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News: Hinduja Tech Limited, a mobility-focused global engineering R&D services company and a subsidiary of Ashok Leyland (74% stake), announced the signing of a definitive agreement with Creador (PE fund) to invest US$50 million acquiring 19.6 % shareholding in the company. This investment places Hinduja Tech at a post-money equity value of US$255 million. The infusion of capital is aimed at augmenting existing capabilities in research and development through organic and inorganic means at Hinduja Tech to enhance its global footprint and expand its state-of-the-art labs to gain momentum in its journey towards emerging as a global leader in sustainable engineering mobility services.
Views: Hinduja Tech did sales & PAT of ~₹ 400 crore & ₹ 20 crore respectively in FY23. In the current transaction is being valued at ~5x P/S. This is a positive development with twin benefits. Firstly, it limits the investments from the Ashok Leyland end and secondly it unlocks value for us as currently we value all investments and subsidiaries at Ashok Leyland at 2x P/B. It adds ~₹ 900 crore (₹ 3/share) to our target price calculation. We have a positive view on Ashok Leyland tracking industry wide pricing discipline aiding double digit margin trajectory and company’s midterm target of mid teen levels coupled with its step-up play in the EV domain (Buses, Trucks and LCV’s).
Impact: Positive