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Here’s What Analysts Think About L&T’s First-Ever Buyback Offer

Larsen & Toubro Ltd. will buy back Rs 9,000 crore worth of shares in a first for India’s largest construction and engineering company.

The company will buy back up to 6 crore shares (4.3 percent) at Rs 1,500 apiece—which is 75 percent of the maximum amount it could have bought back according to regulatory norms. The buyback is proposed to be made from shareholders of the company on a proportionate basis under the tender offer route.

Here’s what brokerages are saying about the move:

BofA-ML

  • L&T’s strategy of returning surplus cash to its shareholders is a key positive.
  • Expects buyback to be EPS dilutive to the tune of 1-2 percent.
  • It highlights L&T’s commitment to improve its capital allocation.
  • Excluding Finance, L&T’s net debt to Ebitda stands at 0.3 times and net debt to equity at 0.1 times.
  • Return on equity to expand while divestments provide upside risks.

CLSA

  • Buyback may lower earnings per share by 2 percent but it will improve quality of earnings.
  • Believe this is not L&T’s last buyback as it has $2.1 billion in asset sales lined up in the financial year through March 2020.
  • Estimate suggests that buyback will boost its return on equity by 190 basis points.

Credit Suisse

  • Buyback of 5 percent equity can improve estimated return on equity for 2019-20 by around 150 basis points.
  • L&T may need another large buyback after electrical business sale to sustain gains on return on equity.

Goldman Sachs

  • Move reiterates management confidence in outlook and potential cash generation.
  • Estimates the buyback to be marginally EPS dilutive of 1.5 percent but would improve return on equity by 140 basis points.
  • Buyback will help the company meet its target of achieving 18 percent return in equity by 2020-21.

JPMorgan

  • FY19 EPS can potentially reduce by around 2 percent due to buyback.
  • Return on equity is estimated to increase by around 130 basis points to 15 percent after buyback.
  • The company is in asset light mode and does not need to accumulate cash for merger and acquisition.
  • Buyback also moves L&T a step closer to its goal of 18 percent return on equity by 2020-21.

Nomura

  • Buyback will lead to lower other income but will lead to return on equity accretion of 100-150 basis points.
  • Buyback will also be EPS-accretive on our estimates by 4-4.5 percent over the next two financial years.
  • Expects another buyback in 2019-20 after sale of the electrical and automation business.

Morgan Stanley

  • Estimates that this buyback will be return on equity-accretive by around 150 basis points and EPS-neutral.
  • Buyback amount is bigger than the brokerage’s earlier expectation.

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