Construction and engineering firm L&T approved a share buyback worth up to Rs 9,000 crore at its board meeting held in Mumbai today. The company will buy back 6 crore shares at a price of up to Rs 1,500 per share. These 6 crore shares amount to 4.29% of the total paid up equity share capital of the firm. The buyback price is at over 13 per cent premium to Tuesday's closing price of Rs 1,322.15 per share. Larsen & Toubro said the share buyback is subject to approval of the members by means of a special resolution through a postal ballot. The process, timelines and other requisite details will be released in due course, it added.
Shares in the firm rose nearly 3 per cent today, after the announcement of share buyback. The stock closed 2.30% or 30 points higher at 1,352.50 level on the BSE. It has gained 7.60% since the beginning of this year. During the last one year, the stock has clocked 20.29% gains.
The stock closed nearly 7 percent higher on Monday after the firm announced it would consider share buyback on August 23.
Credit Suisse said the firm has reasonably strong inflows, execution pick-up, steady profitability across segments and margin uptick.
It is exposed to lower Middle East-related risk and has strong cash flows along with divestitures. The firm's valuations are attractive at 16 times FY20E consolidated EPC. The brokerage has fixed a target price of Rs 1,700 on the stock.
On August 20, Morgan Stanley said buyback is "over and above the regular dividend and is tax efficient from a shareholder perspective."
Morgan Stanley said, "This is L&T's first buyback, if approved by board, and could be taken by market as a signal of an alternative to reward shareholders." The brokerage has assigned 'overweight' rating to the stock with a price target of Rs 1,786.
Macquarie said the buyback boots L&T's return on equity/cash return credentials. The decision definitely drives short-term price action but also gives confidence in the outlook. The stock has been relative underperformer in the last 3 months.
30 of 36 brokerages rate the stock "buy" or 'outperform', four "hold", one "underperform" and one "sell", according to Reuters.
The conglomerate reported a 43.14 cent rise in consolidated net profit at Rs 1,472 crore for the first quarter ended June 30, 2018. The company had posted a net profit of Rs 1,028.3 crore in the corresponding period a year ago.
Its total income in the quarter under review increased by 17.12 per cent to Rs 28,527.48 crore, as against Rs 24,355.52 crore in the year-ago period, L&T said.
Larsen & Toubro is a Mumbai-based technology, engineering, construction, manufacturing and financial services company.
Written and edited by Aseem Thapliyal