LTI-Mindtree merger: Analyst sees win-win situation for both companies; stocks trade mix – know details here!

Shares of Larsen and Toubro Infotech (LTI) and Mindtree are showing mixed trends amid the merger announcement on Friday. Both stocks opened gap-down, however recovered up to 3 per cent an hour after trading, and are now down again up to 2 per cent at around 12:22 PM on BSE intraday.  

Zee Business Senior Analyst Kushal Gupta termed the amalgamation as a win-win situation mainly on the back of management’s commentary. “The ratio of shares between these two companies, doesn’t give arbitrage opportunity to traders, as both companies costing is on similar grounds,” he added. 

LTI and Mindtree on Friday announced a mega-merger, announcing a new name for the company LTIMindtree. For every 100 shares of Mindtree around 73 shares of LTI will be allotted, a combined press statement of both the companies had said on Friday. 

“Largely, the business opportunity of both companies are not overlapping, going forward margins of the combined entity will see improving. Similarly, the acquisition strategy will grow – as both companies cash pool will also be combined,” the Zee Business analyst said in his report. 

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जानिए पूरी डिटेल्स कुशल गुप्ता से...@KushalGupta44 #LarsenToubroInfotech #Mindtree pic.twitter.com/pc2UVx2aZN

— Zee Business (@ZeeBusiness) May 9, 2022

Both LTI and Mindtree may now compete with big IT firms and will also be fruitful in BFSI (Banking Financial Service and Insurance) sector as both companies will have cross-selling opportunities, Gupta further stated. 

LTIMindtree will be the sixth-largest Indian IT Services company by revenue (USD 3.5 billion) and fifth in terms of market capitalization (USD 17.7 billion on a current combined m-cap). This should improve its ability to be invited to bid for deals sized more than USD 100 million as compared to one-off cases at present, Motilal Oswal said in its report on the LTI-Mindtree merger. 

But with the deal environment currently dominated by smaller deals, the larger entity will need to be careful about reassuring clients on maintaining its current level of focus, the brokerage added. “Any change in focus away from smaller deals can impact the near-term growth of the entity.”  

Motilal Oswal sees the timing of the merger as opportune as the demand environment remains supportive. “LTIMindtree should be able to absorb any near-term volatility due to the leadership’s focus on integration or departure in any vertical,” it also pointed out.