Last Updated on September 27, 2023 by BFSLTeam BFSLTeam
Table of Content
An Overview
In a recent development, the Indian multinational giant Larsen & Toubro (L&T) has announced its share buyback program, which has generated quite a buzz in the market. Let’s break down the key details and understand what this means for investors and the company.
L&T has scheduled the share buyback tendering period between September 18 and 25. During this time, the company plans to buy back approximately 3.12 crore shares at a price of ₹3,200 per equity share. This move represents a significant change from their initial buyback price of ₹3,000 per share.
The share price of L&T witnessed an uptick, reaching a day’s high of ₹2,931.65 on the National Stock Exchange (NSE), marking a 0.85% increase over the previous closing price on Wednesday. This price adjustment was aimed at making the buyback more attractive to investors.
Apart from raising the buyback price, L&T has opted to decrease the quantity of shares it intends to repurchase from investors. Initially, the company had put forth a proposal to buy back approximately 3.33 crore shares. However, they have now set their sights on 3.12 crore shares, equivalent to 2.22% of the company’s equity.
September 12 was the record date for L&T’s massive ₹10,000 crore buyback. This date determines the number of eligible shareholders who can participate in the buyback. Importantly, the company received shareholders’ approval for this buyback, signalling their commitment to enhancing shareholder value.
This buyback initiative is particularly noteworthy because it’s the first one announced by L&T since its listing.
Enhancing Return on Equity (RoE)
One of L&T’s core objectives, outlined in its five-year strategic plan known as ‘Lakshya 2026,’ is to maximise shareholder value through improved RoE. According to R. Shankar Raman, the Whole Time Director & CFO of L&T, the company is focused on this goal.
Funding the Buyback
L&T plans to fund the buyback through its current surplus, cash balances, or cash available from internal accruals. This strategy is often considered tax-efficient and allows the company to give cash back to its investors while reducing the number of shares available in the market. This reduction typically results in an increase in the stock’s real value.
Analysts’ Views
Analysts are optimistic about L&T’s future, with a focus on enhancing RoE through buybacks and dividends. CLSA, for instance, reiterated its buy rating on the stock with a target price of ₹3,080. They base their confidence on five major trends: urbanisation, climate change, mobility, digitalization, and societal change/sustainability. However, they also highlight potential risks, such as the Hyderabad Metro project and delayed M&A deals.
Wrapping Up
L&T’s share buyback program is a strategic move aimed at enhancing shareholder value and improving RoE. The company’s decision to increase the buyback price and reduce the number of shares being bought back reflects their commitment to this goal. While there are potential risks to consider, analysts remain positive about the company’s future, making this buyback an interesting development to watch in the financial markets.
