Capital allocation decisions taken by the management of the company have far-reaching impact on the returns to the shareholders.
The management basically has two options of what to do with the cash generated out of profits every year :-
- Reinvest profits in the business (R&D, add more plants, more spends on marketing/branding, expand markets etc.)
- Return money to shareholders through dividends or share buybacks.
Recently, in Aug-18, L&T announced a massive share buyback proposal worth Rs 9,000 Crs. The market regulator SEBI dis-approved the proposal citing Regulation 4(ii) of the SEBI (Buyback Regulations) 2018 and Companies Act 2013.
My take on the whole L&T buyback fiasco for Moneylife Magazine.