L&T gets board nod for Rs 10K cr share buyback; Q1 profit surges 46.5% YoY

Engineering conglomerate Larsen & Toubro (L&T) on Tuesday announced a buyback of up to Rs 10,000 crore. It also reported a 46.5 per cent year-on-year rise in net profit for the June quarter (Q1FY24), topping the estimates on the back of improved operational performance and higher other income. 

L&T’s order book crossed the Rs 4-trillion mark for the first time.

The board also decided to give a special dividend of Rs 6 per share, which company executives said was to mark A M Naik’s tenure at L&T. Group chairman Naik retires in September this year.

The buyback approved by L&T’s board would entail 33.3 million equity shares for a price of up to Rs 3,000 each, for an aggregate consideration of up to Rs 10,000 crore, subject to approvals. If fully utilised, this would be the largest-ever buyback by a non-IT Indian company. In 2012, Reliance Industries announced a buyback of Rs 10,440 crore but only Rs 3,361 crore was utilised, Bloomberg data shows.

This is L&T’s second attempt at a buyback; the first attempt for up to Rs 9,000-crore share repurchase proposed in August 2018 failed after the proposal was turned down by the market regulator citing compliance issues over its post-buyback debt-equity ratio. “We worked with Sebi (Securities and Exchange Board of India) to make the guidelines clear after that,” said R Shankar Raman, whole-time director and chief financial officer for the company, adding the guidelines now will not consider debt related to the financial services business in the post-buyback calculation.

For Q1FY24, the engineering and construction major reported a net profit of Rs 2,493 crore (attributable to the owners of the company). Net sales were at Rs 47,882 crore, up 33.6 per cent from a year ago but down nearly 18 per cent sequentially. “The Q1FY24 performance is on the back of a robust top-line and bottom-line growth, supported by excellent balance sheet management, resulting in improved return ratios,” said S N Subrahmanyan, chief executive officer and managing director for the company.

Sequentially, however, L&T’s net profit was down 37.5 per cent, from Rs 3,987 crore in Q4FY23; March-ended quarters are seasonally best quarters for capital goods companies in terms of execution. The company’s reported net profit for the quarter under review was at Rs 3,095 crore, up 39 per cent from a year ago. L&T’s other income jumped 65 per cent YoY to Rs 1,146 crore, which the company said is reflective of level of treasury investments and improved yields.

In a Bloomberg poll, five analysts estimated an adjusted net income of Rs 2,128.5 crore and 10 analysts estimated Rs 41,056 crore in revenue.

L&T’s order inflow for Q1FY24 was up 57 per cent at Rs 65,520 crore, which the company attributed to strong ordering movement in the domestic infrastructure segment and from the renewable energy and hydrocarbon segment of the Middle East market. Shankar Raman said the prospective pipeline of orders looks robust and encouraging at worth Rs 10 trillion in the succeeding three to four quarters, with a large share likely from the infrastructure segment, particularly transportation infrastructure and public infrastructure. 

Company executives said the infrastructure and hydrocarbon segments would see the bulk of the action in terms of reporting revenue, progress, and margins. About its overall outlook, the company said it expects the growth momentum to continue.

As of June 2023, L&T’s total order book was at Rs 4.12 trillion; international orders accounted for 29 per cent of this amount.

The Ebitda (earnings before interest, taxes, depreciation, and amortization) margin for the infrastructure segment was at 5.1 per cent, against 6.5 per cent recorded a year ago. The company said the quarter margin was a function of job mix and legacy Covid works nearing completion. Raman said it would be Q4FY24 before healthy margins return as the impact of legacy orders booked during the pandemic diminishes. Infrastructure is the largest contributor to L&T’s order book.

About the green hydrogen segment, the company said the planned 1 Gw capacity in two phases would entail an investment of Rs 500 crore.

L&T’s board approved additional investment of up to Rs 506 crore in L&T Energy Green Tech, a subsidiary of the company. It also approved the incorporation of a joint venture company for the green energy business, with an initial subscribed capital of Rs 1 crore. The green energy business includes the company’s plans for green hydrogen.