--- title: "Schneider’s L&T Acquisition is seen in positive light due to New Business Avenues" description: "Analysts are scrutinizing the merger of the two electric and home automation giants, Larsen & Toubro and Schneider Electric. The deal signed between t" author: "Erric Ravi" published: 2018-11-21 updated: 2018-11-22 canonical: https://www.mindstick.com/articles/23346/schneider-s-l-t-acquisition-is-seen-in-positive-light-due-to-new-business-avenues category: "business" tags: ["technology", "electrical"] reading_time: 3 minutes --- # Schneider’s L&T Acquisition is seen in positive light due to New Business Avenues Analysts are scrutinizing the merger of the two electric and **[home automation](https://answers.mindstick.com/qa/114503/in-what-ways-do-smart-devices-and-iot-reshape-modern-living-and-improve-home-automation-now)** giants, Larsen & Toubro and Schneider Electric. The deal signed between the two [organizations](https://yourviews.mindstick.com/view/84018/why-should-b2b-organizations-use-content-marketing) mentions the [acquisition](https://www.mindstick.com/news/2162/uk-watchdog-to-look-into-viasat-s-acquisition-of-inmarsat) of L&T’s E&A business. With time, the E&A business has fostered strong R&D capacities and has a broad network of channel partners across [International](https://answers.mindstick.com/qa/108356/how-does-the-international-criminal-court-address-human-rights-violations) [as well as](https://answers.mindstick.com/qa/48044/who-won-the-wimbledon-singles-as-well-as-the-world-table-tennis-singles-crown) Indian markets. The E&A vertical showed a net revenue of ₹5,038 crore during FY16-17. L&T’s E&A business has been performing for decades now and is well-placed to continue its growth with brilliant technology, people and global presence. The newly forged partnership with Schneider Electric, which has a solid product and geographic presence, will further elevate the business prospects for their E&A business & its employees. According to Santosh Yellappu, analyst from India Nivesh, the deal valuations are fair and the company is following its objective of becoming “asset-light”. The vertical reported a net revenue of Rs 50.38 billion (about five per cent of total) during FY16-17, with EBITDA margins of approx. 15%. Therefore, the deal is valued at around 2.8x the E&A business’ revenue and 6.6x its EBITDA. Morgan Stanley says, the value works out to be 17 times of the enterprise’s value (EV)/EBITDA and 31x earnings for FY19. “L&T stock trades at 24x estimated EPS for FY19 based on consensus earnings. We view the deal positively from a sentiment perspective as it reiterates L&T's resolve in unlocking value while continuing to dominate EPC space,” it said. Credit Suisse, too, shares a similar view. “(Sale is) strategically positive as the business is non-core with technology risk. Cash usage would be key. Valuation is value neutral versus our target price.” However, the acquisition has a provisional impact on the market. Owing to the fact that profit margins in E&A business are higher than L&T’s Ebitda margins (excluding services) by 9-10%, the sale is [likely to impact](https://www.mindstick.com/articles/13119/the-ecommerce-trends-that-are-likely-to-impact-the-industry-in-2019) the cumulative number now, when the deal is signed. However, the impact will be settled over time with a new sustained model [coming up](https://yourviews.mindstick.com/view/80/finally-some-good-news-coming-up-for-rajeev-chowk-metro-station). G Chokkalingam, founder and [managing director](https://answers.mindstick.com/qa/95409/name-the-first-woman-chief-economist-of-imf-who-will-be-the-first-woman-deputy-managing-director-of-imf), Equinomics Research and Advisory, says, the divestment will accrue positives and will lead to significant cash flows at a time when economy is expected to pick up and will drive L&T’s growth to the next level too. Even before this deal, analysts were positive on L&T due to its improving order execution and order flows. Edelweiss, for instance, expects a gradual, but broader recovery in domestic market for L&T during the March 2018 quarter, as was seen in Q3FY18 and the first nine-months of FY18 which saw core [infrastructure](https://yourviews.mindstick.com/view/88335/why-trump-s-big-infrastructure-vision-fell-short) execution growth of 20% and 15%, respectively. The L&T’s stock has been on an uptrend, outperforming the Sensex since December last year. Currently, at Rs 1,400.60, it is not far from its all-time high of Rs 1,469.60 seen in early February.\ Read some [related Terms](https://answers.mindstick.com/qa/97169/what-is-system-bus-explain-a-few-related-terms) : **HMI** --- Original Source: https://www.mindstick.com/articles/23346/schneider-s-l-t-acquisition-is-seen-in-positive-light-due-to-new-business-avenues Copyright © MindStick Software Pvt. Ltd. This Markdown version is provided for developers, AI systems, and offline reading.