The hostile takeover of Mindtree by Larsen & Toubro in 2019 marked a watershed moment in India's IT sector, but the catalyst for this landmark transaction traces back to an unlikely source: V.G. Siddhartha, the founder of Café Coffee Day. What appeared as a sudden corporate raid was actually the culmination of mounting financial pressures that forced a long-term strategic investor to exit his position, inadvertently enabling one of India's most significant hostile takeovers in the technology space.

L&T's Strategic Diversification Beyond Infrastructure

Larsen & Toubro's traditional focus on infrastructure and industrial projects exposed the company to significant cyclical risks and lengthy cash conversion cycles. Recognizing these limitations, L&T's management pursued diversification into businesses offering more stable and recurring revenue streams.

The company's diversification efforts included establishing L&T Finance Ltd in 1994 as a non-banking financial company and launching L&T Infotech (LTI) in 1996. However, both ventures remained closely tied to L&T's traditional sectors, limiting true diversification benefits.

Mindtree's Appeal as an Acquisition Target

Founded in 1999 by ten experienced IT professionals including Subroto Bagchi, Krishnakumar Natarajan, and Rostow Ravanan, Mindtree represented an attractive diversification opportunity for L&T. The company went public in 2006 and demonstrated exceptional financial performance over the subsequent decade.

Mindtree's financial track record between listing and 2018 showcased consistent growth:

Unlike LTI, Mindtree's client exposure to retail, media, and consumer-facing sectors provided genuine diversification away from infrastructure-driven cycles, making it strategically valuable for L&T's portfolio.

V.G. Siddhartha's Investment Journey in Mindtree

According to Mint, V.G. Siddhartha invested approximately USD 8 million in Mindtree at its founding in 1999, maintaining a largely passive investor role for nearly two decades. His stake, representing around 20% of the company, was viewed by Mindtree's management as friendly capital that effectively strengthened promoter control.

Siddhartha's investment timeline reveals a systematic accumulation strategy:

By 2018, Siddhartha held 20.41% through multiple entities: 3.33% directly, 10.63% via Coffee Day Enterprises, and 6.45% through Coffee Day Trading Limited.

Financial Stress Forces Strategic Exit

Despite his long-term commitment to Mindtree, Siddhartha faced mounting financial pressure when lenders refused to roll over his debt of approximately Rs. 3,000 crore. This forced him to seek monetization of his Mindtree stake to meet repayment obligations.

Multiple potential buyers showed interest, with private equity firms, sovereign funds, and long-term investors valuing the stake between Rs. 3,100 crore and Rs. 3,300 crore. However, the complex mechanics of pledged shares created significant obstacles:

• Shares were pledged with banks as collateral
• Buyers needed to fund unpledging upfront or structure complex transactions
• Private equity investors were reluctant to assume additional risks
• Nearly a dozen investors engaged but failed to execute deals

L&T's Successful Acquisition Strategy

L&T ultimately agreed to purchase Siddhartha's stake at Rs. 980 per share, slightly higher than a prior Rs. 975 offer that Mindtree's promoters had preferred. Unlike other potential buyers, L&T demonstrated willingness to navigate the complex share-pledge mechanics that had deterred private equity investors.

The acquisition provided L&T with a significant foothold in LTI Mindtree , enabling the company to aggressively pursue additional shares to reach 51% ownership and gain control. This move effectively initiated the hostile takeover despite strong resistance from Mindtree's founders and management.

Financial Outcomes and Strategic Impact

The transaction proved exceptionally profitable for Siddhartha despite the forced nature of the exit:

Coffee Day Enterprises stated that proceeds would reduce the group's debt, which stood at Rs. 3,323.8 crore as of March 31, 2018, and allow focus on core coffee business operations.

Legacy of an Unintended Catalyst

The Mindtree takeover ultimately represented a convergence of circumstances rather than aggressive corporate maneuvering. Siddhartha's financial constraints coincided with L&T's strategic diversification needs, creating conditions for India's first major hostile takeover in the technology sector. The transaction reshaped Mindtree's future, altered competitive dynamics in India's IT sector, and demonstrated how corporate landmark events often result from timing and capital constraints rather than boardroom battles.

Prabhudas Lilladher has maintained its Hold rating on lti mindtree with a target price of ₹6,000, citing the company's better-than-expected quarterly performance and strong deal momentum. The brokerage firm noted that while revenue growth exceeded estimates, selective pockets showed muted performance, particularly in key verticals.

Quarterly Performance Analysis

The company delivered revenue growth of 2.4% quarter-on-quarter in constant currency, surpassing Prabhudas Lilladher's estimates of 2.0%. This growth was primarily aided by the ramp-up of large deals and pass-throughs. However, the performance was mixed across verticals, with BFSI and CMT segments showing particularly muted growth.

Deal Pipeline and Growth Prospects

Despite the mixed vertical performance, deal signing activities remain robust in BFSI and CMT verticals. The management indicated that it will take a few more quarters to achieve normalized revenue run-rates for top marquee accounts. The pace of deceleration in top client accounts has reduced sequentially, suggesting potential recovery following productivity benefits.

The company's participation in vendor consolidation deals, combined with continued momentum in new client wins, provides better growth visibility. A notable highlight is the recent Indialed new client deal with CBDT, which is expected to contribute approximately 80-90 basis points to the topline in FY27.

Margin Outlook and Operational Efficiency

LTIMindtree successfully sustained margins at the previous quarter's high base despite having pass-throughs. This performance was supported by internal margin programs under the 'fit-for-future' initiative and favorable INR depreciation impacts in the third quarter.

Investment Recommendation

Prabhudas Lilladher has kept its margin estimates largely unchanged, acknowledging that wage hike impacts will continue to pressure margins. The brokerage projects constant currency revenue growth of 5.4%, 8.9%, and 9.5% year-on-year for FY26E, FY27E, and FY28E respectively, while maintaining margin estimates at 15.3%, 15.6%, and 15.9% for the corresponding periods.

The firm has assigned a 25x PE multiple to FY28E EPS, resulting in a target price of ₹6,000, which represents full valuations. Consequently, Prabhudas Lilladher retains its Hold recommendation on the stock, with EPS estimates seeing an upgrade of approximately 2% each for FY27E and FY28E.