NIFTY 50

L&T rallies 4% after subsidiaries post healthy Q1 earnings; here's why

Updated : July 15, 2021 15:26:24 IST

Larsen and Toubro (L&T) is one of the top gainers on the Nifty today, July 15, thanks to the strength seen in its IT and technology services subsidiaries. But how do the performances of these subsidiaries lend to the strength of the infra and major?

L&T is the promoter and has a majority stake in these subsidiaries. It holds 74 percent stake in the L&T Infotech and a similar 74 percent in L&T Technology Services with 61 percent in Mindtree. This means a substantial portion of the subsidiary earnings goes to the parent.

Compared to L&T's consolidated earnings before taxes, these subsidiaries have an earnings pool that is well over a third of the parent's. Please note these numbers are only for comparison and the contribution of profit depends on several other factors like ownership, taxation etc.

Depending on the growth prospects of each of the tech companies and L&T's core unit, the businesses are valued differently.

Broking firms Axis Cap and HDFC Securities value L&T at Rs 1800 per share and the average of the assigned valuations to the three tech firms comes to over Rs 500 per share. An increase in valuations for any and each of these subsidiaries has an impact on L&T's share price and that is also partly the reason behind the gains in the infra major today.

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