Abstract

The case study discusses how L&T prepared for its first-ever share buyback and how the company approached SEBI to get the final approval for its buyback plan. Through the buyback, L&T planned to achieve two things – distribute capital to its shareholders and improve its ROE by reducing the number of outstanding shares. However, L&T’s plans came to nought with the SEBI, the stock exchange regulator of India, rejecting its buyback proposal on the grounds of high debt-to-equity ratio. The L&T management was left with the task of re-planning its strategy to distribute excess cash to the shareholders and achieve the targeted 18% return on equity by 2021.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To analyze SEBI’s decision to turn down L&T’s share buyback proposal.
• To analyze the different methods of capital restructuring.
• To analyze the effect of buyback on ROE.
• To understand the impact of bonus shares on ROE.
• To understand the five-step method of the DuPont analysis.

Keywords

Share Buyback; DuPont Analysis; Return on Equity; ROE Analysis; Debtholders; Securities and Exchange Board of India (SEBI); Dividend; Bonus shares Buyback Regulations; Securities Appellate Tribunal; Distribute Excess Capital