Accounts Assg 02

8/2/2019 Accounts Assg 02

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Assignment-01

L&T Finance Holdings

Introduction:

L&T Finance Limited (LTF) is a subsidiary of Larsen and Toubro. It was

incorporated as a Non Banking Finance Company in November 1994.

Through LTF, L&T aims at making a strong foray in the ever-expanding

financial services sector.As a business philosophy, we fund incomegenerating assets/activities while maintaining a clear focus on returns.

LTF offers a spectrum of financial products and services for trade,

industry and agriculture. The company's focus segments are corporate

products, construction equipment, CVs and tractors. Despite the

turbulence in the financial services markets over the past few years,

L&T Finance has adapted well to the changing market dynamics to

remain consistently profitable.

Like the rest of the companies in L&T group, LTF is also professionally

managed. LTF shares the professional values and ethos of its parent

company, and has acquired and maintained a reputation for reliability,

transparency of operations and absolute integrity. A steady growth rate

validates the trust that industry has reposed in the company.Larsen &Toubro Ltd is a USD 9.8 billion technology, engineering andconstruction group with operations spread across the globe. It was

ranked as 14th by the Economic Times in their survey of the Top 500

Companies in India..


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Overture:

Issue Details:

Issue Price: Rs. 51 - 59

No of Shares (FV Rs. 10): 211 million -- 244 million shares

Issue Size: Rs. 12,450 million

Issue opens-closes: 27th July 201129th July 2011

Listing: BSE and NSE

Post Listing Details:

Pre-Issue Promoter and Promoter Group Holding: 95.94 per cent

Post Issue Promoter and Promoter Group Holding: 82.33 per cent

Post Issue Equity Capital: Rs. 16880 million

Rs 17211 million

Post Issue Equity Shares (no) : 1688 million1721

million shares

Market Cap : Rs 87,778millionRs 99,594 million


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Background:

Promoted by the engineering and construction major, Larsen andToubro and formerly Known as L&T Capital Holdings Ltd

Holding company with a NBFC-NDSI (Systemically ImportantNon-Deposit taking Non-Banking Financial Companies) status.

Offers a range of financial products and services across thecorporate, retail and infrastructure finance sectors including mutual

fund products and investment management services, through its

direct and indirect wholly-owned subsidiaries.

Holding company for L&T Infrastructure Finance Company(infrastructure financing business), L&T Finance (operates the

retail and corporate finance business) and L&T Investment

Management (indirect subsidiary, mutual fund business acquired

from DBS Cholamandalam, under its arm L&T Finance).

Why is the Company making the IPO?

The company intends to raise Rs 12,450 million for the IPO, it has also

raised Rs 3300 million from Pre-IPO placement at Rs 55 per share to the

US private equity fund Capital International. Proceeds of the issue willbe utilized to:

Repay the inter-corporate deposit (Rs 3,450 million) issued by itsPromoter to the company


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Augment the capital base of L&T Finance (Rs 5,150 million) andL&T Infra (Rs 4,850 millions)

Meeting capital adequacy requirements. The aim of L&T Finance is to get a banking license to start

banking operations in India. As the Indian market opens up

for more private players and organizations in the retail

banking space, the requirements for obtaining a banking

license will be available by March 2011. L&T Finance has

already restructured itself so as to become a potential

candidate to apply for the banking license.

Research Analysis:

The financials of the company are not directly comparable for FY2009 and FY 2010 as the company acquired L&T Finance

(together with its subsidiaries) and L&T Infra as on March 31,

2009. Prior to that, the company had minimal operations as it was

incorporated in May 2008.

For the periods FY 2010 and FY 2011, total income increased byalmost 50 per cent primarily on account of an increase in theoperating income of its subsidiaries, L&T Finance and L&T Infra

whose incomes increased by 45 per cent and 56 per cent


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respectively. The resultant impact was also seen in the bottom-line

of the parent (LTFH).

The average yield on loans to cost of funds for L&T Finance andL&T Infra for FY 2011 was 15.19 per cent to 8.40 per cent

and11.56 per cent to 8.06 per cent respectively. Thus, the net

margin for the companies was over 6 per cent and 3.5 per cent for

the period under review.

The debt to equity ratio is around 5 times for FY 2011. Post-issuethe ratio will drop to under 4 .

Overall cash flow from operations has been negative as thecompany (read as subsidiaries) continue to meet their capital

requirement from financing activities. Notably, the net cash flow

from operations for FY 2011 and FY 2010 was negative Rs 59,020

million and Rs 39,140 million respectively.

Pursuant to a trademark license agreement with its promoter, L&TFinance, L&T Infra and other subsidiaries (of ultimate parent)

were granted a global non-exclusive, nontransferable license to use

the "L&T" trademark and logo for a consideration payable by each

of the licensees of up to 0.15 per cent of the assets, or 5 per cent of

the PAT of each of the licensees, whichever is lower, plus service

tax. This becomes applicable from the fiscal year 2012 onwards

The companys exposure to the micro-finance sector has led toadditional provisioning.


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At the upper end of the band, the the IPO is priced at a Price-to-Book ratio of of 2 times and a Price to Earnings of over 20 times

its forward earnings estimate.

Concerns for Declaring IPO

1)The earnings per share in the year in the year 2009 was Rs 69which fell to Rs 49 and it is a bad sign for the company and it was

due to increase in number of issues of the equity shares .This a

very good indicator for the companys growth and it can beobserved from the EPS of the company that it is in a good position.

2)Adjusted Cash EPSIt can be seen that the adjusted EPS is falling in the year 2009 due

to the rise in the share capital and the same happened with the

adjusted cash ratio. In the present the adjusted cash ratio is

increasing substantially which is a good sign for the company.

3)Dividends Paid:Dividend paid by L&T is nearly 150% of the face value of Rs 10

per share. In the year 2008 the dividend paid was very high and in

2009 the dividend paid was much less when compared with the

previous year. In the year 2011 the company has paid much more

dividends when compared with the previous years. This shows that

the company is earning a lot of profits.


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4)Operating Profit per Share:The operating profit per share is reasonably higher as compared to

past 2 years but still it is less when compared to the year 2008.

5)Overall cash flow from operations has been negative as thecompany continues to meet their capital requirement from

financing activities. Notably, the net cash flow from operations for

FY 2011 and FY 2010 was negative Rs 59,020 million and Rs

39,140 million respectively.

6)The companys operating ratio has increased in the year 2011which implies the company will be in a position to give more

dividends compared to previous years. Therefore, the face value

per share will also increase accordingly

Accounts Assg 02

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