Mumbai: Promoter-less construction and engineering behemoth Larsen and Toubro Ltd. (L&T) on Tuesday said it plans to buy back shares worth up to ₹10,000 crore from its public shareholders, in the first ever buyback offer in the conglomerate's eight-decade history.
L&T may offer to buy back a 2.4% stake, or 33.33 million of shares, held by public shareholders through a book building process on the stock exchange.
The conglomerate will offer up to ₹3,000 per share, a 17% premium to current market price of ₹2,562, to shareholders willing to tender their shares in the buyback.
According to some people close to the group's board members at L&T, the buyback plan has been in the making for while now now, as the group's longest serving chairman AM Naik, who recently hand over reins to SN Subrahmanyan, had wanted to incentivize the company's public stakeholders before retiring.
Naik is often considered a stalwart in the engineering and construction industry, for L&T's journey of many firsts in the global equipment, technologies and practices space during his regime.
Some company insiders perceive this buyback as a "farewell gift" by Naik, even though such offers mandatorily require a board approval.
On the other hand, a person close to L&T's top management said, "There are many shareholders who hold stakes in both L&T and the group's IT services company. They feel that the latter hasn't yielded as much return as expected and therefore the group should incentivize the shareholders adequately through a buyback offer and a special dividend, especially for FY2023."
The board, on Tuesday, considered and approved both the routes to reward shareholders.
The buyback, if approved by the Securities and Exchange Board of India (Sebi), is likely to be funded primarily through the company's reserves and surplus, according to the person close to L&T's top management.
As of 31 March, L&T's total reserves and surplus stood at ₹88,577.76 crore for the fiscal year 2023, during which the group netted a 21% jump in profit at ₹12,531 crore.
Typically, a company, after recording high cash flows, offers buyback of shares in order to incentivize shareholders and provide a thrust to the company’s stock price on the exchanges by reducing the free float.
Around five years ago, L&T had first announced a 4.29% share buyback plan worth ₹9,000 crore at a price of ₹1,475 apiece. However, Sebi had disapproved the plan over concerns that such a buyback could swell the company’s debts.
The latest buyback proposal has come after the company turned debt-free last year.
The buyback is meant for all public shareholders, except L&T Employees Trust, which holds a 13.87% stake. Other trusts hold 13.91%.
While the retail public hold 18.52%, insurance companies hold 17.85%, with state-run Life Insurance Corp. of India (LIC) alone having a stake of 11.19% in L&T. Mutual funds together have 17.46% and foreign investors collectively own 25.3% in the company.
However, according to the second person, only 30-40% of the public shareholders may tender their stakes in the buyback as many in the market believe that the stock of L&T, which is currently sitting on engineering and construction orders worth Rs. 4 trillion, holds out prospects of way higher returns over the next 3-5 years.
"After the recent consolidation and transfer of non-core businesses by the group, the debt to asset ratio has come down to 0.11, which is phenomenal, and now the stock may almost double in the next three years. So, rather than a short term 5% cash gain, most of the shareholders may stay put for the big gain in the long haul," said the second person.
In fact, most of the brokerages have recommended a "buy" on the stock at its current levels.
L&T, in a bid to curb debts from the balance sheet and unlock the real value of the stock, has taken several business consolidation measures over the past two years.
In its latest move, L&T, last Thursday, announced that its board has approved the merger of two of its wholly-owned subsidiaries - L&T Innovation Campus (Chennai) Ltd with L&T Seawoods Ltd.
On 19 July, the board of directors of L&T Innovation Campus (Chennai) approved a scheme of arrangement for a merger with L&T Seawoods.
Following the amalgamation, L&T Innovation Campus will no longer be a subsidiary.
Earlier, as a consolidation measure, while announcing the FY23 financials, L&T had mentioned that it has entered into a share purchase agreement on 16 December to sell its entire shareholding in L&T Infrastructure Development Projects Ltd, a joint venture, primarily engaged in the development and operation of toll road and power transmission assets. The sale transaction is subject to receipt of necessary approvals. Accordingly, the investment in the joint venture is classified as “held for sale”, according to regulatory filings.
In another consolidation move, L&T entered into a business transfer agreement on 12 January 2023 to transfer the Smart World and Communication (SWC) business unit of the company (forming part of the others segment) by way of a sale on a going concern basis to L&T Technology Services Ltd, a listed subsidiary.
Accordingly, the related assets and liabilities of the carved-out SWC business have been classified as "held for sale". The transfer was completed on 1 April, 2023.
L&T has a market capitalization of ₹3.7 trillion, and over the past year, the company has outperformed the market with over 42% returns as compared to the broader market index Nifty 50 gaining around 20% during the same period.
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