Shares of India’s infrastructure major Larsen & Tuobro tanked in trade on Monday morning, after capital markets regulator SEBI cancelled the firm’s proposed Rs 9,000-crore share buyback plan. L&T share price tanked by more than 3.2% to hit intra-day low of Rs 1,275 on BSE. Notably, SEBI has nixed the buyback offer, since the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back (assuming full acceptance) would be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements.
Taking stock of the development, global firm Macquarie said that a knee-jerk reaction is possible for the stock. After SEBI’s rejection, the firm can explore alternative methods to redistribute excess capital, noted Macquarie. “We believe the regulator’s view to consolidate debt of L&T Fin Services is too conservative,” Macquarie said. The firm has a target price of Rs 1,880 on the shares.
CLSA said that given L&T’s resolute focus on ROE enhancement, the firm’s board could approve a one-time large dividend of Rs 53 per share this week. This would drive L&T’s ROE to expand by about 120 basis points in FY20 versus current estimates. CLSA has a buy call on the stock with a target price of Rs 1730.
In an interview to ET Now, SN Subrahmanyan, CEO of L&T, said that the firm will look at other option to return money to shareholders. “One of the requirements by SEBI was that post buyback, the debt-equity ratio should not be greater than 2:1. As per the law, this was to be ascertained on the basis of standalone entity L&T. As you know, L&T’s debt to equity is currently 0.17. We had taken legal views, and gone forward with the same. However, SEBI, as per is internal rules ascertained that the debt-equity ratio for the group exceeds 2:1. Therefore, taking the group as a whole they have requested us not to go forward with the buyback. One can know the law that is publicised. But, an internal rule cannot be known by us. The whole idea was to return money to the shareholders. We will look at other options as well.”