L&T proposes first-ever buyback
Engineering conglomerate Larsen & Toubro (L&T) on Saturday said its board would consider a proposal for buyback of equity shares next week. If approved, this would be the first-ever buyback by the firm.
"The board of directors will consider a proposal for buyback of equity shares at its meeting on Thursday," L&T said in a notice to stock exchanges on Saturday. The company is holding its annual general meeting on Thursday.
If approved, L&T will join companies such as Tata Consultancy Services (buyback size of ~160 billion) and HCL Technologies (~40 billion), which have announced buybacks in the last few months. The company did not share details on the quantum, timeline or rationale for the offer. The executives at L&T refused to comment on the development.
According to current regulations, a company cannot exceed 25 per cent of its paid up capital plus reserves while offering a buyback.
According to the data from Capitaline, L&T's net worth (equity plus reserves) stood at ~492 billion at the end of the year ended March on a standalone basis. It had debt of ~106 billion, while the combined figure of cash and bank balances, investment in quoted government securities, bonds, debentures and unquoted units stood at ~87 billion, at the end of the previous financial year.
On basis of these, the buyback could be as much as ~123 billion.
For L&T, which has divested from a couple of non-core assets in the past few quarters, a buyback will translate into cash outflows. However, analysts tracking the company did not read much into the development. "Companies feel they are undervalued. Under such circumstances, considering a buyback is a normal step. A buyback will lead to cash outflows but that should not be a major concern for L&T," said an analyst. L&T is expected to receive ~40 billion from the sale of its electrical division to Schneider.
On Friday, the L&T stock closed at ~1,240.3, valuing the company at ~1,739 billion.
For the April-June 2018 quarter, L&T reported a net profit of ~12.14 billion, 36 per cent higher from ~8.92 billion in the same period a year ago. Revenue from operations, the company said, improved 19 per cent to ~282.83 billion from ~239.89 billion in the corresponding quarter a year back. The consolidated order book stood at ~2.71 trillion as of June 2018.
Top executives from L&T at the June quarter results press conference said the company expected the current financial year to be a front-ended one, in terms of growth in order inflows.