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  • Jul 22, 2023 - L&T's First Ever Share Buyback: Here's What Investors Can Expect...

L&T's First Ever Share Buyback: Here's What Investors Can Expect...

Jul 22, 2023

L&T's First Ever Share Buyback: Here's What Investors Can Expect...

A buyback frenzy has hit Dalal Street in recent months, with a number of companies revealing their plans for stock repurchases.

According to the data from the exchanges, more than 25 companies have officially announced or completed buybacks. This including prominent names such as TCS, Wipro, and BSE.

This trend has been fueled by strong financial performance, leading to significant cash reserves. As a result, they have opted to use these funds for purposes such as buybacks, dividends, or acquisitions.

By repurchasing their own stock, these companies effectively reduce the number of shares available to the public. This, in turn, boosts the ownership stake of existing shareholders, allowing them to claim a larger portion of the company's profits.

Buybacks not only bolster the company's stock prices but also serve as a positive signal to investors, indicating that the company has considerable resources available for repurchasing its own shares.

In light of the current trend, one noteworthy company that has recently announced a share buyback is L&T.

However, specific details regarding the buyback, such as the size and timeline, have not been officially announced by L&T. Nevertheless, market speculations are suggesting that L&T might opt for a buyback of shares through a tender offer.

There are two ways in which companies can execute buybacks - the tender offer route and the open market offer.

In a tender offer, the company makes an offer to buy back shares at a particular price.

Here, the price is usually fixed at a premium, and investors having shares of the company on record date can part with their shares by filling out respective forms over a given period.

In an open market offer, investors don't get very excited. In the open market offer, everything is routed through the stock exchange and the price isn't fixed.

Board meeting details

Larsen and Toubro (L&T), the engineering and infrastructure conglomerate, on 20 July 2023, disclosed its plan to assess the feasibility of a share buyback during an imminent board meeting.

The meeting, slated for 25 July 2023, (Tuesday) will primarily centre around the review and approval of financial results for the June 2023 quarter.

Within this context, the company's board will diligently evaluate the prospect of executing a buyback of equity shares, aligning with the stipulations outlined in the Companies Act, 2013, and SEBI (Buyback of Securities) Regulations 2018.

This financial decision will optimise L&T's capital structure and potentially bolster shareholder value.

L&T's initial buyback proposal in 2019

In the financial year 2018-19, L&T had put forth a proposal for a buyback of up to 61.02 million (m) equity shares from its shareholders.

The buyback was intended to be on a proportionate basis through the tender offer route, conducted via the stock exchange mechanism, for Rs 1,475 per equity share. The total value of the buyback was expected to aggregate up to Rs 90 billion (bn).

However, the buyback plan faced a setback when the market regulator, the Securities Exchange Board of India (SEBI), advised the company against proceeding with the offer.

SEBI's guidance was based on the observation that if the buyback were to be fully accepted, the ratio of the company's aggregate secured and unsecured debts would exceed twice the paid-up capital and free reserves of L&T.

SEBI's concern also encompassed the debts of L&T's subsidiaries, leading to the decision against proceeding with the buyback at that time. This calculation was derived from the consolidated financial statements of the company.

As a result of SEBI's advice, L&T decided not to proceed with the buyback offer at that time. This event stands as a notable aspect of the buyback history of the company.

L&T's financial performance

Over the past five years, the company's revenue has grown at a CAGR of 6.3%, while the net profit has grown at 5.5%. This was due to back-to-back big order wins.

For the financial year 2023, the company's total revenue grew by 17.1% YoY. While the net profit for the year came in at Rs 125.3 bn, up 20.3% YoY compared to a year back. This was due to higher realisation.

Financial Snapshot (2019-23)

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
Revenue (Rs bn) 1,352 1,454 1,359 1,565 1,833
Revenue Growth (%) - 7.5 -6.5 15.2 17.1
Net Profit (Rs bn) 96 101 46 103 126
Net Profit Margin (%) 7.1 7 3.4 6.6 6.9
Data source: Equitymaster

In the most recent quarter of March 2023, L&T's revenue grew by 10% to Rs 583 bn, and the net profit grew by 10% YoY to Rs 39.8 bn. This was due to an increase in orders from multiple segments like public spaces, tunnels, ferrous metals, and defence sectors.

The exchange has declared a final dividend of Rs 24 per equity share for the financial year 2024.

The company has already forayed in the green hydrogen space.

Debt reduction initiative

To curb debts from its balance sheet and unlock the real value of its stock, the conglomerate has been taking several business consolidation measures over the past two years.

In its latest move, L&T, on Thursday, announced that its board had approved the merger of two of its wholly owned subsidiaries, L&T Innovation Campus (Chennai) with L&T Seawoods Ltd.

On 19 July, the board of directors of L&T Innovation Campus (Chennai) approved a scheme of arrangement for a merger with L&T Seawoods. Following the amalgamation, L&T Innovation Campus will no longer be a subsidiary.

Earlier, as a consolidation measure, while announcing the FY23 financials, L&T had mentioned that it entered into a share purchase agreement on 16 December to sell its entire shareholding in L&T Infrastructure Development Projects.

Additionally, in another consolidation move, L&T entered into a business transfer agreement on 12 January 2023 to transfer the Smart World and Communication (SWC) business unit of the company (forming part of the others segment) by way of a sale on a going concern basis to L&T Technology Services, a listed subsidiary.

Accordingly, the related assets and liabilities of the carved-out SWC business have been classified as held for sale. The transfer happened on 1 April 2023.

How shares of L&T have performed recently

L&T share price is up 24% in 2023 so far. In the past one year, it has gained by 46%.

L&T touched its 52-week high of Rs 2,595 on 212 July 2023. Its 52-week low was Rs 1,690, touched on 18 July 2023.

chart

About L&T

Larsen & Toubro Ltd (L&T), is an Indian multinational conglomerate company, with business interests in engineering, construction, manufacturing, technology, information technology, and financial services, headquartered in Mumbai.

The company is counted among the world's top five construction companies. It was founded by Henning Holck-Larsen and Soren Kristian Toubro, who were two Danish engineers.

L&T has an international presence, with a global spread of offices. A thrust on international business has seen overseas earnings grow significantly.

To know more about the company, check out L&T fact sheet and quarterly results.

You can also compare L&T with its peers -

L&T vs HEC Infra Projects

L&T vs Generic Engineering

L&T vs Trans Financial

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