Larsen and Toubro (L & T), which have cash and liquid assets of Rs 17,425 crore and a consolidated debt of Rs 1.08 lakh crore, have announced that they will redeem shares for `9.000 crore at a maximum price per share of Rs1. 500.
Last Saturday's buy-back announcement resulted in a boost of L & T stocks that underperformed to Friday and lost 1.3% since January.
On Thursday, the stock closed at Rs 1.352.50 on the BSE, an increase of 2.3% compared to Tuesday's kick-off of Rs 1.322.15.
The Street expected a slightly smaller edition of approximately 7,000 crore. At 9.000 crore the buyback increases the consolidated gross leverage to about 2X. In addition, analysts say that this could affect the quantum
of dividends, although not material. The company is of the opinion that it aims for a return on equity (RoE) of 18% against FY21.
Analysts said the buyback is the fall-out of limited investment opportunities and strong cash flows from the core engineering & construction (E & C) business. The management hopes to earn a lot of money with the sale of the E & A activities. The company sells non-core activities and has raised around 4,500 crores in the past 24 months. Analysts say L & T will make more buy-backs because it has $ 2.1 billion in asset distribution in FY20, which can also be returned to shareholders.
Some of the main non-core assets sold by L & T are the Kattupalli port for Rs 1,950 crore and the non-life insurance business for Rs 551 crore. L & T also made funds from the first public offers of the IT and technology services sector and put five of its roads in an InvIT.
L & T reported a sharp 36% year-on-year jump in consolidated net profit to Rs 1,215 crore for April-June 2018, while net sales for the quarter rose 18% yoy to Rs 28,300 crore.
New orders rose by 37% yoy to Rs 36,142 crore thanks to the government's drive for infrastructure development, which led to a strong tender environment during the quarter. The order book of L & T on June 30, 2018 stood at Rs 2.72 lakh crore, an increase of 3.4% on a y-o-y basis.
The redemption offer will be made via the tender supply route and a maximum of 6 crore shares – or 4.29% of the total paid share capital – will be bought back.
In a press release on the sidelines of the company's 73rd Annual General Meeting, SN Subrahmanyan, Chief Executive Officer and CEO, L & T, said that the main reason for doing the buy back was part of the to return surplus money to the shareholders "to whom it rightly allocates", given the robust balance and project backlog that the company has. "It's a positive indication of what we are, what the economy is, where we stand in this country and in this economy." We have cash on hand and because we're looking forward to it, we believe we have more money We do have capex if we look to the future, we do have proposals from other companies, of course we continue to pay out the dividend, and despite this we have surplus cash at hand. our shareholders promise that we will increase the return on equity to a certain extent, and that is in that direction. "