Engineering and construction giant Larsen and Toubro Ltd. (L&T) submitted the final buyback price proposal on Sunday, September 11, with the exchange, stating that the company has increased its offer price to Rs. 3,200 apiece from Rs. 3,000 per share for its proposed upcoming Rs. 10,000 crore share buyback as the stock rallied and the premium to market price narrowed since the original announcement in July. The buyback is set to kickstart its buyback program on September 18. The last date for tendering shares or closing of the buyback will take place on September 25.
As the price of the issue increased, the maximum number of equity shares offered for buyback by the company was reduced from 3,33,33,333 fully paid-up equity shares to 3,12,50,000 equity shares with a face value of Rs. 2, representing 2.22% of the total paid-up equity shares of the company.
L&T's management stated that the buyback was aimed at enhancing its return on equity (RoE) for the shareholders. Whole-Time Director & CFO, L&T, R Shankar Raman, said, “The Lakshya '26 Strategic Plan for FY 2021-22 aims to enhance return on equity and shareholder value by increasing profitability, releasing working capital, and implementing a buyback of shares. The company's asset-light business model does not require significant investments, so a buyback is proposed to increase shareholder value in the long term and improve return on equity."
Coming on to the financials, what effect will the buyback have on the company?
On a consolidation level, earnings per share of the firm will increase as the total number of shares increases. The price-to-earnings ratio (P/E ratio) will fall from 29.05 pre-buyback to 28.40 post-buyback. Book value per share post-buyback will decrease by something like 9%, from Rs 635.55 to Rs 577.24 post-buyback. The net worth of the company will be reduced by the size of the buyback, i.e., Rs 10,000 crore. Consolidates Debt to equity will see a marginal rise of 0.13%.
Consolidates effect of L&T Buyback.
On a standalone basis, EPS will increase to 57.12 post-merger, and the return on net worth post-merger will jump by approx. 2%. Debt to equity will see a marginal rise of 0.05%.
Standalone effect of L&T Buyback.
The stock since the announcement of the buyback on July 26 has given a return of approximately 13%. At the time of writing, the stock was trading with a 0.5% gain at Rs. 2914.