Engineering and Infrastructure conglomerate Larsen & Toubro Ltd. has set September 12, 2023, as the record date for its share buyback plan. Those who held the shares on the record date can participate in the buyback plan.
The company’s board of directors, on July 25, 2023, approved the proposal to buy back shares worth up to Rs 10,000 crore. It plans to buy back a maximum of 3.33 crore fully paid-up equity shares at a face value of Rs 2 each. It has set Rs 3,000 per share for the buyback plan.
A buyback, also known as a share repurchase, is a process a listed company employs to repurchase its own shares from the public by using a part of its earnings. A buyback plan aims to boost the value of each share by decreasing the overall number of shares in circulation.
The buyback plan is carried out via a tender offer through the stock exchange. On August 26, 2023, the company said the shares proposed for buyback would be divided into two categories: the reserved class for small shareholders and the general group for other eligible shareholders.
In a tender offer, investors submit a request to sell a percentage of shares they hold at a price higher than the current market price. The share buyback price is pre-decided by the company.
Sebi stipulates that 15 per cent of the securities proposed to buy back or securities entitled as per investors’ shareholding, whichever is higher, shall be reserved for small shareholders.
After the list of eligible investors is released on the record date, the offer letter and the tender form shall be dispatched to the security holders eligible to participate in the buyback plan.
Eligible shareholders can participate even without the offer form. The offer opens within five days of dispatching the offer letter and stays open for 10 working days. After that, the company verifies them, and the accepted proposals receive payment on returned securities within seven days.
Larsen & Toubro's buyback initiative aims to improve return on equity and maximize shareholder value. It seeks to achieve increased profitability, ensure working capital, higher dividends, and return the extra capital to shareholders, the company said
Larsen & Toubro reported a 46 per cent YoY growth of Rs 2,493 crore in consolidated first-quarter net profit in 2023.
Companies can buy back shares using their free reserves, funds from securities premium accounts, or the proceeds of share issues. Share buyback can increase the company's stock price. Suppose the market conditions or internal factors cause the stock price to drop. In such cases, the company may opt for a buyback, offering a premium over the current market price to instil confidence among investors.
As of August 29, 2023, L&T shares are priced at Rs 2,703.20 each. Since the buyback announcement, L&T shares have surged from Rs 2,560 per piece to a record high of Rs 2,717 on August 23.
Furthermore, share buybacks can offer tax benefits. Investors are not subjected to gains tax. Additionally, buybacks reduce the number of outstanding shares, which can enhance the company's earnings per share (EPS), which may appeal to both existing and prospective investors.