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MOSL: MOrning India (23/August/19): 1. Larsen & Toubro (Proposed amendment on share buyback a bit late); 2. AGIC 2019: Business Insights and Management Says; 3. P&G Hygiene and Healthcare

MOrning India (23/August/19): 1. Larsen & Toubro (Proposed amendment on share buyback a bit late); 2. AGIC 2019: Business Insights and Management Says; 3. P&G Hygiene and Healthcare

 

Today’s top research Idea

L&T - Proposed amendment on share buyback a bit late in light of changes in tax proposals in budget

• The latest union budget proposed 20% tax on buyback of shares, thus doing away with the tax arbitrage between dividend payout and buyback of shares. Therefore, it does not make any difference to L&T whether it chooses the share buyback or the dividend payout route to return excess cash to its shareholders.
• The consolidated leverage for L&T Finance Holdings stood at 6.8x at FY19-end. However, SEBI's amendments suggest that for the excluded subsidiaries, the leverage has to be considered on standalone basis. At this point, we are unclear if a step-down subsidiary may be considered for exclusion. Assuming it may be considered, the buyback option opens up for the company under the new proposal.
• Given L&T's focus to be a pure-play EPC company and aversion to asset business, we expect the company to either opt for higher dividend or buyback to return excess cash to shareholders. Any announcement in this regard may be a re-rating catalyst for the stock. L&T is our top pick in the capital goods space.

Piping hot news

Rupee crashes to 8-month low of 71.81

The Indian rupee on Thursday plunged to an over eight-month low of 71.81, dropping 26 paise against the US dollar as tumbling equities and incessant foreign fund outflows weighed on sentiment. Also, the sudden drop in Chinese yuan led to increased volatility in emerging market currencies, including the rupee, forex dealers said.