Mindtree terms report claiming merger with L&T Infotech 'speculative'

Mindtree has quashed report claiming plans of parent company Larsen & Toubro to merge it with Larsen & Toubro Infotech as "speculative". Domestic bourses — BSE and NSE — had sought clarifications from both companies on the alleged merger plans.

"We wish to clarify that news reports of a merger between Mindtree Ltd. and L&T Infotech are speculative in nature. In this regard, we would like to state that there is no information available with the company as of today, which is required to be reported under extant SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and which may have a bearing on the stock price of the company," the company said in an exchange filing.

L&T had bought Mindtree in 2019. Back then L&T MD and CEO S.N. Subramanyam had assured that L&T is intent to keep its two software subsidiaries separate. The conglomerate has 61% stake in the company, which has a market valuation of $8.3 billion, and around 74% in L&T Infotech, which has a market captilisation of $13.6 billion.

According to a media report, engineering major Larsen & Toubro (L&T) might merge its two software units to create a firm with market valuation of $22 billion (around ₹1.67 lakh crore). The boards of L&T Infotech (LTI) and Mindtree could discuss next week share swap ratios for the purported merger, it added quoting sources.

The cumulative market capitalisation of the two companies as of now stands at ₹1.68 lakh crore, with L&T Infotech at ₹1,02,824.87 lakh crore, and Mindtree at ₹65,287.36 crore. Tata Consultancy Services, the largest Indian IT company by market valuation, has an m-cap of ₹12,91,077.98 crore.

The two sister concerns are quite distinct in terms of business and clientele, with L&T Infotech more focussed on banking, insurance, etc, whereas Mindtree is predominant in retail and hospitality. The merger talks, however, are in early stages and the arrangement might face delays or be dropped off altogether, the report said.

After the news broke and the exchanges demanded clarification, shares of L&T Infotech and Mindtree dipped to close in the red. L&T Infotech share dropped 160.20 points, or 2.66%, to ₹5,866.65, recovering slightly from the day’s low of ₹5,804. Mindtree shares dived 141 points, or 3.44%, to close at ₹3,956.15, paring losses from the intraday low of ₹3,834.05.

The development comes shortly before the financial results of Mindtree and L&T Infotech for the quarter and year ended March 31, 2022. The former has announced its results today, while the latter is scheduled to declare its financial performance tomorrow.

As per analysts, both L&T Infotech and Mindtree would experience cross currency headwinds in the range of 20-50 bps, which would impact dollar revenue growth negatively.

For the March quarter of the current fiscal, Mindtree saw its revenue to rise 37.4% on annual basis to ₹2,897.4 crore. EBITDA for the company increased 31.5% to ₹608.3 crore, while profit after tax (PAT) grew 49.1% to ₹473.1 crore.

Meanwhile, as per analysts at ICICI Securities, L&T Infotech could see a 33% growth year-on-year in revenue growth at ₹4,347.4 crore, while its EBITDA could rise 18.5% to ₹847.7 crore. The IT company’s PAT could rise 14.4% to ₹624.4 crore. In December quarter, the company had posted revenue of ₹3,842.80 crore.