LTI's Cuelogic Acquisition To Augment Capabilities In Digital Engineering Practice

 ■    LTI has acquired Cuelogic Technologies Private Limited (Cuelogic), a digital Engineering and Outsourced Product Development company, for a cash consideration of USD8.4mn (~1.5x EV/Sales on FY21 sales). Cuelogic's 100% subsidiary in the US, Cuelogic Technologies Inc., will also be acquired as a part of the transaction.

■    Deal rationale: Digital Engineering is a significant market opportunity, and this acquisition will provide instant access to a fast-growing business with an impressive clientele (CapitalOne, IAC, Pearson, WPP, Kantar Media, Travelpass Group, etc.) and more than 300 employees. It will help in enhancing LTI's digital engineering practice by combining Cuelogic's people, tools, methodologies, training methodologies and onboarding structure, along with its strong leadership team to support practice development, sales and delivery.

■    Cost of acquisition and deal timeline: The cost of acquisition for 100% share capital of Cuelogic is USD8.4mn on a cash-free and debt-free basis, excluding working capital adjustments. It will be paid as a combination of upfront consideration, retention bonus and performance-based earn-outs. The transaction is expected to get completed within 2-4 weeks.

■    Brief profile: Cuelogic, incorporated in 2010 and headquartered in Pune, is a digital engineering company with a 300+ strong team that include full-stack engineers who specialize in product development capabilities and have expertise in scaling exponential technologies. It works with customers wanting to build digital products, modernize legacy software with modern technologies leveraging cloud, AI and mobility, and offer Innovation Lab as a service to fast-track experimentation and capture untapped value from Digital. Cuelogic's primary focus is on building and modernizing digital products leveraging cloud-native methodologies across web and mobile. It works with enterprise clients on multiple facets of digitalization such as UX Consulting, DevOps, AI Consulting, IoT, Applications Modernization and Cloud Architecture & Integration. Cuelogic has successfully developed more than 100 products. It has reported revenues of USD3.21mn/USD3.55mn/USD5.5mn in FY19/FY20/FY21.

■    This is the seventh acquisition by LTI since it got listed in 2016. Earlier acquisitions have bolstered the company's expertise in data & analytics, cloud consulting, intelligent automation, and industry-specific platforms.

■    Cuelogic will be integrated with LTI's Digital practice, which is a focus area for LTI. The acquisition will augment its domain capabilities. Given the size of the acquisition (<0.5% of LTI's revenue), we do not expect any meaningful revision to our earnings forecasts. We have a Sell rating on the stock with a TP of Rs3,550 (24x FY23E EPS).