Search for Cases

Case Details

Case Code: FINC159
Case Length: 13 Pages 
Period: 2018-2019   
Pub Date: 2019
Teaching Note: Available
Price:Rs.300
Organization : Larsen & Toubro Ltd. (L&T)
Industry :Diversified group
Countries : China
Themes: Share Buyback/ROE Analysis/DuPont analysis
Case Studies  
Business Strategy
Marketing
Finance
Human Resource Management
Technology
Operations
Economics
Leadership & Entrepreneurship

SEBI`s Rejection of Larsen & Toubro`s Buyback Offer

 

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.
 
Finance Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies
or
Finance Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies
or
PayPal (7 USD)

 

Issues

The case is structured to achieve the following teaching 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
Contents
INTRODUCTION
A NOTE ON SHARE BUYBACK IN INDIA
ABOUT L&T AND BACKGROUND TO ITS SHARE BUYBACK
THE PROPOSED SHARE BUYBACK
SEBI REJECTS BUYBACK PROPOSAL
OPTIONS BEFORE L&T MANAGEMENT
QUESTIONS FOR DISCUSSION