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Happiest Minds shares surge 138% on debut to hit a high of Rs 395; what should investors do?

The stock opened at Rs 351 on the BSE, which was also its intraday low, against the issue price of Rs 166.

September 17, 2020 / 09:38 PM IST

Happiest Minds Technologies registered a massive opening on the bourses, surging about 138 percent on an intraday basis on its debut on September 17.

The stock opened at Rs 351  on the BSE, which was also its intraday low, against the issue price of Rs 166.

At the time of writing this copy, it was quoting at 376.10, up 126.57 percent. The total trading volumes (BSE and NSE) crossed the issue size of over 4.22 crore equity shares.

Given the stellar listing, experts have advised booking profits in the counter to short-term traders, while medium to long-term investors can hold the scrip given the growth prospects of the company.

"Retail investors who applied for the purpose of listing gains can look to book profit post listing though we remain positive on the longer-term growth prospects of the company," Yash Gupta - Equity Research Associate at Angel Broking told Moneycontrol.

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Astha Jain, Senior Research Analyst at Hem Securities, also suggested holding on to the stock for long-term if one got it on allotment. Though traders with a short-term horizion can partially exit the counter ny selling up to 60 percent of their holding.

Before the listing, Prashanth Tapse, AVP Research at Mehta Equities, had recommended booking profits if the stock debuted with over 65-75 percent gain on allotment price.

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Hold and buy on dips for long-term? 

Happiest Minds has a strong presence in the digital IT services sector. Its growing customer base of high revenue-generating clients, high proportion of repeat revenues and revenues from mature markets makes it strong candidate for a portfolio stock

"We like the scalable business model of the company which has multiple drivers of steady growth with experienced leadership focused on sound corporate governance practices," said Astha Jain who advised investors to wait for the scrip to drop to levels of around 25-30 percent above issue price of Rs 166.

Happiest Minds generated 97 percent of its revenues from digital IT services in FY20. It caters to multiple business segments like Edutech (which contributed 21 percent to revenue in FY20), Hitech (21 percent), BFSI (18 percent) and Travel, Media & Entertainment (17 percent).

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It had 148 clients as on June 2020 and its high revenue-generating customer count increased 1.6x to 25 during FY18-FY20, with a high proportion of repeat revenues and revenues from mature markets.

Manali Bhatia, Head of Research at Rudra Shares & Stock Brokers feels Happiest Minds is a portfolio stock. She is of the view that investors should hold the stock for long term.

"The company has scaled up in terms of revenue and profits and has a sound growth  of about 50 percent. If it grows at a similar rate in future, forwarded valuations could be tremendous as per PEG ratio and the stock could be a multibagger in the long-term. We expect it could emerge out to be one of the disruptive companies in the IT industry," she explained.

She advised entering the stock in the range of Rs 275-300 and adopt add more strategy on every fall and hold the stock for long-term.

During FY18-FY20, the IT company's revenue grew at a CAGR of 23 percent and EBITDA margin improved from -4 percent in FY18 to 13.9 percent in FY20 and 21.4 percent in Q1 FY21. Its bottomline improved from a loss of Rs 22.5 crore in FY18 to profit Rs 83 crore in FY20 and Rs 50.2 crore in Q1 FY21.

Ashok Soota is the promoter of the company. Before Happiest Minds, Soota was the founding chairman and MD of Mindtree and was also the vice-chairman of Wipro Ltd.

"Happiest IPO might give an impressive return in mid to lon- term. Investors should hold stock at least for a few months, even if bought on the listing day," Gaurav Garg, Head of Research at CapitalVia Global Research said.

He feels technology stocks might continue to outperform other indices.

"Happiest Minds can generate double-digit growth rate in the next five years. The founder and management seem to be experienced and that is what instils a lot of confidence in the company," he explained.

Recently HCL Technologies, the third-largest IT company in India, provided its mid-quarter update. It expects revenue and operating margin for the current quarter (September 2020) to be meaningfully better than the top end of the guidance the company had provided in July 2020.

HCL's guidance lifted momentum in IT stocks. The Nifty IT index spiked 77 percent from March 23, 2020, closing. On a year-to-date basis, it is up 26 percent

Prashanth Tapse, AVP Research at Mehta Equities remains optimistic on Happiest Minds for medium to long term as he believes that digital engineering business is growing much faster than traditional IT business. Happiest Minds is well-positioned with high exposure to edutech and 'high tech' verticals which have hit the fast lane during the pandemic, enabling the company to grow at around 20 percent YoY whereas the industry has slowed down to around 8-10 percent.

However, he advised investors to avoid the stock at the current juncture given the stellar listing gains.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
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