Mumbai:
Larsen & Toubro is set to list L&T Infotech this year to unlock value for the parent and attract top quality talent. L&T is planning to raise ` . 1,600-1,800 crore from investors by diluting around 10-12% of the company, valuing the 16year-old information technology unit at as much as $3 billion, said officials in the know. With an eye on listing the company by December, L&T has already initiated the process of short-listing its book-running lead managers with Kotak, Citi, Barclays and SBI Caps believed to be making the cut.
The company expects a $3-billion valuation for the Infotech unit and analysts appear to concur with it.
When asked about the IPO plans, L&T Group executive chairman AM Naik said the company is on track to meeting the deadline. “We have reached a critical mass now,“ he said in an exclusive interview. “Also in IT, stock options play a major role in attracting talent.Being able to offer that pre-IPO stock will help us build that -just the L&T brand has not been good enough.“
L&T Infotech reported ` . 4,643 crore revenue for FY14, show its filings with the Registrar of Companies. It's expected to have closed FY15 “just shy of the billion-dollar top line mark.“ The company, which counts GE, Proctor & Gamble, Hitachi, Travelers and Chevron as clients, has also been growing faster than the industry for the past few years, albeit from a smaller base than the tier-1 companies.
Parallel to the IPO process, Naik is also on a hiring spree, interviewing a number of candidates for over 30 top management positions, including that of CEO and managing director, who is likely to be based in the US. The US remains and will continue to be the largest market, contributing 65% of revenue. “We need to build a top team before the IPO,“ Naik said, explaining the rush. “We have never had one in place. We are looking to hire 30-40 people to manage our existing business and bring in automation and also help build out the new digital offerings.“
Naik added that a lack of top-level management bandwidth had led to the failure of two acquisitions worth about $92 million. The listing is part of a bigger group restructuring drive that Naik has initi ated as part of his unfinished agenda be ore retiring in 2017-18 to make “the most complex corporate organisation in India“ nimbler through decentralisation.
However, L&T watchers argue that un ike the financial services subsidiary that got listed in 2011, the involvement of the parent in the growth of the IT business is far stronger, with continuous client engagement. Therefore, hiving it off as a separate listed company will be challenging. “Infotech or technology services come in as a larger package of offerings from L&T. If Dow and L&T work together for process equipment, the Infotech division also gets a seat at the table,“ said a veteran L&T analyst.
“We will have six independent direc tors like Vedika Bhandarkarand, six other directors, including L&T nominees and whole-time directors. Until the new CEO joins, SN Subrahmanyan and me will continue to drive the business.Then the CEO and the person in charge of digital will also be inducted,“ Naik said.
Naik is also preparing the IT arm for listing by improving operational efficiency . L&T Infotech has an operating margin of 20%, which the company is looking to boost in the coming year. The company has hired McKinsey to increase operational efficiencies.
“To bring in these superstars will cost us about 2.5% of margin. But we think the operational efficiencies will add 4% to the margin,“ Naik said.
IT industry analysts feel L&T still needs to catch up with its bigger peers.“You don't really hear about them much. I think they suffer from too little spend in sales and marketing at a time when the other players have been beefing up. They also don't have any big sales stars working for them. If they want to challenge the other tier-I players, this will have to change,“ said an analyst at an IT consulting firm. He declined to be identified.
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