Happiest minds

23 Mar

 Organic revenue growth guidance of 20% for the medium term: Happiest Minds

Update on the Indian Equity Market:

On Wednesday, Nifty closed lower at 17,246 (-0.4%)in the highly volatile session. METAL (+1.2%), OIL AND GAS (+0.4%) and PHARMA (+0.4%) were the top sectoral gainers.AUTO (-1.0%), FINANCIAL SERVICES (-0.9%) and BANK (-0.6%) were top losing sectors.

The top losers were KOTAKBANK (-2.6%), HDFC (-2.4%), and BRITANNIA (-2.1%) while DIVISLAB (+2.5%), HINDALCO (+2.5%) and TATASTEEL (+2.0%) were the top gainers.

Edited Excerpts of an interview with Joseph Anantharaju, Executive VC& Chief Executive Officer-Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 on 22nd March, 2022:

  • The IT industry is facing two concerns i.e. higher attrition and margin pressure. On margins, the MD commented that the company has been outperforming its guidance of 22-24%(EBITDAM) for the last four quarters. This is largely on account of Work From Home (WFH)scenario and other cost saving factors.
  • For FY23E,the MD stated that demand seems to be robust and the company would be working on maintaining the EBITDA Margins at 24-25%. The pressure would be from wage hikes to retain the talent as the attrition rates are high. The new recruitment would cost higher. This increase in cost is expected to be compensated through rate increases to the customers. The favourable exchange rate is also helping to maintain the margins.
  • MD’s Comment on the Russia-Ukraine conflict: There is flow of work continuing to India. Earlier it was because of entire digitalization move, which was applying pressure on supply side. Now he expects this conflict to add to this pressure. According to him, demand would not be an issue, but meeting the demand and requirements of the customers and attracting talent would be a challenge.
  • The bill rates of services rendered from Eastern Europe are higher than services rendered from India. There is a headroom to cover for the increased cost by negotiating for higher rates without impacting the quality of deliverables. This is the upside for the Indian Tech Industry.
  • On the company’s organic revenue growth guidance of 20%, the MD clarified that it is for a period of time spanning five years. He expects the revenue growth range to be around 32% YoY for FY22E.
  • On high attrition rate problem, VC commented that the company expects the number to trend down a bit. It has taken a few measures, upcoming high increments and increased level of engagement, learning and development training to attract people is expected to maintain or reduce the current attrition levels. With current campus batch coming in and supply increasing,the company expects the attrition rates to taper down and to release some pressure on margins going forward.
  • The contribution of BFSI segment have been reducing in past couple of quarters. BFSI sector for the company have not been a traditional segment. Consulting, leasing and payroll service providers are the type of clients of the company. BFSI sector have been highly penetrated by the earlier entrants and large IT companies. Happiest Minds have been entering BFSI sector in adjacent areas rather than the traditional/old ones.
  • The marginal drop in BFSI segment is because of the recalibrations and reallocation in the verticals. Edutech is growing faster than BFSI in last two quarters. The recent merger and acquisition has lead to faster growth in Consumer Packaged Goods (COG) segment.
  • There is openness from existing and new customers with regards to considering the rate adjustments due to inflation and wage increases.

Asset Multiplier Comments

  • We think the strong deal momentum across verticals, emphasis on digital business and client centric approach may help the company to achieve its medium-term guidance of 20%+ revenue growth.
  • The ongoing talent crunch may keep margins under check in the near term, but the initiatives taken by the company may help to maintain the EBITDA Margins stable at 24-25%.

Consensus Estimate (Source: market screener website)

  • The closing price of Happiest Minds was ₹ 1,145/- as of 23-March-2022. It traded at 76x/ 68x the consensus earnings per share estimate of ₹15/ 17 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,510/- implies a PE Multiple of 89x on FY24E EPS estimate of ₹ 17/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

 

 

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20 Sep

Expect attrition rate to get a little worse before improving – Happiest Minds Technologies

Update on Indian Equity Market:

On Monday, NIFTY ended at 17,397 (-1.07%). Among the sectoral indices, FMCG (+0.9%) was the only sector that ended higher, whereas Metal (-6.6%), PSU Bank (-4.2%), and Realty (-2.10%) ended lower. Among the stocks HUL (+2.9%), Bajaj Finserv (+1.1%), and ITC (+0.8%) led the gainers while Tata Steel (-10%), JSW Steel (-7.7%), and Hindalco (-6.1%) led the losers.

Excerpts of an interview with Mr. Venkatraman Narayanan (MD & CFO) and Mr. Joseph Anantharaju (Executive VC) with CNBC TV18 on 17th September 2021:

  • The demand scenario has only got better from where they are at the end of the first quarter. Things are looking very well for customer additions and the growth of existing customers. So, demand is looking good.
  • On the supply side they said, the supply situation is not as good, but they are managing to hold on with employee net additions of about 300 in the first quarter. They are trying to keep similar numbers for the next three to four quarters.
  • Most verticals that they are operating in seem to be showing strong demand growth with customers initiating or implementing digital transformation initiatives. A few of them should be a little ahead or having spent more, like edutech which continues to be strong for them. In high tech and retail they are seeing a good spend with the whole e-commerce move. They are seeing some initiatives in digital media as well.
  • They further said, in terms of technologies, the cloud is almost a done deal now. Most of their clients are operating on the cloud, and a lot of work is happening around leveraging artificial intelligence and analytics.
  • One thing they have noticed in the last few months is that more clients are looking at more automation. They have seen a strong uptick in automation as well, from a technology angle.
  • On attrition, they said things are going to get a little bit worse and then start improving. As there is always a slow build-up when it comes to attrition. People move out looking for new opportunities but the company keeps adding and backfilling the opened positions.
  • So demand was increasing but along with supply-side affected due to high attrition rate that’s why it is likely to get worse. The attrition rate was 15% in last quarter it will increase and then they will stabilise it over some time.
  • On margins, they said the sustainable margins should be in the range of about 22% to 24%.

 

Asset Multiplier Comments

  • The IT sector is witnessing a high attrition and there is a talent war among the competitors, which might affect the margins. The companies are trying to decrease the attrition rates which might help in margin expansion in the medium term.
  • Happiest Minds is seeing healthy demand and is targeting industry leading growth in the medium to long term.
  • The company also has a strong demand growth in verticals that they are operating.

Consensus Estimate: (Source: market screener website)

  • The closing price of Happiest Minds was ₹ 1,491/- as on 20-Sept-2021. It traded at 113x/ 90x/ 78x the consensus EPS estimate of ₹ 13.2/ ₹16.5/ ₹19.1 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,155/- implies a PE multiple of 60x on FY24E EPS of ₹19.1/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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15 Feb

Actively looking for acquisitions – Happiest Minds

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,315. Among the sectoral indices, Bank (+3.3%), Private Bank (+3.3%), and Financial Services (+2.9%) closed higher. Metal (-0.5%), IT (-0.4%) and Pharma (-0.3%) closed in the red. Axis Bank (+6.2%), ICICI Bank (+4.2%), and SBI (+4.0%) closed on a positive note. SBI Life (-2.3%), HDFC Life (-2.1%), and DR Reddy (-1.8%) were among the top losers.

Excerpts from an interview of Mr. Joseph Anantharaju, Executive Vice Chairman & CEO of Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 dated 12th February 2021:

  • The company guided for a 20% revenue growth rate. The demand has panned out well.
  • The company won 6 new deal wins in 3QFY21.
  • Speaking about verticals, Mr. Joseph said edutech was doing well. The company received new requests and projects.
  • The industrial, B2B, and logistical space seem to be having new initiatives, which are leading to higher demand.
  • On operating margins, he said for the last 3 quarters the company is delivering margins in the range of 21-23%.
  • The company has guided for a profit margin of 22%-24% in FY22E.
  • On revenue growth, the company will maintain long term growth at 20%.
  • The company witnessed some efficiencies in the past 3 quarters, the plan is to retain some of those going forward.
  • The company recently completed an acquisition of PGS for 8.25 mn$. The company is actively looking for acquisitions.
  • On dividend, the company has not yet declared but the board will look after it.

 

Asset Multiplier comments:

  • The improvement in new deals signed and increased focus on IT budgets by clients has been mentioned by most of the IT Companies during the December quarter earnings call.
  • In 3QFY21, most of the IT companies have significantly expanded their operating margins, which was a result of continuing control on costs and improved sales.
  • It would be interesting to watch the performance of IT companies in the next couple of quarters, as companies have guided for lower margins but if cost control continues (led by on-off shore mix, WFH) then the margins might sustain these high levels.

 

Consensus Estimate: (Source: TIKR website)

  • The closing price of Happiest Minds was ₹ 401 as of 15-February-2021.  It traded at 36x/35.8x the consensus Earnings per share estimate of ₹ 11/11.2 for FY21E/FY22E/ respectively.
  • The consensus average target price is ₹ 385/- which implies a PE multiple of 34x on FY22E EPS of 11.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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21 Sep

There will never be a threat of hostile takeover in Happiest Minds: Happiest Minds

Update on the Indian Equity Market:
On Friday, NIFTY closed in minor red at 11,505 (-0.1%). The top gainers in NIFTY50 were Dr Reddy (+9.9%), Cipla (+7.1%) and Adani Ports (+3.7%). The top losers were HDFC Bank (-2.3%), Shree Cement (-2.0%), and Bajaj FInserv (-1.8%). The top sectoral gainers were PHARMA (+4.9%), REALTY (+1.9%) and AUTO (+0.4%) and Top sectoral losers were PSU BANK (-1.6%), BANK (-1.3%), and FIN SERVICES (-1.2%)

Excerpts of an interview with Mr Ashok Soota, Chairman & Director, Happiest Minds with ET now dated 18th September 2020:
● He wanted to make a distinction between what is a broader IT services market and the digital part of the IT services market.
● They are born digital, born agile, 97% of their business comes from digital and the traditional IT market is growing much smaller and that is why they are able to grow at a faster rate — a compound of 20% plus as compared to about 8% to 10% for the larger IT players today.
● IT services business is growing, it is the entire market typically and slowdowns and recessions and more so in this one where everything is becoming virtual, IT will definitely grow faster within that. The transformation towards digital will also get accelerated.
● Their largest and fastest-growing vertical is edutech. How that is going to benefit from this environment because everything is becoming virtual.
● The other vertical in which they have got a very strong presence is the rest of the high tech world. Again because it is a core competence at Happiest Minds, two of them account for 76% of their business which has been only marginally or not impacted by the COVID crisis.
● The other 24% has been affected but fortunately, they have got a very marginal presence in travel and hospitality which is the worst impacted vertical and therefore they have to continue to build on the strengths that they have.
● When they began Happiest Minds, they were in what was called a SMACK pack which included analytics and cloud after that they have added over the years the internet of things, machine learning, virtual and augmented reality and so on.
● Going forward, I do not want to speculate on whether my shares will go up or go down if they raise more equity obviously, but there are no immediate plans to do so.
● Whatever happens, they will keep one thing in mind that there will never be a threat in the sense of ownership which could create a hostile acquisition situation.

Consensus Estimate: (Source: market screener and investing.com websites)

● The closing price of Happiest Minds was ₹ 358/- as of 18-September-2020.
● Equity shares of Happiest Minds Technologies Ltd are listed effective from September 17, 2020. So we don’t have any consensus estimates.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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