All decks cleared for L&T’s share buyback as co turns debt free

• L&T said in its annual report that it has become debt free after considering cash and cash equivalent during the year.
• While L&T’s cash flows generated from its business operations fell by around 37% during the year, it sold off its short term investments, and used its treasury income and dividend income from subsidiaries – which was used to pay off loans.
• Cash flow is the lifeline of any business and we have paid close attention to the cash flow profile at the group level, S N Subrahmanyan CEO & MD of L&T in the annual report statement.
• In 2019, the markets regulator SEBI stalled the company’s ₹9,000 crore share buyback plan quoting that its debt would swell if it goes ahead with it.

Infrastructure major Larsen & Toubro has turned debt-free, the company said in its annual report. It has been working towards it since 2019 after the markets regulator SEBI stalled its ₹9,000 crore share buyback plan quoting that its debt would swell if it goes ahead with the buyback.

“The company has become debt free after considering cash and cash equivalent during the year. There was a net increase of ₹2,164 crore in the cash balances as at March 31, 2022 as compared to the beginning of the year,” the company said in its annual report.

According to Deepak Jasani, the head of retail at HDFC Securities, L&T’s decision to go for the buyback plan will depend on how the stock price moves.


“If the prices are weak, they might go for a stock buyback. If it’s not, they might take their own sweet time for it and may even declare a dividend,” Jasani tells Business Insider India.

Cash flows to capex

The cash flows generated from its business operations fell by around 37% during the year, as it had to deploy funds to boost business volumes. However, it more than made up for the losses by selling its short term investments, treasury income and dividend income from subsidiary companies.

All of this went towards the repayment of borrowings, the company said.

“Cash flow is the lifeline of any business and we have paid close attention to the cash flow profile at the group level. As we see it, cash generation during the plan period will be the outcome of improved profitability and lower employment of capital,” S N Subrahmanyan, CEO & MD of L&T in the annual report statement.

Jasani too agrees that L&T generates a lot of cash from its subsidiaries, especially the software company. The dividend they generate from the subsidiaries allows them to use it for capex or even pass some of it to shareholders.

“Ideally promoters gain from dividend distribution but L&T has no promoter as such and minority shareholders get taxed more for dividend. So they are neutral to it,” he says.

In the meanwhile, it has been gradually reducing its debt burden as a part of its Lakshya 2026 plan, to sustain the current momentum and create value. The plan entails re-dedicating itself to engineering, procurement and construction (EPC) projects, hi-tech manufacturing and services.

Lower interest outflows

Its total borrowings as at March 31, 2022 reduced to ₹20,298 crore as compared to ₹24,474 crore in the previous year. The loan portfolio of the Company comprises a mix of Rupee and

suitably hedged foreign currency loans. Its gross debt-equity ratio reduced to 0.30:1 too.

During the year 2021-22, L&T’s interest expenses also went down by 20% over the previous year – thanks to reduction of borrowings in the parent entity. “The average borrowing cost for FY22 decreased to 7.4% per annum 7.7% p.a. in the previous year due to refinancing of debt in Hyderabad Metro,” the company said.

The company has been promising the markets about its zero debt plan and has delivered it via divestment plans. It has already sold off its 99 megawatt Singoli-Bhatwari Hydroelectric Project and is actively pursuing divestments in L&T IDPL and exploring various alternatives to reduce its stake in Hyderabad Metro.

“Further, as I mentioned earlier, we are looking at unlocking capital through the sale of some of our non-core assets to boost cash balances. The company will explore options to step up pay-out ratios over time in addition to returning cash to shareholders which will accelerate return on equity (ROE) improvement,” said Subrahmanyan.

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