L&T gains 5% as board mulls share buyback proposal

A sign of Larsen and Toubro (L&T) is placed on a road divider in Mumbai
Shares of Larsen & Toubro (L&T) rallied 5% to Rs 1,305 on the BSE in opening trade after engineering conglomerate on Saturday said its board would consider a proposal for buyback of equity shares on Thursday, August 23, 2018. If approved, this would be the first-ever buyback by L&T.

"The board of directors will consider a proposal for buyback of equity shares at its meeting on Thursday, August 23, 2018" L&T said in a notice to stock exchanges on Saturday. The company is holding its annual general meeting on Thursday.

The primary objective of a share buyback programme is to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better P/E multiple. The other objective is to improve earnings per share (since the same dividend amount is now distributed among fewer shares).

“In our view, Larsen is looking at a buyback given no large capex plans over next few years, apart from Hyderabad Metro, asset divestments adding to cash balances with the most recent being the Road INVIT in May’18 and E&A segment for Rs 140 billion, low yield on cash which is ROE dilutive and tight control over NWC and resultant improved cash generation,” Motilal Oswal Securities said in a note.

“Depending on the quantum of the buyback and the price approved by the board of L&T, we expect this news to have a positive impact on the stock price. Details of the same are likely to emerge post the approval in the board meeting scheduled on 23rd August, Thursday,” the brokerage firm said with maintain ‘buy’ rating on the stock and an SOTP-based target price of Rs 1,560.

In past one year, L&T had underperformed the market by gaining 9.5% as compared to a 20% rise in the S&P BSE Sensex till Friday.

At 09:18 am; L&T was trading 4% higher at Rs 1,287 on the BSE. In comparison, the S&P BSE Sensex was up 0.38% at 38,091 points. A combined 675,044 equity shares changed hands on the counter on the BSE and NSE so far.

1 WEEK -1.94% -1.94% 0.51% 0.36%
1 MTH -3.71% -3.63% 4.22% 4.20%
3 MTH -9.09% -8.54% 8.28% 7.38%
6 MTH -6.60% -6.64% 11.91% 9.74%
1 YEAR 9.47% 9.36% 19.71% 15.82%
3 YEAR 4.65% 4.49% 36.53% 35.31%
Returns till Friday, August 17, 2018.