LTIMindtree, the newly-formed entity formed as a result of the merger of Mindtree and Larsen & Toubro Infotech (LTI), is betting on combining the strengths of the two companies to deliver end-to-end capabilities to its clients and gain access to a larger playing field.
“We have over 720 clients now across the two entities where we can cross-sell and upsell because the overlaps are very minimal. The capabilities that the erstwhile LTI had included a lot of engineering DNA whereas Mindtree had a lot of customer experience DNA. So, combining the engineering and customer experience DNAs, we can provide end-to-end solutions for clients all the way from core to experience to edge, as we call it, which is end-to-end,” Debashis Chatterjee, CEO & MD, LTIMindtree, said in an interview.
The combined entity will also focus on large deals as it is now part of the big league, becoming India’s sixth largest IT services company by revenue. “We are very confident that we will get a seat on the table given our size, scale and capabilities. The second aspect is, many of the large deals are not necessarily reactive, but more proactive, which means they are shaped with your existing clients. Given the capabilities we have, we should be able to shape a lot of large deals as we go along,” Chatterjee said.
The complementary businesses of LTI and Mindtree have been favourable in the integration. “This merger represents our continued commitment to growing the IT services business, in line with our strategic vision. The highly complementary businesses of LTI and Mindtree will make this integration a ‘win-win’ proposition for our customers, investors, shareholders and employees,” AM Naik, group chairman of L&T, said during the announcement of the merger.
LTIMindtree stands to gain both from the complementary portfolios of the individual entities and in terms of scale, said Abhisek Mukherjee, co-founder & director of management consulting firm Auctus Advisors. “Scale is becoming a prerequisite to qualify for and win large deals, which is the Holy Grail for all IT services companies. Better access and conversion of large deals by the combined entity is something to watch out for. This will drive both revenue and margin expansion,” he pointed out.
On the flip side, organisational turbulence is something that challenges such mergers of equals, Mukherjee said. “Both LTI and Mindtree have deep leadership strength, and how potential overlaps are managed will determine how quickly the combined entity stabilises,” he said.
Analysts at Emkay Research said during the merger that LTIMindtree will be able to exploit the complementary capabilities and consolidate its position in the BFSI space, and enhance scale in high-growth verticals like high-tech, CPG and retail. It will also enable cross-selling and upselling opportunities to achieve a higher number of active clients, cater to a wider customer base and diversify the combined revenue profile, with reduced client concentration risks.
“Further, the amalgamation is also expected to improve the financial strength of the combined entity by realising cost efficiencies and synergies, such as optimisation of SG&A (selling, general and administrative) costs and consolidation of delivery operations (domestic and overseas), overseas entities and branches. Digital transformation projects require end-to-end capabilities with scale, and the new entity will be able to address it more effectively with complementary capabilities,” Emkay Research noted.
While the management has said that all necessary leadership changes are complete, it remains to be seen how the company retains its top talent, as integrations like these result in complex cultural changes. Attrition, both at the mid and senior level, will be closely monitored by investors. During the third quarter, LTIMindtree’s attrition rate moderated to 22.3% from 24.1% in the preceding three months and the management expects it to further come down in the near future.
While North America continues to be the largest market, contributing 72% to total revenues, LTIMindtree is also focusing on other markets like the UK, Continental Europe, Asia Pacific and the Middle East, and South Africa. “We will also get access to some of the nearshore centres like Poland and Latin America,” Chatterjee said.
LTIMindtree is expecting synergy benefits of $1 billion and margin expansion of 200-300 basis points over the next four-five years.
According to analysts at ICICI Securities, this, along with vendor consolidation opportunities and digital acceleration, are expected to be key triggers for the company’s future price performance.