Larsen and Toubro (L&T) witnessed a remarkable surge in its stock price, reaching a peak of Rs 2,787.65, marking a 2% gain on the BSE during Thursday’s intraday trade. This uptick in share value is attributed to the anticipation surrounding the record date for L&T’s upcoming buyback program.
The Potential Multi-Billion-Dollar Contract
Recent reports have created a buzz in the industry, suggesting that L&T is poised to secure a substantial contract worth $2.9 billion, equivalent to approximately Rs 24,000 crore. This contract is expected to be awarded by Saudi Aramco, a major player in the global energy sector, specifically for their Jafurah unconventional onshore gas development project. Saudi Aramco has ambitious plans for the Jafurah project, with an estimated budget of $110 billion allocated for its implementation.
A report from CNBC-TV18 has further fueled speculation by designating L&T as the preferred contractor for this significant $2.9 billion contract. In L&T’s project categorization, contracts ranging from Rs 1,000 to 2,500 crore are classified as “significant orders,” while those falling within the range of Rs 2,500 to 5,000 crore are considered “large.”
According to the report, L&T’s scope of work for the Jafurah project includes the development of a gas processing plant and the construction of main process units. However, as of now, the company has not officially responded to inquiries from CNBC-TV18 regarding this development.
In addition to the potential Jafurah contract, L&T has also submitted bids for another package of orders valued at an impressive $10 billion for Saudi Aramco’s Safaniyah Gas Field.
L&T’s Buyback Program
L&T has taken significant steps to enhance shareholder value, one of which is the initiation of a buyback program. The company has set September 12, 2023, as the record date for determining the entitlement and identifying eligible equity shareholders who can participate in the buyback.
During a meeting held on July 25, 2023, the Board of L&T approved the buyback of 33.33 million equity shares at a maximum price of up to Rs 3,000 per share. This buyback program carries an aggregate consideration of up to Rs 10,000 crore and will be executed through the tender offer route.
L&T’s “Lakshya’26 Strategic Plan” for the fiscal year 2021·2022 emphasized improving return on equity and maximizing shareholder value. The buyback of shares is one of the strategic initiatives aimed at achieving these objectives. L&T stated that this buyback would provide shareholders with an opportunity to benefit from the release of extra capital and increased profitability, in addition to higher dividends.
It’s worth noting that L&T currently follows an asset-light business model, and there are no plans for significant investments that would utilize surplus cash. Therefore, the buyback program is a key strategy to enhance shareholder value over the long term and improve return on equity.
Market Performance and Dividends
Since the announcement of the buyback plan on July 20, L&T’s stock has demonstrated impressive performance, outperforming the market with a remarkable 12% surge from its previous level of Rs 2,489.60. In comparison, the S&P BSE Sensex has experienced a 2.5% decline during the same period.
L&T has also been committed to rewarding its shareholders through dividends. In August, the company paid a total dividend of Rs 30 per share, which included a special dividend of Rs 6 per share, for the financial year 2023-24.
These financial endeavors have yielded substantial returns for shareholders, with L&T’s stock delivering a 20% return over three months, an impressive 45% return over the past year, and an astonishing 200% return over the past three years.