Larsen & Toubro Limited (L&T) is the kind of blue chip stock that every investor wishes he had bought. If you had bought the shares of Larsen & Toubro Limited (L&T) about 10-odd years ago (1.4.2000, when the price was Rs. 68) you would have made an incredible return of 2196% at the CMP of Rs. 1,647, not including regular dividends. In other words, your investment of Rs. 1 lakh 10 years ago would be worth Rs. 21.96 lakhs today!
Larsen & Toubro Limited (L&T)‘s promoted L&T Finance Holdings Ltd‘s IPO is eagerly awaited by all investors looking to invest in a blue chip stock. L&T Finance Holdings Ltd is a financial holding company offering a diverse range of financial products and services through its direct and indirect wholly-owned subsidiaries. L&T Finance Holdings Ltd‘s operations are arranged into four business groups, being the Infrastructure Finance Group, the Retail Finance Group, the Corporate Finance Group and the Investment Management Group. The said business is carried out through wholly owned subsidiaries being L&T Infrastructure Finance Company Limited (L&T Infra), L&T Finance Limited (L&T Finance) and L&T Investment Management Limited (L&TIM). While L&T Infra conducts the infrastructure finance business, L&T Finance conducts the retail & corporate finance business and L&T Investment Management conducts the investment management business.
L&T Finance Holdings Ltd‘s competitive strengths are (i) A Diversified and balanced mix of high growth businesses, (ii) Strong distribution network, with a presence throughout India, (iii) Experienced management team and employees with a proven track record of establishing and growing new lines of business, (iv) High quality loan portfolio comprising the funding of mainly income-generating assets and activities and (v) Good financial and capital position, as well as access to multiple sources of capital. Of course, the biggest strength from the investor’s point of view is the strong parentage and brand equity of the mighty L&T.
L&T Finance Holdings Ltd‘s consolidated balance sheet (Rs. in Million)
| Particulars | As at 30-09-2010 | As at 31st March, | |||
| 2010 | 2009 | ||||
| A | Assets Fixed Assets – Gross block Less : Depreciation Net Block Less : Lease adjustment Net Block after lease adjustment Capital Work-in-progress including capital advances | 9,636.56 3,186.62 6,449.94 2,362.89 4,087.05 36.57 | 9,378.52 3,044.80 6,333.72 2,362.89 3,970.8313.70 | 7,404.26 2,730.72 4,673.54 2,362.89 2,310.65 120.09 | |
| 4,123.62 | 3,984.53 | 2,430.74 | |||
| B | Goodwill (on consolidation) | 440.50 | 464.98 | 167.47 | |
| C | Investments | 11,281.16 | 3,087.60 | 1,690.22 | |
| D E | Loans & Advances towards financing activities Current Assets, Loans and Advances | 132,553.81 | 109,490.87 | 70,984.32 | |
| Sundry Debtors | 2,879.57 | 3,888.33 | 1,795.18 | ||
| Cash and Bank Balances | 310.35 | 1,168.95 | 721.08 | ||
| Loans and Advances | 2,305.48 | 1,934.71 | 1,809.15 | ||
| Other Current Assets | 1,045.92 | 638.18 | 416.04 | ||
| 6,541.32 | 7,630.17 | 4,741.45 | |||
| F | Liabilities and Provisions | ||||
| Secured Loans | 76,592.94 | 74,467.62 | 41,547.81 | ||
| Unsecured Loans | 46,261.02 | 22,805.81 | 20,654.63 | ||
| Deferred Tax Liabilities (net) | 56.20 | 89.76 | 257.58 | ||
| Current Liabilities | 4,300.16 | 2,906.67 | 1,791.21 | ||
| Provisions | 728.42 | 921.91 | 426.67 | ||
| 127,938.74 | 101,191.77 | 64,677.90 | |||
| G | Net Worth (A+B+C+D+E-F) Represented by Shareholders funds Share Capital Share application money Reserves and Surplus Less : Revaluation Reserve Reserves (net of Revaluation Reserve) | 27,001.67 | 23,466.38 | 15,336.30 | |
| 14,170.24 -12,831.43 –12,831.43 | 13,535.92 2,750.00 7,180.46 –7,180.46 | 20.50 10,765.42 4,550.38 –4,550.38 | |||
| Net Worth | 27,001.67 | 23,466.38 | 15,336.30 | ||
L&T Finance Holdings Ltd‘s consolidated Profit & loss A/c (Rs. in Million)
| Particulars | For the period ended | For the year ended 31st March, | ||
| 30-09-2010 | 2010 | 2009 | ||
| Income Income from operations Other income | 9,415.12 164.50 | 14,055.96 183.19 | -0.26 | |
| Total | 9,579.62 | 14,239.15 | 0.26 | |
| Expenditure Employee cost Administration and other expenses Interest and other finance charges Depreciation and amortisation Amortisation of goodwill Preliminary expenses written off | 434.48 1,248.76 4,416.59 261.89 24.49 – | 596.81 2,452.80 6,747.08 475.45 24.79 0.52 | -0.03 —0.39 | |
| Total | 6,386.21 | 10,297.45 | 0.42 | |
| Net profit before tax, before exceptional item, prior period item & subsidiaries/associates effect Current tax (including wealth tax) Deferred tax Provision for fringe benefit tax (prior period) | 3,193.41(1,135.53) 36.25 – | 3,941.70 (1,523.41) 182.50 (0.04) | (0.16) 0.01 — | |
| Net profit after tax before exceptional item, prior period item & subsidiaries/associates effect Profit /(Loss) on sale of subsidiaries / associate share of loss | 2,094.13(4.26) | 2,600.75 16.21 | (0.17) – | |
| Net profit after tax and subsidiaries/associate effects & before exceptional items and prior period items Exceptional items Prior period items (Income tax of earlier years) | 2,089.87(59.95) – | 2,616.96 (15.41) (5.08) | (0.17) — | |
| Net Profit after extra-ordinary items | 2,029.92 | 2,596.47 | (0.17) | |
| Adjustments, if any (Changes in accounting policy) Tax impact on adjustments | 8.05 (2.67) | 43.22 (9.61) | –– | |
| Total adjustments, net of tax impact | 5.38 | 33.61 | – | |
| Net Profit, as Restated Balance brought forward from previous year | 2,035.30 1,004.37 | 2,630.08 (18.19) | (0.17) – | |
| Appropriations Transfer to Reserve u/s 45-IC of RBI Act, 1934 Transfer to Reserve under Section 36(1)(viii) of the Income Tax Act, 1961 Transfer to Debenture Redemption Reserve Share in opening profit / (loss) of Associate | 3,039.67 —- | 2,611.89 546.72 60.80 1,000.00 – | —(18.02) | |
| Balance carried to Balance Sheet | 3,039.67 | 1,004.37 | (18.19) | |
L&T Finance Holdings Ltd‘s Basic EPS (Rs)
| Basic EPS: | ||
| Period | Consolidated ( Rs per Equity Share) | Weights |
| Year ended March 31, 20091 | (0.36) | 1 |
| Year ended March 31, 2010 | 2.17 | 2 |
| Weighted Average | 1.33 | |
| The consolidated Basic EPS for the period ended September 30, 2010 is Rs 1.54 (not annualised). | ||
L&T Finance Holdings Ltd‘s Diluted EPS (Rs)
| Diluted EPS: | |||
| Period | Consolidated ( Rs per Equity Share) | Weights | |
| Year ended March 31, 20091 | (0.05) | 1 | |
| Year ended March 31, 20101 | 2.17 | 2 | |
| Weighted Average | 1.43 | ||
| The consolidated Diluted EPS for the period ended September 30, 2010 is Rs | 1.54 (not annualised). | ||
L&T Finance Holdings Ltd‘s Return on Net worth ("RoNW")
| Return on Net worth ("RoNW") | |||
| Period | Consolidated (%) | Weights | |
| Year ended March 31, 2009 | 0.00 | 1 | |
| Year ended March 31, 2010 | 11.21 | 2 | |
| Weighted Average | 7.47 | ||
| The return on Net Worth for the period ended September 30, 2010 is 7.76% (not annualised). | |||
L&T Finance Holdings Ltd‘s Net Asset Value (NAV)
|
NAV ( Rs ) |
||
| Period | Consolidated | |
| As on March 31, 2009 | 2,229.70 | |
| As on March 31, 2010 | 15.31 | |
| NAV after the Issue | [•] | |
| Issue Price | [•] | |
| The Net Asset Value per share as on September 30, 2010, i.e., Rs. 19.06. | ||
L&T Finance Holdings Ltd‘s versus its’ peers. What is notewothy is that L&T Finance Holdings Ltd‘s RONW is much lower as compared to that of its peers.
| Face Value (Rs ) | EPS ( Rs ) | P/E | RoNW for Fiscal 2010 (%) | Book Value per share for Fiscal 2010 ( Rs ) | |
| L&T Finance Holdings Limited** | 10 | 2.17 | [●] | 11.21 | 15.31 |
| Shriram Transport Finance Company Limited | 10 | 41.08 | 18.5 | 22.93 | 168.81 |
| Mahindra & Mahindra Financial Services | 10 | 37.15 | 20.9 | 20.28 | 181.09 |
| IDFC | 10 | 8.20 | 18.7 | 15.15 | 53.90 |
| Rural Electrification Corporation | 10 | 23.30 | 10.5 | 18.21 | 129.32 |
| Power Finance Corporation | 10 | 20.72 | 11.3 | 17.89 | 115.80 |
| Sundaram Finance | 10 | 49.26 | 9.7 | 18.68 | 265.04 |
The most important aspect that is not known yet is the price at which the IPO of L&T Finance Holdings Ltd will be priced. This will determine whether the IPO is a success or not. The chart shows that L&T Finance Holdings Ltd‘s RONW is much lower as compared to that of its peers. So, hopefully L&T Finance Holdings Ltd‘s IPO will also be priced correspondingly and not such as to take advantage of the hype that L&T‘s name will create.
Excellent analysis. The issue is going to be priced at Rs. 51-59. So, does it make sense investing ?