L&T share buyback, dividend, Q1 results: What analysts say

Shares of Larsen & Toubro ltd (L&T) will be in focus on Tuesday as the company board considers a share buyback proposal, along with its June quarter results later today. The company board will also consider a proposal of special dividend. JM Financial noted that L&T has a strategic target to increase its return on equity (RoE) to 18 per cent-plus by FY26. It stood at 12.2 per cent in FY23. In its previous 5-year strategic plan (ended FY21), L&T exited several non-core businesses and monetised infra assets.

"Its focus on working capital reduction also yielded steady results. However, a sizeable improvement in RoE still eludes it and is a key target of the current 5-year strategic plan. Over this period, L&T targets consolidated inflow/revenue growth of 14 per cent/15 per cent, which, along with improved performance in the financial services business (FY23 ROE: 8 per cent), is vital to delivering this targeted RoE. A one-time dividend/buyback is also one of the means to achieve the RoE target," it said.

To recall, the L&T board had in August 2018 approved its first buyback in 80 years of the company’s history, for up to 4.29 per cent of its paid-up equity capital, aggregating to a value of about Rs 9,000 crore. The proposal was turned down by the market regulator Sebi, citing compliance issues over its post-buyback debt-equity ratio.

Arihant Capital markets expects the buyback price to be in the range of Rs 3,050-Rs 3,100.

PL said L&T is well-placed to benefit in long run with strong tender prospects, better order conversion in the domestic market, significant traction in hydrocarbon segment from exports market and expected uptick in private capex.

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"The stock is currently trading at PE of 28.1 times/23.9 times FY24/25. We have 'Buy' rating on stock with a target of Rs 2,615," it said.

L&T said it would also consider a special dividend on equity shares for FY24. If approved, the record date for the purpose of determining the entitlement of the equity shareholders for the said dividend would be Wednesday, August 2, the company said in a stock exchange filing.

For the June quarter, HDFC Institutional Equities is expecting L&T to report a 23.8 per cent year-on-year (YoY) rise in consolidated net profit at Rs 2,110 crore. It sees net sales rising 12.8 per cent to Rs 40,440 crore. It sees Ebitda at Rs 4,570 crore, up 15.5 per cent. Ebitda margin is seen at 11.3 per cent, down 41.5 basis points sequentially but up 26.3 basis points YoY.

“Consolidated revenues are expected to grow 14 per cent YoY led by pick up in execution across segments such as IT, Financial Services and Infrastructure. Key monitorables would be guidance on order execution and inflows. Q4 order inflows stood at Rs 27,000 crore, at the higher range,” YES Securities said.

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