L&T Finance Holdings Ltd’s IPO is neither cheap nor expensive. The IPO opens on 27th July 2011. The price of the IPO will range from Rs. 51 to Rs. 59 per share.
L&T Finance Holdings Ltd is engaged in the infrastructure space which is already quite crowded with a number of established heavy weight players.
L&T Finance Holdings Ltd has been given the highest rationg of 5/5 by CARE & CRISIL.
Lets evaluate how L&T Finance Holdings Ltd stacks up against its competitors in relating to the IPO price.
L&T Finance Holdings Basic EPS
| Period | Consolidated (Rs per Equity Share) | Weights | |
| Year ended March 31, 2009 | (0.36) | 1 | |
| Year ended March 31, 2010 | 2.17 | 2 | |
| Year ended March 31, 2011 | 2.97 | 3 | |
| Weighted Average | 2.10 |
L&T Finance Holdings Diluted EPS
| Period | Consolidated (Rs per Equity Share) | Weights | |
| Year ended March 31, 2009 | (0.05) | 1 | |
| Year ended March 31, 2010 | 2.17 | 2 | |
| Year ended March 31, 2011 | 2.83 | 3 | |
| Weighted Average | 2.13 |
L&T Finance Holdings’ consolidated Basic & Diluted EPS for the period ended September 30, 2010 is Rs. 1.54 (not annualised).
L&T Finance Holdings’ Price Earning Ratio ("P/E") in relation to the Issue Price of Rs. 51 to 59 per Equity Share of face value of Rs 10 each
| Sr. No. | Particulars | Consolidated |
| 1. | P/E ratio based on basic EPS for the year ended March 31, 2011 at the Floor Price: | 17.8 |
| 2. | P/E ratio based on diluted EPS for the year ended March 31, 2011 at the Floor Price: | 18.0 |
| 3. | P/E ratio based on weighted average EPS for the year ended March 31, 2011 at the Floor Price: | 24.3 |
| 4. | P/E ratio based on basic EPS for the year ended March 31, 2011 at the Cap Price: | 20.6 |
| 5. | P/E ratio based on diluted EPS for the year ended March 31, 2011 at the Cap Price: | 20.8 |
| 6. | P/E ratio based on weighted average EPS for the year ended March 31, 2011 at the Cap Price: | 28.1 |
| 7. | Industry P/E* | |
| Highest | 15.4 | |
| Lowest | 7.5 | |
| Industry Composite** | 10.6 |
L&T Finance Holdings’ Net Asset Value per Equity Share
| NAV (Rs) | |
| Period | Consolidated |
| As on March 31, 2009 | 2,229.70 |
| As on March 31, 2010 | 15.31 |
| As on March 31, 2011 | 20.4 |
| NAV after the Issue | [•] |
| Issue Price | [•] |
L&T Finance Holdings’ Net Asset Value per share as on September 30, 2010 is Rs.19.06
At the Floor Price of Rs. 51, L&T Finance Holdings is available at a Price to Book of 2.5 while at the Cap Price of Rs. 59, the Price to Book is 2.89.
L&T Finance Holdings’ comparison with industry peers
| Face Value (Rs) | EPS (Rs) | P/E# | RoNW for Fiscal 2011 (%) | Book Value per share for Fiscal 2011 (Rs) | |
| L&T Finance Holdings Limited. | 10 | 2.87 | [●] | 13.58 | 20.40 |
| Shriram Transport Finance Company Limited | 10 | 53.92 | 12.1 | 24.87 | 216.37 |
| Mahindra & Mahindra Financial Services | 10 | 50.92 | 12.3 | 19.36 | 244.70 |
| IDFC | 10 | 8.77 | 15.4 | 11.39 | 76.97 |
| Rural Electrification Corporation | 10 | 26.18 | 7.6 | 20.15 | 129.90 |
| Power Finance Corporation | 10 | 23.06 | 8.3 | 17.37 | 132.79 |
| Sundaram Finance | 10 | 70.01 | 7.7 | 21.53 | 325.22 |
# Based on closing market price as on March 24, 2011 and Basic EPS for the year ended March 31, 2010, extracted from the respective annual reports of the companies.
As can be seen, L&T Finance Holdings has a lower RONW as compared to its peers Shriram Transport Finance Company & Mahindra & Mahindra Financial Services & even REC. Those stocks are also available at the same valuations as L&T Finance Holdings. So, barring listing gains, if any, L&T Finance Holdings is not offering any great advantage over its peers. For more see L&T Finance Holdings Ltd’s IPO: Blue Chip Stock!
L&T Finance Holding IPO Research Report
I have some reservations on whether it is worth to invest in the L&T Finance Holdings IPO.
(i) The L&T Finance Holdings IPO is in the infrastructure space. Investors are a bit skeptical about the prospects of the space at the moment as you can see from the subdued prices of the infra stocks;
(ii) On a pure PE basis, the L&T Finance Holdings IPO is quoting at a PE of 20.8 which is higher than its Peers Shriram Transport (PE of 12.47), Mahindra & Mahindra Financial Services (PE of 15.43). Only IDFC is slightly more expensive with PE of 24.30.
(iii) On the Price to Book Value front, L&T Finance Holdings IPO is quoting at a PBV of 2.89 while IDFC is at 2.80, Mahindra & Mahindra Financial Services is at 2.87 & Shriram is at 3.13.
So I am not very gung-ho about the L&T Finance Holdings IPO.