L&T's first-ever buyback in 85 years

Larsen & Toubro, the infrastructure behemoth, has approved a Rs 10,000 crore share buyback. It plans to purchase 3.3 crore of its equity shares (representing 2.4 per cent of the fully paid-up share capital) at a maximum price of Rs 3,000 per share.

If the buyback goes through, it will be the company's first-ever buyback in 85 years.

The buyback will be conducted through a tender offer route wherein existing shareholders can opt to retain or sell their shares to the company. However, the specific price and date have not been announced yet.

It is the second attempt

This is not the first time that L&T has proposed a buyback. Back in August 2018, the board had approved a buyback of up to Rs 9,000 crore.

However, it was rejected by SEBI, on grounds that post buyback, the company would have had a debt-to-equity of more than two.

But this time around L&T is prepared. The company's debt-to-equity stood at 1.06 times as of June 2023 (according to the Q1 FY24 investor presentation).

Investor alert

L&T will fund the entire buyback through cash. The buyback amount represents about 19 per cent of the company's total cash and cash equivalents of around Rs 53,200 crore (as of June 2023).

Companies often consider share buybacks as a means to reward their shareholders. As the price offered by the company in buybacks is higher than the current price, shareholders can exit their holdings at a premium. At the same time, shareholders who decide to retain their shares will benefit from an increase in their stake in the company.

This buyback offer of Rs 3,000 per share is at a premium of around 17 per cent over its closing price (Rs 2,562) as of July 25, 2023.

Suggested read: Do share buybacks zoom share prices?