According to current regulations, a company cannot exceed 25 per cent of its paid up capital plus reserves while offering a buyback.
According to the data from Capitaline, L&T's net worth (equity plus reserves) stood at Rs 492 billion at the end of the year ended March on a standalone basis. It had debt of Rs 106 billion, while the combined figure of cash and bank balances, investment in quoted government securities, bonds, debentures and unquoted units stood at Rs 87 billion, at the end of the previous financial year.
On basis of these, the buyback could be as much as Rs 123 billion.
For L&T, which has divested from a couple of non-core assets in the past few quarters, a buyback will translate into cash outflows. However, analysts tracking the company did not read much into the development. "Companies
feel they are undervalued. Under such circumstances, considering a buyback is a normal step. A buyback will lead to cash outflows but that should not be a major concern for L&T," said an analyst. L&T is expected to receive Rs 40 billion from the sale of its electrical division to Schneider.
On Friday, the L&T stock closed at Rs 1,240.3, valuing the company at Rs 1,739 billion.
For the April-June 2018 quarter, L&T reported a net profit of Rs 12.14 billion, 36 per cent higher from Rs 8.92 billion in the same period a year ago. Revenue from operations, the company said, improved 19 per cent to Rs 282.83 billion from Rs 239.89 billion in the corresponding quarter a year back. The consolidated order book stood at Rs 2.71 trillion as of June 2018.
Top executives from L&T at the June quarter results press conference said the company expected the current financial year to be a front-ended one, in terms of growth in order inflows.