Market expert Deepak Shenoy, on Monday said he is positive on Reliance Industries Ltd (RIL) and Larsen & Toubro (L&T).
"I like RIL as a stock for a while, but for the longest time, it has really stagnated in this range. Right now, RIL is showing some signs of moving. Now, Reliance Retail and Jio are now independently quite decently operationally profitable at least in the medium term. Both the companies are able to raise debt at a very low price. Even through this crisis, we have never saw Jio's short term commercial paper (CP) rates go above 7-7.5 percent, while everybody else saw much higher rates. I think there is a lot of strength inherent in the business. I believe perhaps pricing-wise, we may be at the upper end of that curve," Shenoy said.
On L&T he said, "If you look at L&T standalone, the company has Rs 18,000 crore in debt with Rs 46,000 crore equity plus reserves. So effectively, L&T's debt equity ratio is much smaller. However, if you look at it as a consolidated entity including L&T Technology Services, L&T Finance, L&T Infotech and all other companies, then it's Rs 56,000 crore equity and Rs 1,23,000 crore in debt. Out of Rs 1,23,000 crore, Rs 50,000 crore is debt on the balance sheet of L&T Finance Holdings."
"So, L&T's buyback has been a way for them to return money to shareholders that they will eventually get from the sale of some of the businesses that they are looking at right now. So, around 60 percent of income is actually wiped out by taxes if you pay it out as dividend, whereas if you do a buyback, it's only 30 percent at the company level and then maximum of 10 percent. So, a dividend has been a way to return cash to shareholders in a much more tax efficient way," he added.
"I was hoping L&T will fall a lot more, but the stock has not fallen and I think the next few years are going to be good for the company. I am a shareholder for a long time, but I feel this is a good price even now from a long term point of view," Shenoy said.
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