L&T Infotech withdraws draft prospectus for IPO

Mumbai: Larsen and Toubro Infotech Ltd, the information technology services arm of engineering conglomerate Larsen and Toubro Ltd (L&T), on Monday withdrew its draft prospectus for an initial public offering (IPO) to raise ₹ 2,000 crore, about four-and-a-half months after it got approval from the capital market regulator Securities and Exchange Board of India (Sebi).

Parent firm L&T, in a stock exchange announcement, cited “change in the offer structure and other considerations” as the reason for the move.

An L&T spokesman said, “One of the reasons for withdrawing the DRHP (draft red herring prospectus) was that market conditions were not right for the issue. It is possible that we may file a fresh DRHP at some future date, but we cannot offer a specific comment on the matter at this stage.”

“Since the DRHP was filed several months ago, and in the IT services industry business changes on a quarterly basis, when our company does take the L&T Infotech IPO to the market, it should do so on the basis of the most recent financial results. This is necessary to ensure that we are fair to our investors,” the spokesman added.

L&T Infotech had planned to sell 17 million shares, or 10.85% of the share capital, as part of the public issue, according to the draft prospectus filed on 28 September last year. The company won Sebi approval on 31 December with a one-year validity.

The company had sought an exemption from filing a new prospectus after reducing its issue size. However, it did not get an exemption from Sebi and had to withdraw its DRHP, said two people with the direct knowledge of the matter. Investors wanted shares at a 10-15% discount from the four-digit price band the company was seeking, the persons said, requesting not to be identified.

A company must file a fresh document if the issue size increases or decreases by more than 10% as per Schedule 7 of the Sebi (Issue of Capital and Disclosure Requirements) Regulations. There are six other reasons that could entail filing a fresh document, including change in promoters and persons in control, change in the board composition and change in the main objects of the issue.

“The company will re-file documents with updated disclosures and financial statements,” said one of two person cited above on condition of anonymity.

L&T said it did not want to comment on the intended pricing of IPO.

The company will also have to appoint another registrar for the public offer after Sharepro Services (India) Pvt. Ltd, its promoters and other related entities, were barred by Sebi following serious lapses in share transfer and dividend encashment services offered by the company.

Citigroup Global Markets India Pvt. Ltd, Kotak Mahindra Capital Co. Ltd, ICICI Securities Ltd and Barclays Bank Plc. were financial advisers to the initial share sale.

L&T shares rose 1.86% to close at ₹ 1,212.80 on BSE on Monday, while the 30-share benchmark Sensex rose 1.41% to close at 25,022.16 points.

L&T Infotech’s revenue rose 2.15% to ₹ 4,744 crore for the year ended 31 March from ₹ 4,644 crore in the previous year. Net profit fell 14% to ₹ 774 crore from ₹ 903 crore a year ago.

“The industry, which at one point grew at 18-20%, is barely witnessing double-digit growth at the moment. IT companies will get de-rated over a period of time unless they find newer avenues and better ways of doing business,” said U.R. Bhat, managing director, Dalton Capital Advisors (India) Pvt. Ltd.

The Indian IT services industry grew from $61 billion in 2013-14 to $69 billion in the year ended 31 March, with IT services exports contributing $55 billion worth of business, according to lobby group Nasscom.

In the company’s 2014-15 annual report, L&T group executive chairman A.M. Naik had said that the company will monetize assets from time to time. Naik had said that L&T intends to unlock value of its IT and technology services business.

The IT services arm of L&T is structured around two businesses—the industrials and the services clusters. The industrials cluster caters to clients in verticals such as manufacturing, energy and utilities, hi-tech and consumer electronics, automotive and aerospace, engineering and construction. The services cluster focuses on banking, financial services, insurance, travel and logistics, media and entertainment and healthcare.

On 11 August 2015, L&T Infotech appointed former Infosys executive Sanjay Jalona as its chief executive officer and managing director. The company is looking to rebuild its senior team, in preparation of IPO, after a couple of its senior executives quit this year.

In February, Vivek Chopra, chief executive for the industrial cluster, quit. Chief operating officer Chandrashekar Kakal also resigned from his position, Mint had reported on 13 August 2015.

In the recent past, two other companies—SSIPL Retail Ltd and Dilip Buildcon Ltd—had to refile its draft papers after a reduction in issue size. Mint reported on 23 October 2015 that SSIPL Retail cut its primary component by almost ₹ 20 crore. The company, which looked to raise ₹ 95 crore as primary capital, will now raise ₹ 72 crore, according to the latest DRHP. The overall issue size would now stand at roughly ₹ 200 crore.

swaraj.d@livemint.com