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

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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

EXHIBITS

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

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