Shares of Larsen & Toubro (L&T) gained nearly 4% in opening trade on Wednesday after the engineering and construction major reported better than expected earnings in June quarter and announced first ever share buyback of ₹10,000 crore. The company proposes to buyback up to 3.33 crore equity shares at ₹3,000 apiece, a premium of 17% from Tuesday’s closing price.
Snapping previous session losses, L&T shares gained as much as 3.65% to hit a fresh 52-week high of ₹2,655.70 in early trade on the BSE, while the market capitalisation rose to ₹3.72 lakh crore. Early today, the index heavyweight opened marginally higher at ₹2,613.20 against the previous closing price of ₹2,561.95. On Tuesday, the stock ended 1.67% lower as investors turned jittery ahead of Q1 results.
L&T shares have risen 52% in the last one year from its 52-week low of ₹1,742 touched on July 26, 2022. In the calendar year 2023, the share price of the engineering behemoth climbed 27%, while it surged 23% in six month period. In the past one month, the counter added nearly 12%, while it gained nearly 5% in a week.
Strong Q1 boosted rally
The sentiment was lifted after L&T posted a 46.5% year-on-year (YoY) growth in consolidated net profit at ₹2,493 crore from ₹1,702 crore in the corresponding quarter of the previous year. The consolidated revenue stood at ₹47,882 crore for Q1 FY24, recording a YoY growth of 34%, while the EBITDA came in at ₹4,869 crore, which was 23% higher as compared to ₹3,953 crore in the same period of the last fiscal.
The board of L&T also declared a special dividend of ₹6 per equity share, i.e. 300% on face value of ₹2 each, for the financial year 2023-24. The record date for the purpose of payment of dividend is August 2, 2023, while it will be paid on or before August 14, 2023.
Will L&T be second time lucky?
L&T has unveiled a plan to buyback equity shares of up to ₹10,000 crore at maximum price of up to ₹3,000 per share through the tender offer route, subject to shareholders’ approval. The company will buy back as many as 3.33 crore shares, representing 2.4% of the fully paid up equity share capital of the company. The buyback is subject to approval from the Securities Exchange Board of India (SEBI).
This would be the first ever share buyback in the L&T’s 85-year history. Earlier in 2019, L&T floated ₹9,000 crore buyback offer, which was rejected by the SEBI, citing non-compliance with regulations. The capital market regulator had denied the approval on the ground of high debt at consolidated level, which was more than twice the paid-up capital and free reserves of the company.
However, SEBI has recently amended its buyback regulations for companies that have non-bank financial companies (NBFCs) or housing finance companies as their subsidiaries, after considering the various suggestions received from stakeholders.
As per the revised norms, L&T would be eligible for buyback if the ratio of the aggregate of secured and unsecured debts owned by the company after the buyback would be less than twice the paid-up capital and free reserves of the company based on both standalone and consolidated basis, i.e. 2:1. Adding to it, subsidiaries of the company need to have a debt-to-equity ratio of less than 5:1 on a standalone basis for the parent company to proceed with the buyback. As on March 31, 2022, the net debt-equity ratio of L&T and L&T Finance Holdings stood at 1.16 and 3.84, respectively.
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