Introduction
On Tuesday, shares of Larsen & Toubro Limited (L&T), an Indian multinational enterprise engaged in Engineering-Procurement-Construction (EPC) Projects, surged by 1.5% to Rs. 3,685. This boost came after the announcement that L&T’s semiconductor arm had acquired SiliConch Systems Private Limited for a total of Rs. 183 crores.
This acquisition is set to enhance L&T’s capabilities in the semiconductor sector, aligning with its growth strategy and expanding its presence in the fabless semiconductor market.
Acquisition Details
According to the regulatory filings with the stock exchanges on July 9, L&T Semiconductor Technologies Limited (LTSCT), a wholly-owned subsidiary of L&T, entered into a Share Purchase Agreement to acquire a 100% stake in SiliConch Systems Private Limited.
The acquisition is expected to be completed by September 15, 2024. The total cost of the acquisition includes an upfront payment of Rs. 133 crore at the time of closing the deal, with a deferred payment of Rs. 50 crore over the next four years, subject to closing adjustments and the achievement of certain targets and other conditions.
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About SiliConch Systems
Headquartered in Bangalore and incorporated in 2016, SiliConch Systems Private Limited. It is specializes in the development and design of semiconductor Intellectual Property (IP) and Integrated Circuits (IC).
It is a fabless semiconductor design firm that develops System-on-Chip IP and holds 30 granted patents across various regions.
SiliConch’s end customers include Original Equipment Manufacturers (OEMs) and fabless IC companies, primarily based in the U.S., which use SiliConch’s IPs to create power management systems for smartphones, PCs, automotive applications, IoT, and accessories.
SiliConch generates revenue primarily through non-recurring engineering (NRE) revenue and license fees. For the fiscal years 2023-2024 and 2022-2023, its operational revenue stood at Rs. 27.68 crores and Rs. 19.97 crores, respectively.
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Strategic Importance of the Acquisition
The acquisition of SiliConch Systems is a strategic move for L&T as it aims to strengthen its semiconductor business.
This acquisition will add intellectual property, engineering skillsets, and design expertise to LTSCT, bolstering its capabilities in the fabless semiconductor business.
The integration of SiliConch’s advanced semiconductor IP and design expertise is expected to drive innovation and support L&T’s overall growth strategy in the high-tech manufacturing sector.
This deal between L&T and SiliConch Systems is a big deal for a few reasons, although the overall semiconductor market impact is likely to be minor. Here’s why:
For L&T:
- Strengthens market position: L&T is aiming to become a major player in the Indian semiconductor industry, especially in fabless chip design. SiliConch’s expertise and patents boost their capabilities.
- Expands product portfolio: SiliConch’s focus on power management chips aligns with L&T’s existing offerings, widening their product range.
- Access to talent: Acquiring SiliConch grants L&T access to a team of experienced engineers and designers, crucial in the competitive chip design landscape.
For the Indian Semiconductor Industry:
- Increased domestic production: This deal signifies a push for more domestic design capabilities within India’s semiconductor industry, which currently relies heavily on imports.
Overall Market Impact:
- Limited immediate impact: Due to SiliConch’s size, the acquisition won’t significantly impact the global semiconductor market share. However, it could inspire other Indian companies to invest in domestic chip design.
In essence, this deal is a strategic move for L&T to become a leader in the Indian fabless semiconductor market. While the broader market impact might be limited initially, it could pave the way for future growth in domestic chip design within India.
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Financial Performance
In Q4 FY23-24, L&T reported an operating revenue of Rs. 67,078 crore, marking a 15% growth from Rs. 58,335 crore recorded in Q4 FY22-23.
The net profit also rose by around 12.5%, reaching Rs. 5,003.5 crore, up from Rs. 4,446.7 crore in the same period of the previous fiscal year.
The stock has delivered positive returns of nearly 50.2% in one year and around 3.3% returns in the last six months. So far in 2024, the shares of Larsen & Toubro Limited have given positive returns of about 4.4%.
Impact on Stock Performance
Following the announcement of the acquisition, L&T’s shares saw a significant boost. At 10:39 a.m., the shares were trading in the green at Rs. 3,668.4, up by 1.04% from its previous closing price of Rs. 3,630.6, with a market cap of Rs. 5.04 lakh crore.
This positive market response reflects investor confidence in L&T’s strategic acquisition and its potential to drive future growth in the semiconductor sector.
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Conclusion
L&T’s acquisition of SiliConch Systems marks a significant step in its strategic growth plan to expand its presence in the semiconductor industry.
By integrating SiliConch’s advanced IP and design expertise, L&T is well-positioned to enhance its capabilities in the fabless semiconductor market and drive innovation in high-tech manufacturing.
This move not only strengthens L&T’s semiconductor business but also aligns with its overall growth strategy, ensuring long-term value creation for its stakeholders.
