L&T plans to launch its first ever share buyback

Mumbai: Buoyed by conducive equity markets, engineering and construction behemoth Larsen and Toubro Ltd. (L&T) is planning to launch the first ever share buyback offer in the company’s 85-year history.

According to the company’s statement on Thursday, L&T’s board will meet on 25 July to consider a buyback of shares and on offering a special dividend on equity shares for fiscal year 2023-24.

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, the plan had to be shelved in 2019 after the Securities and Exchange Board of India or Sebi disapproved the buyback 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.

L&T has not specified the amount of shares the company is planning to buy back from its shareholders. Neither did the firm mention about the mode of the share buyback.

However, since the earlier buyback plan of 2018, the company’s paid-up capital has increased, stock price has gone up to ₹2,490 now, and shares worth over ₹3 trillion are currently held and traded by L&T’s public shareholders, according to BSE.

Therefore, the contours of the latest planned buyback may have to be revised.

For FY2023, L&T has recorded a net profit of ₹12,531 crore, a 20.3% year-on-year jump as compared to FY2022 on a consolidated basis.

In a bid to trim debts from the group’s balance sheet and unlock the real value of L&T’s stock, the conglomerate has been taking several business consolidation measures over the past two years.

In its latest move, L&T, on 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) has 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.

Additionally, 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 ₹3.49 trillion, and over the past year, the company has outperformed the market with 43% returns as compared to the broader market index Nifty 50 gaining 21% during the same period.