We do have one on NCC
We do have one on NCC
This is contributes to Rs 570 out of Rs 900 share price currently.
@ nav_1996, Thanks for the detailed calculation. I would like to add one point to the above.
Shouldn’t we need to apply the holding company discount to Rs: 570? Currently many holding companies are trading at around 50~60% discount. So if we apply 60% discount to Rs:570 then the total value comes to Rs:1058 (using your calculated value).
Disclosure: I do hold L&T at an average ~Rs:1100.
As they hold majority stake in each company and EPS is consolidated with parent I am not applying holdco discount.
For Reliance is market applying Holdco discount for Jio and retail. I think no.
I have noticed that analysts start applying Holdco discount when sector is out of favour and it disappears when sector is back in favour.
I guess holdco discount makes sense only when it is minority/investment holding.
For RIL, there is no significant holding discount as its subsidiaries are not listed yet. Generally, whenever the subsidiaries are listed and investors have option to directly invest in them, the holding company discount comes into picture. For, if I am interested in the digital game of L&T, I would in all probability, try to invest in an LTI and LTTS while I dont have that option for Jio yet. Thanks
Thanks for your views.
I have slightly different perspective. I don’t see how economic value of parent company changes if it owns 75% of a subsidiary whether it is listed or not.
Infact if a subsidiary is not listed, there is no market value discovery and has higher risks to valuations. Look at differential in Airtel and projected Jio valuations by PE investors, which may or not not sustain after listing.
Yes a demand and supply can distort valuations in short term.
I have another viewpoint on the holding company discount. The holding company can only benefit with the cashflow from the subsidiary via dividends or any business arrangement which they may have (like loans transferred between HDFC ltd & HDFC bank for a consideration).
It is expected that the holding company will never ever sell off their holding in the markets at the market valuations to distribute the proceedings to the shareholders so it’s fair to not consider it at market value in SOTP valuation of holding company. This holding company discount can vary depending on market conditions & company in view. like Bombay Burmah Trading Company (BBTC) holding Brittania, HDFC ltd holding many HDFC group companies, Bajaj holding company holding other Bajaj companies, Tata Sons holding so many tata group companies, so on & so forth.
So we should consider the stakes of LTI, LTTS, L&T fin, etc at a discount while doing a SOTP valuation of L&T.
Hope it helps understand better, Please highlight of there is any gap in my understanding.
Holding company discount varies from year to year and sector to sector. It is in the range of 45 to 70 percent during the last five years. Currently holding company discount is highest for real estate sector at 80 per cent and the least in chemical sector with 18 per cent as per this study. Market may reward Holding company with declining discount in case of the subsidiaries with good growth and profitability. Long term investors can reap benefits of declining holding company discounts if they can identify holding companies which can keep their subsidiaries in a profitable projectile. Avoiding holding company discount in valuations will lead to wrong valuations and confirmation bias.
Thanks. But please note that L&T is not a classical holding company. It is multi-billion dollar operating biz on stand alone basis. It is like HDFC or Reliance.
Even if we apply 20% holdco discount to subsidiaries. We get a valuation of around Rs 1300.
Other way is look at consolidated EPS which should be in range of Rs 66-70. Applying a higher blended PE of 20 (Infra + Digital), we get a similar valuation of Rs 1300-1400.
So analysts have started recognizing value of digital businesses and it is just a matter of time before perception also changes as soon as macro improves in a couple of Qs.
Hope submarine deal contract is also awarded this year
Business transformation on track with sell of non-core assets
This is called sector bias or sector being out of fashion. This is where value investors fish.
Added to this L&T Tech Svcs and L&T Infotech results have been pretty good.
Special dividend likely. Record date 5th Nov
CRISIL reaffirms ratings for L&T
Shows that L&T is only private sector entity which has muscle to build defence ships and submarines.
Order likely to got to PSU and L&T
Their dividend was really poor considering they will be investing some part of the new funds into non core business as well. Overall, the distribution of funds might be just okay but the kickstart for the investors could have been made sweeter with a higher dividend at least for the short term as sympathized by several other analysts too.
Another billion dollar win