Thanks for the detailed note as the same encouraged me to scan the latest AR.
Here are my notes:
Too many Subsidiaries+associates+JV:
56 Indian Subsidiaries
64 Foreign Subsidiaries
6 associates
25 Joint ventures
36 Joint operations
Multiple sources of revenue, too diversified to project in one direction:
Infrastructure
Power
Heavy Engineering
Defence Engineering
Electrical & Automation
Hydrocarbon
IT & Technology Services
Financial Services
Developmental Projects
On Page 551, Maturity profile of financial liabilities (Within twelve months): 1,03,399. Considering this, I understand that the liquidity you see on face value is a business need and not surplus.
On Page 487, Contingent Liabilities: ~17,000 Cr.
Overall 581 pages AR. I was amazed at the complexity of this business. However, chairman’s photo shows a clean desk.
With my current knowledge, I can only wish I were able to understand such a business.
I respectfully disagree, but do not want to comment further.
A conglomerate by definition will have its hands in lots of places. This is no different. If you notice the large number of subsidiaries and companies, check the project they’re executing, most will be JVs to meet other country tax requirements, BOLT agreement companies and such like; natural when you build roads for 2000 crores and toll lease it.
I’m reminded of Kumaramangalam Birla who ranted at consulting companies advice that he took viz “core competency”. he said if he had disregarded that advice, he’d have his hand in telecom, retail, infra and IT. Instead he was last to get into all of these with mixed results and a me-too billionaire now compared to Ambanis and Adanis.
The last 2 are all over the place in different verticals and have done phenomenally well; Larsen too with its heavy engineering push with majority stake in LT infotech is just following the Tata Conglomerate model with equal success.
This is nothing given the size of their order, u don’t understand how infrastructure EPC businesses are run, They are rated by CRISIL, ICRA and FITCH please read their report if you want to understand why they are rated AAA.
Have fun, There are other businesses for you invest with 0 debt, high cashflows etc.
L&T operates in a segment that has long gestation order cycle, delayed payments, dependence on multiple industries, high debt level and hygienic ROCE even in the best of times.
Some sectors are easy to make money in like IT Services and Pharma. Others are tough businesses to run given the complexity in execution, very few players succeed over a period of two decades in such business segments. But the ones who survive, continue to dominate the market.
I don’t think L&T will ever become a free cash flow, high ROCE and minimal balance sheet risk business. But that is a function of the sector it operates in.
Given where the market is and the optionality that this business presents, it looked like a better bet to me than a high ROCE, asset light, FCF heavy consumer story that will grow at 10% but trades at 70 PE. The market is all about tradeoffs and finding risk adjusted opportunities.
Let me put it this way, buying this business will be a portfolio manager’s call and not a stock picker’s call. The stock picker in me wouldn’t touch stories like ITC and L&T, the portfolio manager in me says otherwise. Sometimes the portfolio manager wins, especially during times when every good story in the market trades at high valuations.
In terms of bottom up analysis I can think of 25 better stories right now, but none of them offer value at current prices. Horses for courses, sometimes.
This was behind a firewall…I think it speaks on tectonic increase of IT within the whole scheme of things…boils down to same question…whether it is better to directly own its IT subsidiaries when L&T itself is so bullish on it and its future depends on it…
I think I would not own an L&T for its IT as I have the entire IT pack of L&T available directly…If I would own it, it will be for its core business or any new business within it that is not directly listed…
Disc: Tracking Mindtree & L&T, Invested in LTTS & LTI. Want to invest it L&T as I see scope for non-IT part to emerge, missed an opportune time. No buy/sell recommendation. Views personal and for academic purposes
With the steep run up of L&T subsidiaries (LTI, LTTS, LTFH, Mindtree), the core business is accounted for ~110K Cr considering 20% holdco discount. L&T is available at unbelievably cheap valuations then in this lens without even analyzing the core business. Is this the right way of looking at L&T? Because this method justifies the high valuations of the subsidiaries before going into L&T’s core business itself.
Not really. IT stock valuations are very high for my taste. I will assign more reasonable valuations to tech subsidiaries (may be 40% of CMP or 20x) and then look at remaining valuation of core business and take a call. When I created this thread L&T was half current price.
I am sure that this does not have financial implication but this is very BIG recognition and establishes L&T as serious defence play. Defence secretary and Navy vice chief and US embassy officials were present on the occasion.
Not to divert to a different topic, but this could simply be a safety measure to have a check on China, considering the fact that both India and US have problems with China. US needs strategic allies, they need our coast, more so now than before.
So such ships anchor at one of the many ports in India, L&T’s or other yards, maintenance is done, and the ships back to their business, commercial or defence. It is possible that our Navy learns something from their counterparts. So I guess things like this have no bearing on the business of the company, unless this becomes a regular income stream, if the company gets such contracts from the government, for our own vessels.
While that may all be true, this is the result of IN USA navy mutual logistics pact signed a few years ago. And a few ports were identified for repairs along with players like LT and Adani group.
I respectfully disagree, but do not want to comment further.