shares (fresh issue: nil; OFS shares: 10.4mn) in offering. Total IPO size is estimated at around Rs. 8,840 – 8,944mn.
  • The issue will open on 12th Sept. 2016 and close on 15th Sept. 2016.
  • Not more than 50% of the issue will be allocated to qualified institutional buyers. Further, at most 15% of the issue will be available for non-institutional bidders and the remaining 35% for retail investors.
  • Net proceeds from the issue will go to selling shareholder. The company will not receive any money from the issue.
  • Pre-issue promoter group stake in L&T TS stands at 100%. Post IPO, promoter group stake will decline to 89.8%. Source: Company RHP Pre and Post Issue Shareholding Pattern (%) Pre Issue Post Issue Promoter & Promoter Group (%) 100% 89.8% Public 0% 10.2%

Salient features of the IPO
  • L&T Technology Services Ltd. (L&T TS) a leading global pure-play Engineering and R&D services company
  • The company globally serves over 200 customers, which includes more than 50 Fortune 500 companies. 
  • The public issue is completely an offer for sale, thus it will not receive any IPO proceeds.
Key competitive strengths:
  • Leading global pure-play ER&D services company
  • Well-diversified player with multi-vertical industry expertise.
  • Focus on innovation through in-house R&D, IP and strategic alliances
Risk and concerns:
  • Inability to develop new services or enhance existing services
  • Nearly balanced onsite and offshore revenue composition
  • Employee cost
  • Foreign currency fluctuations

Valuation & recommendation:
At the higher price band of Rs. 860, L&T TS’s share is valued at a P/E multiple of 20.1x (to its FY16 EPS), which is in line with the average P/E multiple of 21.4x of its domestic peers. Moreover, its global peers are trading at a P/E multiple of 23.2x.

Particulars (Rs Mn) FY14 FY15 FY16 Q1 FY17
Revenue From Operations 1261.7 25605.9 28940.4 7653.9
EBITDA 195.7 4043 5324.1 1621.1
Reported PAT 62.1 3151.8 4342.4 1350.6
EBITDA (%) 15.50% 15.80% 18.40% 21.20%
Reported PAT (%) 4.90% 12.30% 15% 17.60%
RoE( %) 1.30% 29.80% 38.90% 11.60%
RoCE (%) 3.40% 28.40% 38.30% 11%

Must Read : How Risk Management Policy is designed for you at a Brokerage House

Below are few key observations of the issue:
  • L&T TS is one of the global leading ER&D players, with leadership position in eight industry verticals (Source: Company RHP).
  • Its clientele includes 43 of the top 100 global ER&D spenders, which covers 66.3% of G500 ER&D spend in 2015. Additionally, it derives over 80% of revenue from North America and Europe, which cumulatively accounted for 73% of the ER&D service spending.
  • The ER&D market is currently under served with a penetration level of around 6.7% in 2015. Thus there is a significant growth opportunities in the outsourcing of ER&D services. 
  • As of 31st Aug. 2016, L&T TS has filed 35 proprietary patents and 134 co-patents with customers that can be monetized in future.
  • Since the last quarter, the entire IT sector is under pressure, mainly due to the risk associated with the Brexit. Although the company’s exposure to UK market is around 2% of the total revenue, it will not be spared from the overall prevailing negative sentiment. Moreover, the recent lower growth guidance given by the domestic major IT companies, would support the near term negative sentiment.
  • Recently the L&T group came up with an IPO for its group company L&T Infotech Ltd., which was not well received by the market, despite being a fundamentally strong company. This time I believe, the investors will be cautious before subscribing for the issue. 

Considering its market leadership and higher profitability and return ratios, I feel that the issue is fairly valued. Thus, I recommend a “SUBSCRIBE with Caution” rating for the public issue.

Do let me know your thoughts in comment section….

I also hope you enjoyed reading the article , it takes time to write articles, request you to please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left.

Who doesn’t like a financial healthy life,In case if you want one, contact me for Financial Planning, please do drop an email to me at I would be happy to assist you

Mutual Funds & Insurance Related Articles :-
Benefits of SIP

What is SWP in mutual Funds

9 Secrets to choose right mediclaim
How to Plan for your Child Education Planning
How to do Retirement Planning
Best 3 Large Cap Mutual Funds for SIP in 2016  
Best 3 Midcap Mutual Funds for SIP in 2016
Best ELSS Tax Savings Mutual Funds for SIP in 2016
Why you should not buy ULIP
How to Select Mutual Fund for Portfolio
Liquid Funds are better alternative than Savings Bank account
What is FMP in Mutual Funds
Complete Guide on Monthly Income Plans
Complete Guide on Credit Opportunities Fund
How to Save Tax using Equity Linked Savings Scheme
How to Budget Your Money
How Much Insurance Do You Really Need
Why Should you buy Term Insurance Upto 60 Years
5 Must Have Insurance Policies for Women

Disclaimer  :-

The Article is only for information purposes and Vipul Shah ( is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose. and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.

Leave a Reply

Subscribe for regular personal finance articles, In depth mutual fund analysis, starting with these ebook + retirement planning as valuable bonuses
Download Free Ebook Retirement Planning & Basic Excel Template