Shares of infrastructure conglomerate Larsen and Toubro (L&T) are under the radar on Monday, September 11, as it will turn ex-date on Tuesday (September 12) for the Rs 10,000-crore buyback offer, the first in the company's history. That means today is the last day to buy L&T shares to be eligible to participate in the buyback as the record date is tomorrow.

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Under the proposed buyback of shares, L&T will be buying back 3.3 crore shares from shareholders at a maximum price of up to Rs 3,000 apiece through the tender offer route for a maximum consideration of Rs 10,000 crore. The offer represents an over 17 percent premium to the July 25 closing price of Rs 2,561.95 apiece.

The total number of shares that the company will buyback amounts to 2.4 percent of the total equity.

Single-digit return likely?

"According to the Sebi rules, 15 percent of the offer is reserved for the retail shareholders holding share capital up to Rs 2 lakh (18.5 percent of shareholding), so accordingly 0.5 crore shares will be allocated to them and the acceptance ratio comes to 2 percent," said Nirvi Ashar, Fundamental Analyst at Religare Broking.

Further, Ashar said investors buying shares on Monday would only be able to gain 3-4 percent returns as there is not much upside as against the price fixed for the buyback.

"The move reflects the company's confidence in its future, despite current challenges like rising costs and a slowing infrastructure sector. By initiating this buyback, L&T is conveying its belief that these hurdles are short-lived," said Sonam Srivastava, Founder and Fund Manager at Wright Research, PMS.

"Additionally, the buyback represents L&T's commitment to returning capital to its investors. With robust cash flow over the years, this move will also help in reducing the company's debt, enhancing its financial flexibility. In essence, the L&T buyback is a strategic step benefiting both the company and its shareholders, highlighting management's confidence in long-term growth," Srivastava said.

This is the first buyback announced by the engineering and infrastructure major since its listing.

The buyback is part of L&T's plan to improve its Return on Equity (RoE) as part of the group's 'Lakshya 2026' plan, the infrastructure giant’s Chief Financial Officer R Shankar Raman had said earlier.

Also, the infra major plans to meet objectives such as increased profitability, release of working capital, higher dividends apart, return of extra capital to shareholders in the form of buyback of shares.

Under a buyback, the company buys back its own shares from shareholders and it is seen as a tax-efficient way to give cash back to investors. Share buyback reduces the number of shares available in the market and thereby increases the real value of the stock.

What analysts say on L&T share price

"The stock is trading just near its buy back rate, which is Rs 3,000. For now the stock can even surpass this and achieve a rate of up to Rs 3,270 in this month only," said Vaibhav Kaushik, Research Analyst at GCL Broking.

Meanwhile, global brokerage houses have revised their target prices higher on L&T after reports indicated that it has won the order for Saudi Aramco's Jafurah unconventional gas development project.

CNBC-TV18 was the first to report about the order, which is likely to be valued at nearly Rs 24,000 crore. However, L&T has yet to make an official exchange announcement regarding the same.

As many as 38 of the 41 analysts tracking the company now have a 'Buy' recommendation on the counter. Six of those expect L&T shares to reach its or trade above its buyback price of Rs 3,000.

Brokerage firm CLSA has maintained its 'Buy' rating on the stock and raised its target to Rs 3,240. This is the highest target on the street for L&T. CLSA said that the large fossil and non-fossil Middle East (West Asia) order is a catalyst for the target price revision.

Citi, meanwhile, expects the L&T stock to go beyond Rs 3,000. The brokerage has maintained its 'Buy' recommendation on the stock with a price target of Rs 3,175. While the Middle East order is not official yet, Citi noted that L&T had increased its prospects size post the June quarter results for fiscal 2024 due to expansion in hydrocarbon prospects.

As per Citi, a buyback of Rs 10,000 crore at Rs 3,000 per share further adds to shareholder confidence.

On Monday, the company's shares were hovering near its 52-week high of Rs 2,928.70, hit on September 8. At 12:50 pm, the scrip was trading at Rs 2,913, up 0.39 percent on NSE

L&T shares have risen over 13 percent since the buyback announcement was made. The stock has rallied nearly 40 percent so far this year and it has risen 48.48 percent in the last one-year period.

First Published:Sept 11, 2023 1:16 PM IST