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Why L&T and not L&T Infotech is eyeing stake in Mindtree

Updated : March 18, 2019 01:54 PM IST

Most investors are wondering why an engineering company Larsen and Toubro (L&T) is eyeing stake in Mindtree and not L&T Infotech?

The two key reasons are - one, it does not want any integration related issues and distraction and two, L&T Infotech does not have the balance sheet to go ahead and buy Mindtree.

L&T Infotech is doing very well, best in the class growth rates and a merger at this point will divert the management bandwidth towards the integration issue and therefore, there is a risk that growth will get derailed.

Also, the integration is going to be complex, it will be time-consuming. So immediately L&T may not want to thrust integration of these two companies on the management of L&T Infotech as well as Mindtree and impact the growth rate because the momentum for IT companies in the sector has been very good.

Mindtree’s current market cap is about Rs 15,700 crore. If you look at L&T Infotech’s balance sheet, the cash in the books is about Rs 2,000 crore, its annual profit after tax (PAT) is only $200 million. L&T, on the other hand, has sufficient cash in the books.

 
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