LTI-Mindtree merger: Brokerage firm sees up to 57% upside in two stocks post amalgamation news

LTI-Mindtree merger: Brokerage firm HDFC securities is bullish on Larsen and Toubro Infotech (LTI) and Mindtree after the boards of IT services companies approved a composite scheme of amalgamation. The brokerage house upgraded its rating from add to buy on both the stocks and sees an upside of up to 55%. As per the scheme of arrangement, Mindtree will merge into L&T Infotech to form the amalgamated entity ‘LTIMindtree’. 

As per HDFC Securities, LTI’s strong sub-vertical prowess (particularly within BFSI) is likely to be complimented by MTCL’s digital capabilities cutting across front-end/customer success and competencies in Salesforce, Adobe as well as Microsoft. 

"We upgrade LTI to BUY (ADD earlier) and MTCL to BUY (ADD earlier) and estimate the combined entity to grow at 1.5x tier-1 IT peers, with an upward bias on margins and synergies," said HDFC Securities in its report.  

In separate meetings on May 6, the boards of Larsen and Toubro Infotech (LTI) and Mindtree approved a composite scheme of amalgamation of both these independently listed IT services companies under the Larsen & Toubro Group.  

"The proposed integration will see LTI and Mindtree join strengths to create an efficient and scaled-up IT services provider exceeding $3.5 Bn. The transaction is subject to shareholder and regulatory approvals," a regulatory filing by LTI read. 

Speaking of target price, HDFC Securities was more bullish on MindTree of the two. The brokerage firm upgraded the rating from add to buy with target price of Rs 4855, which translates into an of 57% on May 10 closing price of Rs 3088.45 per share on the BSE.   

Similarly, the brokerage firm upgraded LTI to buy rating with target price of Rs 6185, an upside of 43% on Tuesday's closing price of Rs 4330.30 per share.  

ICICI Direct Research, however, was not much convinced with the merger and maintianed a hold rating on the two stocks.  

"We are not building in cost synergy benefits as of now. We maintain HOLD on both LTI and Mindtree and assign a target price of | 4490/share for LTI and | 3700 per share for Mindtree, while we value the combined entity at 30x on the MergedCo FY24E earnings," it said. 

Meanwhile, LTI-Mindtree merger transaction closure is expected in 9 to 12 months, with a swap ratio of 73 shares of LTI for every 100 shares of MTCL and L&T will hold 68.7% of the combined entity.