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Larsen & Toubro unit aims to raise nine billion rupees from IPO

MUMBAI (NewsRise) -- Larsen & Toubro aims to raise as much as nine billion rupees ($134 million) through an initial share sale of its unit L&T Technology Services, as India's largest engineering company seeks to benefit from surging investor appetite for assets in Asia's third largest economy.

The IPO is the second from India's biggest builder of roads and power stations in barely two months. In July, Larsen's software arm L&T Infotech saw demand for its $180 million share offering jump 11 times more than the number of stocks offered.

Larsen's engineering and research and development unit is selling shares at a time when India's primary market is booming with companies raising as much as $1 billion in the first half of this year. More than three-fourth of those funds have come from the last quarter that ended in June, according to research firm Prime Database.

L&T Technology's IPO of 10.4 million shares will be open for subscription for four days, starting Sept. 12, the company said in a statement. It also set a price band of 850 rupees to 860 rupees a share for the offering that values the company at roughly 90 billion rupees. L&T will pare down 10.2% of its total ownership in the unit.

In the fiscal year that ended in March, L&T Technology reported a t profit of 4.16 billion rupees on sales of 31.43 billion rupees, the company said in a regulatory filing.

A.M. Naik, the group executive chairman of the Mumbai-based industrial giant, said he expects the unit to double its revenue in the next four years, spurred by acquisitions worth $150 million to $200 million. Naik said he expects L&T Technology to contribute $1 billion in revenue as part of the group's target of reaching revenue of $30 billion in the next five years.

Larsen is betting on the prospects of its technology and financial services businesses, hoping that it will help offset the slowing growth in its core infrastructure division.

The company, whose performance is viewed as an indicator of the Indian economy's health, has been grappling with project delays and sluggish spending in the infrastructure business that accounts for nearly half of its more than $15 billion annual revenue.

L&T is pinning hopes on the fast-growing engineering services business that relies on high-value product development services.

To be sure, after the IPO, L&T Infotech shares had a weak trading debut amid concerns of a slowdown in India's information technology industry.

Analysts have warned that India's IT sector is likely to be under pressure over the next few years, with the rapid pace of adoption of digital technology cannibalizing their existing sources of revenues, and stiff competition from the large global IT companies.

Shares of L&T Infotech closed 1.5% higher at 652.10 rupees, while that of parent Larsen gained 0.90% in Mumbai trading. The benchmark S&P BSE Sensex closed up 1.56%.

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