Six crore shares to be bought back via tender route at maximum price of Rs 1,500 apiece.
Larsen and Toubro (L&T), which has cash and liquid assets of Rs 17,425 crore and a consolidated debt of Rs 1.08 lakh crore, has announced it will buy back shares for `9,000 crore at a maximum price per share of Rs1,500.
Expectedly, the buyback announcement made last Saturday boosted the L&T stock which was under-performing until Friday, having lost 1.3% since January.
On Thursday, the stock closed at Rs 1,352.50 on the BSE, up 2.3% over Tuesday’s close of Rs 1,322.15.
The Street was expecting a somewhat smaller spend of around `7,000 crore. At `9,000 crore, the buyback will push up the consolidated gross leverage to around 2X. Moreover, analysts say it could affect the quantum
of dividends, though not materially. The company, they believe, is looking to reach a return on equity (RoE) of 18% by FY21.
Analysts said the buyback is the fallout of limited investment opportunities and strong cash — flows coming in from the core engineering & construction (E&C) business. The management is hoping to realise a fair bit of cash from the sale of the E&A business. The company has been selling non-core businesses and has raised around `4,500 crore over the last 24 months. Analysts say L&T may do more buybacks since it has $2.1 billion in asset sales lined up in FY20, which also may be returned to shareholders.
Some of the key non-core assets divested by L&T include the Kattupalli port for Rs 1,950 crore and the general insurance business for Rs 551 crore. L&T also realised funds from the initial public offerings of the IT and technology services business and put five of its roads into an InvIT.
L&T had reported a sharp 36% year-on-year jump in consolidated net profits to Rs 1,215 crore for April-June 2018, while the net sales for the quarter rose 18% y-o-y to Rs 28,300 crore.
Fresh orders jumped 37% y-o-y to Rs 36,142 crore on the back of government’s push to infrastructure development which led to a strong tendering environment during the quarter. L&T’s order book as on June 30, 2018, stood at Rs 2.72 lakh crore, up 3.4% on a y-o-y basis.
The buyback offer will be made via the tender offer route and up to 6 crore equity shares – or 4.29% of the total paid equity share capital – will be bought back.
Speaking to newspersons on sidelines of the company’s 73rd annual general meeting, SN Subrahmanyan, managing director and CEO, L&T, said the principal rationale for doing the buyback was to return some of the excess cash to the shareholders “to whom it rightly belongs”, given the robust balance sheet and project backlog that the company has. “It is positive indication of what we are, what the economy is, of where we stand in this country and in this economy. We have cash-on-hand and as we look forward, we believe we would generate further cash from the backlog of projects that are going on. We do have capex as we look into the future, we do have propositions of other businesses. Of course, we will continue to pay the dividend. Inspite of doing all this we will have surplus cash-on-hand. We have been promising our shareholders that we will be increasing our return on equity to a certain extent, and it is in that direction.”