What should you do now if you own shares in L&T Infotech?  Experts point to caution

What should you do now if you own shares in L&T Infotech? Experts point to caution – Mail Bonus

NEW DELHI: The long-awaited merger of L&T Infotech and Mindtree creates a new heavyweight player in the Indian IT field, and experts believe that the merger of L & T’s IT subsidiaries has enormous value for shareholders in the medium term.

The important question at the current juncture, however, is what shareholders should do in the near future, especially in light of the recent fluctuations in L&T Infotech shares.

“Our calculations indicate a conservative stock price of 64% over a 2-year horizon from the current level while we allocate PE multiples of 30 to the merged entity,” Abhimanyu Kasliwal, AVP-IT sector at Choice Equities to ETMarkets.

“On the other hand, the transaction is expected to end in 9-12 months, which adds to the uncertainties – therefore we recommend booking capital gains for deep in the money positions.

Shares of L&T Infotech have lost a whopping 25 percent since the end of March 2022, with large-scale technical sales triggered by international indicators as well as a narrowing of technology margins and slower international growth, Sonam Srivastava, founder of Wright Research, told ETMarkets.

“Although this agreement is positive for L & T Infotech in the long run, the LTI share has been in trouble over the last month. That is why we recommend that investors be careful and wait for economic stability and recovery before taking new positions, “she said.

When the merger takes effect, all of Mindtree’s shareholders will be allotted LTI shares of 73 shares in LTI for every 100 shares in Mindtree.

The new LTI shares thus issued will be traded on the NSE and BSE. Larsen & Toubro Limited will own 68.73 percent in LTI after the merger.

Significant volume gains are expected from LTI and the additional strength of Mindtree leading to a stronger portfolio of cross-vertical vertical components for the merged entity, to be named LTIMindtree.

The agreement results in a variety of synergies between the two companies where the couple has additional customer acquisition and can cross-sell and streamline operating costs, said Srivastava, adding that large IT companies could see new competition for larger outsourcing contracts from this new entity.

Kasliwal of Choice Equities lists some key areas where the merger of the two companies would benefit shareholders.

First, he cited economies of scale and economies of scale, saying that since the two units now boast a combined revenue of $ 3.5 billion, the agreement would help the merged entity achieve synergies, gain almost all service capacity and be relegated to the department. Big five of Indian information technology- TCS, Infosys, HCL, Wipro and Tech Mahindra.

“Therefore, LTI-Mindtree can take advantage of greater marketing opportunities, reduce costs and minimize risk,” he said.

The expert also pointed out that sharing additional skills and not hindering competition as a key benefit for shareholders, noting that since the two companies operate in different vertical areas, the combination would help both leverage each other’s strengths without duplication.

“LTI and Mindtree focus on very different industries and customers where there is little overlap – LTI works mostly in BFSI all Mindtree works mostly in high technology, media and retail – so we expect limited staff turnover,” he said.

“Mindtree Chemicals has strong capabilities and customers in vertical areas that complement LTI. Therefore, the merger will enable the couple to deliver more value to customers by providing them with a variety of offers from the end.

The new unit is also believed to have improved its financial position which would help attract more and better talent.

Choice Equities estimates that the combined company will generate Rs 34,700 million in revenue at the end of the current financial year and a profit after tax of Rs 5,500 million.

Revenue for the next financial year is ISK 44,680 million and profit ISK 7,500 million.

“… we believe that the benefits of cost aggregation and operational impact will pay off very well, increasing the projected outline as well as margin,” said Kasliwal. END

(Disclaimer: The opinions, recommendations, opinions and opinions of the experts are their own. This does not represent the views of the Economic Times)

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