I am surprised that we don’t have a thread on Infra companies.
L&T needs no introduction being most formidable infra company.
What has gone unnoticed is that remarkable transformation company has been undergoing and continues to evolve as we talk.
Currently company broadly operates into following areas:
- EPC: Largest segment
- IT and Digital: LTTS, LTI, Mindtree and L&TNxt
- Defence manufacturing
- Finance - L&T Finance
- SPV and BOT Assets: Like Hyderabad Metro, Punjab Power plant etc. L&T intends to exit this segment
- Engineering goods - Almost out of this segment with sale of electrical and automation business to Schneider
L&T intends to focus on first three segment which has huge potential with intention of being a global player. It has scale and proven capability for the same.
Market seems to be ignoring this digital giant in making despite companies intentions. Let us look at it from valuations perspective:
Total MCap: 126k cr
L&T Infotech (74%) valuation share: 42k cr
Mindtree (61%) valuation share: 16k cr
L&T Tech Services (61%) valuation share: 14k cr
Total Digital/tech listed valuation share: 72k cr which is 57% of mcap
Add to this L&TNxt is being incubated as leading Industry 4 and IoT play.
So, Total Digital/Tech play is 57% of MCap + L&T Next. And these of leading edge Digital/Tech play unlike IT services companies which has legacy services and BPO components.
L&T Infotech is likely to be merged with Mindtree leading to synergies.
Intention was made clear with Mindtree acquisition. They are already sitting on huge cap gains at current prices.
L&T Tech services will likely be paired with L&T Nxt after it reaches critical mass.
This is all falling in place.
Now coming to total valuations:
L&T Finance 64% stake: 8k cr
So total valuation of listed entities is 80k crore out of 126k Mcap.
This is contributes to Rs 570 out of Rs 900 share price currently.
Next financial year should see normalization of Infra project execution and with average performance standalone entity should do an EPS of 50.
Assuming a conservative PE of 16. Core business should be valued around Rs 800.
Add to this valuation of SPV which is valued between 30-100. Taking lower value of 30.
We get a valuation of Rs 1400.
Upside to above valuations:
- Better order book: Their order book has picked up off late and impact due to corona has been negligible. They are already winning as much orders as they are executing. Government thurst on infra is likely to be back.
- Acceleration to digital play execution and market recognition.
- Government push to defence manufacturing. They are one of two shortlisted play along with Mazgaon Dock for 45k crore submarine project. L&T is said to get at least 50% of the project as Mazgaon is already running behind due to previous orders. Talks a lot about defence capability. Will catapult it into global play.
Disc: Invest around 900+