On Thursday, Shares of Larsen & Toubro Ltd gained nearly 1.8% after its board approved a share buyback of RS.9,000 crore at a premium of more than 13% from Tuesday’s closing price. L&T shares were trading at a record high of RS. 1,345.50 each on the BSE, up 1.77% from their previous close, while the benchmark Sensex rose 0.02% to 38,280.
On Thursday at its board meeting, L&T said it will buy back up to 60 million shares, aggregating up to 4.29% of the paid-up equity capital, through a tender at RS.1,500 per equity share. On Tuesday, the buyback price is a steep 13.5% premium to the company’s closing price of the RS.1322.
At the end of March 2018, the company had RS.8,600 crores in standalone cash and bank balance plus short-term investments. On a seamless basis, it was at RS. 17,425 crores.
“L&T’s proposal for share buyback is a natural fallout of limited investment opportunities in EPC (engineering, procurement, and construction), it’s aversion to investment in long-gestation projects and strong cash-flow generation in its core E&C business.
The consistency of dividend payout through the weak past five-year period and large quantum of current dividend payout ($350 million) strengthen the case for a structured buyback programme for L&T. Current buyback meaningfully supports L&T’s case for achieving 18% RoE (return on equity) by/before 2020-21,” in a 21 August report, Kotak Institutional Equities.
L&T has combined with companies such as Tata Consultancy Services and HCL Technologies, which announced buybacks worth RS.16,000 crores and RS.40,000 crores, in the last few months. According to analysts, share buybacks typically improve earnings per share and return surplus cash to shareholders, while also supporting the stock price during lethargic market conditions.