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Larsen & Toubro: Engineering group plans to list software outsourcing unit to unlock value
NEW DLEHI (NewsRise) — Larsen & Toubro plans to list its software services unit on local stock exchanges, as India’s largest engineering and construction company aims to raise funds by selling shares in its subsidiaries as part of a restructuring plan.
Mumbai-based L&T will sell 17.5 million shares, or nearly 11% of outstanding stock of Larsen & Toubro Infotech, via an initial public offering, according to a draft prospectus published on the website of its investment bankers. L&T, which currently holds 161.25 million shares in the unit, is seeking to raise around 15 billion rupees ($227 million) via the share sale. The IPO would value the unit at around $2.5 billion, analysts said. L&T has a market capitalization of $21 billion.
Under Chairman A.M. Naik, L&T has been looking to sell some assets including roads and infrastructure projects, while aiming to encourage independence at its more than 70 businesses by appointing separate chief executives and boards at each unit.
As part of its restructuring plan, the company has been seeking to dilute stakes in non-core operations, while focusing on its engineering and construction business. The company’s finance arm, which was the first unit to list on stock exchanges, earlier this month sold about 10% stake to U.S. private Equity firm Bain Capital.
L&T, seen as a bellwether for India’s economy given its portfolio of major infrastructure projects, has disappointed investors in recent quarters, as growth slowed amid lackluster domestic demand and weak oil prices that hit key Middle Eastern construction markets. Media reports earlier this year said L&T was seeking to shed stakes in a number of its units with a goal of raising more than $1 billion, as part of its strategy to sell non-core businesses.
Shares of L&T have shed about 3% since the start of the year, while the benchmark S&P BSE Sensex has lost a little more than 6%. The stock closed up 1.27% at 1,448.25 rupees in Mumbai trading.
L&T said in its annual report that it was evaluating various options to “discover the value” for its tech arm. The software unit reported revenue 49.68 billion rupees and a profit of 7.6 billion rupees in the year ended in March, according to the draft prospectus. It had 19,479 employees.
As of June 30, L&T Infotech had 22 Delivery Centers and 42 sales offices globally, with clients spanning several sectors ranging from banks to retail companies.
L&T Infotech joins a slew of companies to file draft IPO papers this year with the nation’s markets regulator, reflecting a revival in investor confidence in India’s economy. The share sale is likely to be the second-biggest offering this year after the $400 million IPO planned by the owner of India’s biggest airline IndiGo.
Citigroup Global Markets India, Kotak Mahindra Capital, ICICI Securities and Barclays Bank are managing L&T Infotech’s IPO.
The outsourcing company aims to broaden its portfolio of digital services as it expands across the world, including the U.S., its biggest market. The company is also seeking acquisitions in countries including Germany and France.
India’s $146 billion IT industry, led by Tata Consultancy Services and Infosys, is stepping up investments to fuel growth through new digital technologies such as automation and artificial intelligence. The sector is expected to cross $200 billion by 2020.
Larsen & Toubro: Engineering group plans to list software outsourcing unit to unlock value
