With India’s information technology (IT) services sector showing strong growth, supported by digital transformation, multinational conglomerate Larsen & Toubro (L&T) is preparing to merge its IT services business units – L&T Infotech (LTI) and Mindtree. A Bloomberg report said a merger announcement could come as early as next week, with details on the share-swap ratio. However, mid-sized IT services company Mindtree noted in its earnings call that the news is purely anecdotal and would not respond to speculation.

“We do not comment on speculative news,” read an email to L&T. An email to LTI did not elicit a response. “A merger has been under consideration. The timing is right. Both companies are doing very well. The group hopes to unlock that value by combining the two companies into a larger entity,” said one familiar with the matter. More importantly, the combined entity does not have any overlap,” according to the media reports.

The combined entity will have a market capitalisation of more than $22.05 billion (1.68 trillion rupees) and total revenue of $3.5 billion. This will make it the sixth-largest IT services company in India. For L&T, the merger goes hand in hand with the group’s vision to become more service-oriented. The coalition has business synergies as the two companies have complementary investment portfolios.

For example, communications media and technology, retail, consumer packaging, and manufacturing are Mindtree’s larger areas of focus. In terms of LTI, banking and financial services and insurance are its largest verticals, accounting for more than 32 per cent and 13 per cent of revenue, respectively, in the third quarter of 2021-22. However, the merger spree did not follow the market’s turnaround as both companies’ stock prices fell.

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Mindtree shares fell 3.33 per cent to Rs 3,960.8 per share; LTI was down 2.66 per cent at Rs 5,866 per share at the end of the session. Analysts believe the merger is ill-timed. “The merger of these two entities is a foregone conclusion. Given the growth momentum these companies are witnessing, a merger at this time may not be sensible as it would shift management away from capturing growth to managing merger complexities,” founder of Pareekh Consulting and CEO Pareekh Jain said. Consulting Services Company.