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L&T IDPL, the infrastructure arm of the Larsen & Toubro group, is planning to raise Rs 4,200 crore capital through a stake sale in three major projects.
Addressing an analysts’ meeting, the company indicated it expects to raise capital in the medium term through a stake sale at the L&T IDPL level and monetisation of stakes in Dhamra port and Hyderabad Metro project, totalling Rs 4,200 crore. The management’s other immediate focus is on maintaining a comfortable debt service coverage ratio even as it continues to evaluate attractive new projects and M&A targets which can offer higher internal rate of return (IRRs).
“We attended the analysts’ meeting of L&T IDPL in which management shared business updates and targeted funding plan. As per its estimates, L&T IDPL does not require any future equity infusion from its parent for the projects under implementation,” said Nomura in a note.
“We believe, amongst all development projects, the equity stake sale in L&T Hyderabad Metro as well as monetisation of real estate assets (pertaining to metro project) are critical to IDPL’s overall funding plans and any delays or disappointments there could mean a potential recourse to the parent for equity.”
According to Morgan Stanley analysts who attended the meeting, given its significant investment in its concession business, L&T has seen a steady decline in its ROEs (return on equity) over the last 5-6 years. Hence, L&T management is of the view that further growth at IDPL should preferably come through internal generation, or through asset / stake divestment. “L&T management expects this to help in taking ROEs back to 20 per cent plus levels over the next few years. In this context, the key goals (in order of importance) that the IDPL management enumerated were derisking L&T, derisking IDPL, and finally growth,” it said.
Over the next five years (FY’14-18), IDPL estimates an equity requirement of Rs 8,200 crore, with 75 per cent being required for projects currently on hand. However, the company plans to raise 60 per cent of the money from monetisation (including securitisation) and 40 per cent by bringing equity investors into both IDPL and the Hyderabad metro (mezzanine equity). Only if IDPL falls short on either of these targets would L&T be pulled in to cover the gap with an equity/ sub debt infusion, Morgan Stanley said.
* The company indicated it expects to raise capital through a stake sale at the L&T IDPL level