Coming out with a buyback offer has a multitude of rationale for the company and among all such objectives, L&T primarily to boost its earnings per share as well as the return on equity. Also, as against the expected offer size of Rs. 5000 crore, the company has announced buyback size worth Rs. 9000 crore. With this increase, the acceptance ratio as well as the entitlement will likely go by a bountiful percentage.
For retail investor category
In Friday's trade the stock of L&T closed at Rs. 1342.80, this when bought back at a price of Rs. 1500 per share will provide investors a return of 12%. Also, as per the SEBI rules, of the overall buyback size of Rs. 9000 crore, 15% is reserved for retail investor class who hold shares worth less than Rs. 2 lakhs and as per the company's FY17 Annual report, the number of shares that will be bought boack from retail category will be worth Rs. 1350 crore or 0.9 crore shares. So, in all probability the acceptance ratio will be increased.
Also, the entitlement ratio if experts and analyst are to go by will stand at 13%. Entitlement ratio is the ratio of number of shares tendered by retail investor category to the total number actually held by them in combined way.
Rationale of L&T buyback
The buyback will result in extinguishing six crore shares from the outstanding size of 140 crores. The company through healthy cash cycle will be able to meet its long-term objective of offering an 18 percent return on equity by FY21-end as against 16.04 percent in FY18.