L&T Finance Holdings Limited IPO Review (Apply)

Review By ARM Research Pvt. Ltd. on July 27, 2011

Total Issue of Shares (Cr): 21.1 - 24.4
QIB Investors (Cr): upto 50%
Non -Institutional Investors (Cr): atleast 15%
Retail Investors (Cr): atleast 35%
Issue opens on: July 27, 2011
Issue closes on: July 29,2011
Price Band (Rs.): 51-59
Lot size (No. of shares) and multiple: 100
Face Value: (Rs) 10
Issue Size (Rs in Cr.): 1245.00
Equity Shares outstanding prior to the Issue (Cr): 1477.02
Equity Shares outstanding after the Issue (Cr): 1748.04

L&T Finance Holdings was incorporated in 2008 and is a financial holding company offering a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors as well as mutual fund products and investment management services. The company is promoted by Larsen & Toubro Ltd, one of the leading companies in India, with interests in engineering, construction, electrical and electronics manufacturing and services, information technology and financial services, L&T Finance Holdings is registered with the RBI as a Systemically Important Non-Deposit Taking Non-Banking Financial Company and has applied for registration as a Core Investment Company.

L&T Finance is headquartered in Mumbai, and has a presence in 23 states in India. As at May 31, 2011 it had 837 points-of-presence across India, comprising 117 branch offices, 269 meeting centres, 37 KGSK centres and 414 customer care centres across all of their business groups and segments.

Company's operations are arranged into four business groups - the Infrastructure Finance Group, the Retail Finance Group, the Corporate Finance Group and the Investment Management Group. LTF's customer includes individual retail customers as well as large companies, banks, multinational companies and small- and medium-enterprises.

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.

Risks & Concerns

L&TFH would have to pay 5 % of the consolidated profits or 0.15 % of the assets whichever is lower for using Larsen and Toubro's trademark.
The NBFC sector is passing through a regulatory uncertainty which may pose risk, going forward. Any slowdown in the economy would hit L&TFH.
L&T as an NBFC face the risk of default and non-payment by borrowers and other counterparties. Any such defaults and non-payments would result in write-offs and/or provisions in L&T's financial statements which may materially and adversely affect its profitability and asset quality. Further, any sustained increases in the NPAs of L&T Infrastructure Finance Group and Retail and Corporate Finance Groups may materially and adversely affect its profitability and asset quality.
LTFH is a holding company and all the business operations are conducted through its Subsidiaries and the performance of its Subsidiaries may adversely affect LTFH's results of operations.
L&T have entered into related party transactions with its Promoter and certain of its Group Companies aggregating to Rs. 79,559.21 million and Rs. 989.88 million, respectively, constituting 98.77% and 1.23% of L&T's total related party transactions, respectively. Such transactions and any future transactions with such related parties have involved or could potentially involve conflicts of interest.
Microfinance lending poses unique risks not generally associated with other forms of lending in India, and, as a result, L&T may experience increased levels of non-performing loans and related provisions and write-offs that negatively impact its results of operations.
L&T will continue to be controlled by its Promoter after the completion of the Issue.
L&T do not own Registered Office and Corporate Office from which it operates.

Valuations

LTFHL's book value per share will stand between Rs. 24.9 and Rs. 25.4 of the post IPO equity depending on the allotment price. Correspondingly, the price to book value (P/BV) ratio will stand between 2.1 - 2.3x. At the higher end of the band the issue is at a slight premium to competitors like IDFC and PFC. Given a high capital adequacy ratio (CAR) L&T Finance has enough headroom to fund its further growth.

However, stiff competition against established players and considerable lower return ratios make the stock richly priced.

However L&TFH is a strategically important subsidiary of L&T and enjoys the healthy management experience, technical expertise, good corporate governance practices and brand value of the L&T group, diversified asset book are positives