Investors upbeat on talk of Mindtree, LTI merger

Forging Force

- L&T acquired Mindtree in 2019

- Spent Rs11,000 cr to get 66% stake

- Mindtree share price is now 4x higher than its purchase price during acquisition

- L&T Infotech's market cap at Rs1.03 lakh cr

- Mindtree's mcap at Rs65,000 cr

- The combined entity will have a revenue of around $3.5 bn

- The combined entity will make it the 6th largest IT firm in India after Tech Mahindra

Bengaluru: Amid market buzz of merger between Mindtree and L&T Infotech, both the mid-tier IT services companies of the L&T Group said these companies have no information on the likely consolidation plan by their parent entity. However, sources in the know said that consolidation has always been the plan of the L&T Group given the infrastructure major's emphasis on higher contribution from IT vertical to group's overall revenues.

"It has always been the plan given the complementarity between the two companies. A combined entity can not only be a bigger entity in terms of revenue, but it can also reduce cost structure with many redundancies. However, it will be a little surprising if the merger is done now when both companies are growing very fast and such an action can create unnecessary distraction for employees and management," said a source familiar with both the companies.

For FY22, L&T Infotech witnessed a revenue growth of 25.8 per cent with the mid-tier IT firm crossing the revenue milestone of $2 billion. Mindtree saw a revenue growth of 31 per cent for FY22. Both companies have been reporting industry-leading growth rates in the Indian IT services space as demand environment remains robust.

"Any merger may see exit of people on the top management and senior mid-levels. The operation of Mindtree has stabilized after 2019 takeover, but a merger can change the whole scenario," said an HR expert.

Mindtree was acquired by L&T through a hostile takeover bid in 2019. L&T had spent around Rs11,000 crore to get a majority stake of 66 per cent in Mindtree. Subsequently, the original founders of Mindtree had exited the board, and management seats after opposing the hostile bid. As of now, the founders continue to hold stake in the company.

"L&T is sitting on a huge notional profit given that Mindtree's share price is now around four times higher than its purchase price during acquisition. It is unknown if the merger happens through share swap between L&T Infotech and Mindtree, what kind of value will get created for L&T," said another source.

Currently, L&T Infotech's market cap stands at around Rs1.03 lakh crore and Mindtree's at about Rs65,000 crore. If the merger happens, the combined entity will have a revenue of around $3.5 billion, which will make it the sixth largest IT firm in India after Tech Mahindra.