The management of Larsen & Toubro Infotech (LTI) on Tuesday declined to comment on the ”speculated” merger with group company Mindtree, maintaining that it remains focused on its own business for now.
Reports of the planned merger, which emerged on Monday, have led to erosion of investor wealth as both LTI’s and Mindtree’s stocks closed in the red for the second consecutive session on Tuesday.
”I will not be able to comment on any speculation. We remain focused on our fast growing business and have a lot to do in coming quarters,” LTI’s chief executive and managing director Sanjay Jalona told reporters over a call to announce its quarterly earnings.
It was not immediately clear if the merger, which can lead to the creation of the sixth largest IT services firm in the country with over USD 3.5 billion in annual revenues, was discussed by the boards of the companies or what started the speculation.
Jalona said LTI does not compete with Mindtree, 61 per cent of which is owned by parent Larsen & Toubro, for large deals in the IT space.
He, however, added that whenever required both the companies collaborate on a project as per the client’s requirements or based on the capabilities of a particular company. Jalona also said the company works with L&T’s engineering services arm LTTS similarly.
In a filing to the exchanges on Monday after reports on the proposed merger first emerged, LTI had said at present, there is nothing specific which needs to be disclosed, adding that it does not comment on speculation in the media.
The merger, if it goes through, will create a company with a combined revenue of USD 3.5 billion, making it sixth in the pecking order by topline, behind TCS, Infosys, HCL Tech, Wipro and Tech Mahindra. It will have a combined market capitalisation of over USD 22 billion.
Mindtree too has declined to comment on the merger reports, calling it speculative in nature.
According to analysts, the businesses have complementarities because of the sectoral presence that they have. While Mindtree derives a larger share of its revenue from communications, media and technology, retail, consumer packaged goods and manufacturing sectors, LTI is strong in banking, financial services and insurance.
A merger to create a larger unit also fits well with the Larsen & Toubro group’s vision to have a higher proportion of revenues from the services segment, as against its traditional forte of executing engineering projects.
L&T acquired a majority stake in Mindtree in 2019 after facing some resistance in its quest to be a majority shareholder in the company. LTI has its origins in being the IT services arm of the engineering, procurement and construction major.
However, investors have seemingly not been enthused by the reports of such a deal. Shares of LTI closed 6.49 per cent down at Rs 5,486.15 apiece on BSE on Tuesday, after a 2.66 per cent decline in the previous session, while Mindtree ended 8.13 per cent down at Rs 3,638.70 following a 3.33 per cent drop on Monday. PTI