L & T to list infotech subsidiary on Nasdaq - Views on News from Equitymaster

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L & T to list infotech subsidiary on Nasdaq

Dec 29, 1999

Larsen & Toubro has decided to list its wholly owned subsidiary L & T Information Technology. The listing, on the Nasdaq is planned by January 2001. The subsidiary has been valued at Rs.35 bn. L&T is an engineering and cement giant with engineering contributing almost 70% to its Rs.74 bn turnover (in FY99) and with cement capacity of 12 m tpa among the largest in the industry. The company’s information technology subsidiary L&T Information Technology is counted among the top 15 software companies in the country with 1,400 people.

The Boston Consulting Group had made the recommendation that L & T’s stake in L&T Information Technology (FY99 turnover: Rs.1.61 bn; net profit: Rs.368 m) be brought down through a public listing preferably on the Nasdaq. The company has now decided to divest 25% of its equity. It hopes to garner around Rs.100 bn through this divestment.

The proceeds from this divestment are expected to be used to retire L & T existing debt of Rs.33.58 bn. From L & T Information Technology’s point of view it could give the company an independent window to provide future finances as well provide the company with a currency for potential acquisitions.

L & T Information Technology is expected to clock a turnover of Rs.2.50 bn and a net profit of Rs. 500 million in the current year i.e. FY2000. The BCG report had earlier projected a turnover of Rs.30 bn and a net profit of Rs.6.50 bn by FY2005.

Market View:
Analysts view the developments positively and have rated the stock as a ‘Buy’ as the move is likely to lead to higher return on capital and shareholder value for L & T both of which have been concerns in the past.

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