LTIMindtree facing merger headwinds

Bengaluru: LTIMindtree is facing headwinds in reaping optimum outcome of the integration process as a tepid demand environment is playing the spoilsport. Currently, several senior level exits and lack of revenue synergy are threatening to derail the integration process, which is underway since November 2022.

According to experts, a tough demand environment has increased the challenges of the integration process with achievement of targeted revenue upside and margin boost become a tall order.

“Integration issues are coming out because of the current low growth environment. Neither the company has so far got the advantage of tier-I firm like large deals, nor it was able to retain the agility of a mid-tier firm. The company seems to be at a crossroad. External environment is to be blamed for not receiving the intended revenue synergy from the merger,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting told Bizz Buzz.

Both LTI and Mindtree were posting industry-leading growth rates before their merger. However, growth rate has come down post-merger, raising questions over the rationale behind the merger.

In the last one year, several senior level executives had resigned from the company as duplication in leadership roles came up post-merger. This week, Pankaj Chugh, Executive Vice President (Global Sales) and Gregory Dietrich, Executive Vice President (Global Sales) resigned from the company. Last month, Vinit Teredesai resigned as the Chief Financial Officer (CFO) of the company to explore opportunities outside the L&T group.

Paresh Vankar, former chief marketing officer; Dinesh Bajaj, former senior vice-president and chief business officer, Venugopal Lambu, whole-time director and markets president, and Suresh Bethavandu, former chief people officer were the other notable exits in 2023.

According to management commentary, the combined entity of LTIMindtree would provide revenue synergies of $1 billion apart from boosting 200 basis points margin advantage to the company over next five years.

However, this projection is at risk as a tough demand environment has made it difficult to get more revenue from existing clients.

“The combined entity has not lost any client post-merger. But the problem is that they are not able to mine the existing client because of the tough demand environment,” said a source in the know.

Some brokerage firm like Jefferies in an earlier note pointed out that the company may take longer to realise revenue synergies from the merger.

“Unless LTIMindtree is able to reap the benefits of integration, its shares’ premium valuation may erode,” said the source.