Of late the IPO market seems to be sizzling with action. Mahanagar Gas did rather well and Quess Corp exceeded even the wildest expectations of the optimists. So much so, that very few people who applied were blessed with any allotment. The listing gains that the stocks had seem to justify the enthusiasm of the applicants. In the light of the current situation, how will the LT Infotech issue work out? Is it worth an investment?
The first thing to look at any IPO is the company and it’s relative position in the industry. The second issue to look at is the prospects of the industry in the short and long term. The third issue to look at is the price point of the offering and whether it makes sense. Let us look at each one of these one by one.
To begin with one must understand that LT Infotech is not really a tier 1 IT services company in the Indian context. There are several companies which have done better, despite the fact that LTI has been around for a long time, with the support of a group as strong financially as any other. At the same time, it is a decently profitable company which has grown revenues by 18 % annually over the years. Their growth has been steady, though not spectacular. So, if the question was whether you should buy it in comparison to other IT majors, the answer is probably no. However, the IPO is a different matter and here we need to examine at what price we are getting it allotted.
As far as the IT industry in India goes, there is no doubt that it is passing through challenging times and the landscape is likely to remain difficult in the near future. The growth in USD terms has really been negligible in this year and the Q1 results due now do not promise much. The BREXIT issue along with the H1B bill that will be discussed in the US will impact two of the largest markets that the sector has. The model followed by most Indian companies was to push for more manpower both onsite and offshore in order to grow the revenues and profits. Technology, business and regulatory changes is putting sustained pressure on this model and the players will need to adapt fast.
So does the pricing make sense? Yes at 12-13 times of current earning, the IPO seems rather attractively priced. In the current liquidity driven market situation there is a possibility of the issue being hugely oversubscribed and open with good listing gains. The one factor that can queer the pitch is the quarterly results of other IT majors. In case these are disappointing, there will be a dampening effect on the listing price of LTI.
In the balance how is the future of LTI? I think it will be subject to the same challenges as all tier 1 and 2 companies. However, the support of the group as well as the strong finances that it has will very likely propel it to better growth as compared to others. I will therefore recommend people to invest in it, especially if you are having a portfolio that is light on IT. For people who are starting to build a portfolio, this will be a decent company to invest in. Do not go for listing gains alone, this will be worth holding and adding to for the long term.
How should you invest? If you have 2 lacs available then put in the entire amount. It will maximize your chances of getting some shares and your money is only going to be blocked for 10 days or so. In any case, it is unlikely that retail investors will get more than 1 lot.
Go for it – maybe 15 years later you will thank yourself (and me) that you did so !!