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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.
 
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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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