Mindtree, L&T Infotech to consider merger into $22 billion firm

The boards of Mindtree Ltd. and Larsen & Toubro Infotech Ltd., two software units controlled by the Engineering conglomerate could consider share swap ratios for the merger as early as next week with the objective to scale & compete with global digital giants.

Larsen acquired control of Mindtree in 2019. The conglomerate holds about a 61% stake in the company, which has a market value of $8.3 billion, and has around 74% of L&T Infotech, which has a market capitalization of $13.6 billion, data compiled by Bloomberg show.

The two companies have minimal overlap in businesses or clients, and a tie-up would give them better pricing power and lower costs. The proposed merger comes as software companies are seeing surging demand from businesses embracing the digitization that accelerated during Covid-19.

Representatives for Larsen, Mindtree and L&T Infotech couldn’t immediately comment on queries from Chanakyanipothi.

Large IT outsourcing firms are also expanding into areas such as cybersecurity, automation and machine-learning support, moving beyond lower-margin traditional back-room services.

Mindtree and L&T Infotech are scheduled to report earnings Monday and Tuesday respectively. The scrip of Mindtree is being valued at 43.58 pe multiple whereas L&T Infotech is valued at  PE multiple of 47. 70  as compared to Valuation of Happiest Mind at  94.13. Mindtree is expected to get merged with L&T Infotech,  and it will  boost the valuation of merged entity.

At Chanakya ,we suggest to accumulate L&T Infotech with 6 to 9 months angle.