L&T Finance Holdings IPO price band announced

L&T Finance Holdings Limited announced its price band of Rs 51-59 for its forthcoming issue which opens on Wednesday the 27th of July and closes on Friday the 29th of July. The company has done a pre-IPO placement of 6 cr shares to MACE – CIPEF and MACE – CGPE at a price of Rs 55 per share. This becomes some sort of price discovery as the present price band is the allotted price plus Rs 4 as the upper band and the allotted price minus Rs 4 as the lower price band.

There would be a second price discovery happening on Tuesday the 26th of July when the company does its anchor allocation. It is expected that this would happen around the pre-IPO price with a variation of Rs 1 on either side. This should become a fair price discovery and should be the final price at which shares are allotted in the IPO.

The net issue is for Rs 1245 crs and has a reservation for employees of Rs 50 crs and for non-institutional and corporate shareholders of L&T of Rs 120 crs. The net issue of Rs 1075 crs would be split between QIB’s, HNI’s and retail investors in the ratio of 50%, 15% and 35% respectively.

There is a grey market premium of between Rs 5-6 currently in the shares of L&T Finance Holdings Limited. IF the issue gets priced at the upper band of Rs 59, the street expectation would be that the share should trade and sustain at a minimum of Rs 67-68 on listing day which looks difficult and extremely expensive. This price is derived at by adding the expected price fixed by the company of Rs 59 with the premium of Rs 6 and an expected premium on listing of Rs 2-3.

If instead of the top end of the price band the company prices the issue at Rs 55 or 56, the listing price would have to sustain at Rs 64-65 which looks doable. One hopes that a company which is tapping the capital markets after sixty one years would look at the interest of its shareholders and the track record of the group when it finalises its price band.

In conclusion I believe a final price would be one which takes care of the pre-IPO price of Rs 55 and the price at which anchor investors are allotted on Tuesday.The issue would be analysed post the announcement of the anchor investors allocation price.

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