LTIMindtree’s $5 billion revenue target too optimistic: Jefferies

This merger is in line with L&T's strategy of becoming more service-oriented.

The $5 billion revenue target set for LTIMindtree, the new entity formed by the merger of Larsen and Toubro Infotech and Mindtree, is “optimistic,” investment bank Jefferies said.

Brokerages expect some uncertainty before LTIMindtree, which started operating as a single entity from November 14, reorganises its strategy and reappraises priorities.

The initial focus of the merged entity in the short term will be on generating revenue synergies through up-selling and cross-selling LTI’s and Mindtree’s capabilities, Larsen & Toubro Group chairman AM Naik indicated on November 14.

The combined entity is expected to have 700 clients, of which there is an overlap of 10-12 clients, and aims to generate revenue of $5 billion in FY24 and cost synergies of more than 1-1.5 percent over the medium term.

LTIMindtree’s leadership team comprises seven members – four from Mindtree and three from LTI. While Mindtree’s management team is intact, LTI’s chief financial officer Anil Rander does not figure in the leadership team.

Debashis Chatterjee will be the managing director and chief executive officer of the merged entity. Sudhir Chaturvedi and Venu Lambu will both be president -markets. Nachiket Deshpande will be the chief operating officer and Vinit Teredesai will be the CFO.

With the merger coming into effect, Mindtree will be delisted from the stock exchanges and LTI will be rebranded LTIMindtree from November 24, 2022.

Following are the key takeaways of brokerages:

Jefferies

Maintains an underperform rating with a target price of Rs 3,800, a potential downside of more than 25 percent.

Sees FY24 revenue target of $5 billion, which is 10 percent higher than Jefferies’ FY24 estimate, as ‘optimistic.’

Sees valuation of 29 times FY24 PE as rich amid uncertain macroeconomic conditions.

Awaiting further clarity from the company as it finalises detailed strategy and execution plans.

Will watch for major changes in organisation structure as part of the post-merger integration process.

JP Morgan

Retains underweight rating on LTI and Mindtree.

The overhang from the merger process should evaporate given that a new management team has been announced.

Acknowledges that LTIMindtree will need some time to reorganise its strategy and reappraise priorities as a larger entity.

Even as it views the new management team to be large enough but suggested that it will be successful if it continues into middle management.