According to newspaper reports, Larsen and Toubro (L&T) is planning to hive off its cement business into a separate company. It has invited five multinational cement majors to consider picking up a strategic stake in the new company. L & T is the largest engineering, procurement and construction (EPC) company (58% of total revenues) in India. The company also has major business interests in cement (24% of total revenues, capacity 12 mtpa), and software.
L&T had announced its keenness to divest its cement business into a separate company earlier this year. The move was aimed at consolidating the company's engineering, procurement and construction (EPC) division, a leader in domestic markets.
Over the last three years, overall profitability of L&T was suppressed due to a glut in the cement markets, even as the EPC division continued to generate large profits. Moreover, the cement division had been a drain on cash resources as L&T speedily set up cement capacity to become one of the largest producers of cement (capacity 12 m tonnes) in India.
The proposed spin off will unlock value of the EPC business, which was till recently over shadowed by the woes of the cement industry. The cement business will now be independently valued, reflecting market sentiment towards the industry.
The management's initiative is justified. Apart from unlocking value, the measure will help the management focus more on its core strength of EPC. The management of the new cement company, too, can focus on just one business – cement. This could enable both companies to post better performances in the future.
Market View:
Most analysts have rated the stock as a 'BUY' on account of the rising cement prices. As the other divisions of the company are already performing well, the turnaround in the cement division is expected to give a boost to the bottomline of the company.
For the quarter ended December 2020, L&T has posted a net profit of Rs 26 bn (up 5.1% YoY). Sales on the other hand came in at Rs 356 bn (down 1.8% YoY). Read on for a complete analysis of L&T's quarterly results.
Here's an analysis of the annual report of L&T for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of L&T. Also includes updates on the valuation of L&T.
For the quarter ended June 2020, L&T has posted a net profit of Rs 6 bn (down 63.9% YoY). Sales on the other hand came in at Rs 213 bn (down 28.3% YoY). Read on for a complete analysis of L&T's quarterly results.
Here's an analysis of the annual report of L&T for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of L&T. Also includes updates on the valuation of L&T.
More Views on NewsIn this video, I'll tell you why I am recommending caution in the market at this time.
A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.
In this video I'll show you exactly how I go about picking stocks for trading.
100 baggers of the last decade share this common trait. Here's how to use it to nail future multibaggers.
More
Equitymaster requests your view! Post a comment on "L&T mulls hiving off cement business". Click here!
Comments are moderated by Equitymaster, in accordance with the Terms of Use, and may not appear
on this article until they have been reviewed and deemed appropriate for posting.
In the meantime, you may want to share this article with your friends!