Leading brokerages came out with their bullish view on construction and engineering conglomerate Larsen Toubro after the company announced its first-ever buyback of shares on Thursday.

The scrip was on a high as it rallied over 2 per cent in the afternoon trade.

The board okayed buyback of shares worth Rs 9,000 crore, which will mean acquisition of 4.29 per cent equity.

G Chokkalingam, founder, Equinomics Research and Advisory, said, “LT is a good stock.

Capex cycle is reversing down.

I see around 20 per cent upside in LT stock in another 3 months.” The board had cleared buyback of up to 6 crore shares at a maximum price of Rs 1,500 per share. What pushed Larsen Toubro to announce the buyback A M Naik, Group Executive Chairman, told ETNow: “We want to give back to our shareholders.

They have been loyal to us.

We have been publicly listed from 1951 and we were looking for an opportunity to reward with so much cash lying with us and all the capacity build-up we have done ahead of time for all our future requirements.” He further said that for the next five years, the group has little capital expenditure.

“If there is a major acquisition, we have made sure that cash flow is available.

So, you must also understand this is our 80th year and it is the right time to reward shareholders.

And we had opportunity to reward them and we have done that,” he explained. It may be noted that LT had cash and cash equivalents worth Rs 8,700 crore on its balance sheet at the end of the previous financial year. Analysts said buyback is a tax-effective way of returning cash to shareholders.

Many cash-rich companies that do not find any other profitable avenue to deploy their cash resort to share buyback.

This year, boards of many IT firms, including TCS, HCL Technologies and Mphasis, have approved proposals to buy back shares. Global brokerage firm CLSA last week said the buyback will support return on equity (RoE) of the company.

“It may not be the last buyback as cash on books stands at $2.1 billion.

We maintain ‘buy’ on LT with a target price of Rs 1,730,” CLSA added.