Larsen & Toubro’s To-Do List For Mindtree
Having taken control of Mindtree Ltd., Larsen & Toubro Ltd. will now have much to consider and manage, especially after the software services firm’s chief executive officer, chairman and vice chairman resigned last week.
India’s largest construction and engineering group will need to focus on inducting new heads, retain key personnel, reassure and continue collaborations with clients and seek to improve margins.
Here’s a look at what L&T needs to do with its latest acquisition.
New Leadership, Retaining Talent
L&T will have to seek the right leaders for Mindtree after the company’s co-founders stepped down. And that may lead to deputing leaders from its IT subsidiary Larsen & Toubro Infotech Ltd. According to a Kotak Institutional Equities research note, deputation of a CEO from its software services arm “will be the least risky path”.
Continuity will be the key theme in management transition, L&T’s Managing Director and Chief Executive Officer SN Subrahmanyam was quoted as saying by the newswire PTI.
How L&T decides run the newly acquired business will be important. While Mindtree has historically followed “low-risk, longer term and measured pace of growth”, the L&T group is more aggressive in its approach to capture a large addressable market share, Kotak Institutional Equities said. The strategy chosen will also be key in retaining talent, it said. More so when Mindtree’s people practices reflect in its low attrition numbers.
Retaining, Reassuring Mindtree’s Clients
Mindtree’s top 10 accounts were being managed by its co-founders NS Parthasarathy, Rostow Ravanan and Krishnakumar Natarajan and divided according to the nature of the deals and relationships with clients, a report by Anand Rathi said. The brokerage said new client additions may be a big challenge until clarity on leadership and strategy emerges over the next two quarters.
This aspect becomes critical, said Haitong Securities, for client deals in mid-sized IT services companies as growth can get impacted from key departures. “We see this risk as even more pronounced given the intense focus on differentiated culture,” the brokerage said in a report. “This may result in meaningful negative impact on growth.”
Improving Operating Margins
Mindtree’s operating margin in the last two financial years has been the lowest among its peers. L&T indicated there’s scope for improvement, but that may be one of its many challenges.
Merger With L&T Infotech?
L&T has ruled out a merger between Mindtree and Larsen & Toubro Infotech for now. “They operate in vastly different areas with a minimum client overlap,” Subrahmanyam told PTI. This reason, according to Kotak Equities, could be grounds for a potential merger in the future.
Mindtree’s strength is its expertise in cloud services, with its core areas of focus being retail, travel, new technology and media verticals. Larsen & Toubro Infotech’s strengths are geared towards core transformation, enterprise solutions (a weak area for Mindtree), analytics, internet of things and mobility. “Both companies have a rich client base which can be mined through complementary offerings,” Kotak Equities said.
(Corrects an earlier version that misstated the name of Co-Founder NS Parthasarathy)