L&T Tech - In-House Acquisition In Unproven Landscape, Low Margins: Dolat Capital
The company announced acquisition of Smart World & Communication unit from parent L&T for a total consideration of Rs 8 billion.
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Dolat Capital Report
L&T Technology Services Ltd. announced acquisition of Smart World and Communication unit from parent Larsen and Toubro Ltd. for a total consideration of Rs 8 billion (0.73 times on sales).
Acquisition is aimed to complement L&T Tech in:
Next-Gen Communications (around 5G networks),
sustainable Spaces, and
offer full stack of cybersecurity solutions to global clientele.
Transaction is valued at 0.73 times of FY22 sales of Rs 10.9 billion, which is attractive but lacks immediate synergy benefits, and with Ebitda margin profile of 8-10%, would be earnings per share neutral in near term.
Acquisition can help L&T Tech achieve its guided $1.5 billion run-rate by FY25E, but path to achieving the company’s profitability is likely to be an elongated one.
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