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Nirmal Bang Report
Larsen and Toubro Infotech Ltd. and Mindtree Ltd. announced their much-expected merger on May 06, 2022. ‘LTIMindtree’ will be the new India heritage ‘scale’ IT player.
If current execution of both companies holds up, we think it could outpace tier-I set growth over the next 10 years. Also, with both revenue and cost synergies, we believe there is potential for net margin gap between LTIM and Tata Consultancy Services Ltd./Infosys Ltd. (currently at 300-500 basis points) to narrow, leading to faster than peer set earnings growth.
Further, along with higher margins, if it can maintain its current high return on invested capital (higher than TCS/Infosys in FY21/FY22) post-merger (ex-goodwill), we believe the market will accord a price-to-earning premium to even TCS/Infosys in this period. That is more a longer term story.
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