IT company Happiest Minds’ net profit went up 8.1 percent sequentially to Rs 56.34 crore in Q1. The company, which aspires to be a $1 billion company by 2031, raised its revenue growth guidance to 25 percent for FY23.
During the quarter, the company’s attrition rate was at 24.4 percent, with a net addition of 20 people for a headcount of 4,188 at the end of June. Happiest Minds said upcoming wage hikes will be in the range of 12-14 percent.
In an interview with Moneycontrol, Executive Vice Chairman & CEO - Product Engineering Services Joseph Anantharaju and CFO Venkatraman Narayanan spoke about the company’s planned investments, what has and hasn’t worked, and attempts at retaining employees. Edited excerpts:
Have you seen a slowdown in spending? Do you foresee any pricing challenges?
Joseph Anantharaju: We’ve been travelling a fair bit in the last 3-4 months… After the Ukraine invasion, the spike in oil prices, inflationary trends and the rate hikes, we wanted to get a sense of what customers were thinking. Barring a couple of instances where companies were cautious and ramped down in May and took a month or two to make a decision, most are continuing with the digital initiatives they started.
There’s some reprioritisation – trying to take all the initiatives or various projects that they had and trying to see which are strategic, which will give them more bang for their buck. Customers are also trying to leverage assets that they already have and avoid duplication, which they probably would have lived with earlier. But the spend still exists.
Will margins be impacted, given that salary hikes are pending and travel is returning?
Venkatraman Narayanan: Our pay hikes come in the next quarter, it’s been baked into the plan. Our current margin profile – 26.4 percent – is really high and we are compatible with the larger peers or larger Indian IT services companies, even the best in the mid-cap. We believe we are doing very well under margins, but when you look at a little bit of a longer range margin trend, there will be the wage hikes, we also have to invest in technologies.
Even the last quarter has been good because of foreign currency fluctuation. One can’t plan for these things. So for now, a long-term sustainable margin number we are looking at is 22-24 percent.
You’ve previously said you’re investing in Web 3 and metaverse. What’s happened so far? What other areas are you looking to invest in?
Anantharaju: There’s a fair bit of overlap between some of the technologies that we were already building capabilities in – whether it’s blockchain (more relevant to Web 3) or AR/VR (more relevant to metaverse).
We’ve taken some of these capabilities that we were already building and leveraged them for both Web 3 and Metaverse. We have taken a couple of verticals for each of them and started building use-cases that we can take as demos and POCs [proofs of concept], if there could be some lightweight platforms that we could build that we can again take back to customers – paralleling the success that we had in the IoT space around eight years back.
By the end of the year, we hope to have demos for at least 10 to 20 use-cases that we can take to our customers along with the implementation that we will do for some of our customers.
What can we see in the drone tech space from Happiest Minds?
Anantharaju: It’s been a little disappointing so far because 3-4 years back when we started with the DigitalSky project… we thought there would be a pickup. We did get a couple of customers in the 2019-2020 time frame but surprisingly, over the last year and a half, we've not seen any new customers. Our experience has been that some of these technologies that come with a lot of fanfare sometimes take time to really fructify and provide commercial success.
For instance, blockchain. If you just leave the crypto part out, we started working on blockchain almost 5-6 years back. We’ve had 2-3 customers in 2016 and 2017. But over the last five years, every year we get one or two customers. We’ve not seen that huge increase that we thought would happen, given the applicability of the technology and the kind of potential that it holds. Sometimes some technologies don't take off.
Another technology – AR/VR. Six-seven years back we were really excited. We thought it would get more off-take but again, we get two or three customers a year and it’s nice work, but it doesn't give as much money and they’re not as many customers. We’ll have to see how drone evolves.
Are there any other new technologies you plan to invest in or are you looking to deepen capabilities?
Anantharaju: One is in the security space. There are so many newer aspects within cyber security itself coming in.
In the AI and analytics space - augmented AI, the AI/ML ops, new aspects of AI and augmented analytics. We're looking at all of these and building capabilities, building some use-cases and maybe even some solutions to take to market.
The other area where we started investing last year and we are very convinced that we will continue making investments is in the LCAP space [Low-Code Application Platforms]. We do see a portion of the market moving over to these LCAP tools for the application development for some of their integrations and quickly developing user experiences.
RPA (robotic process automation) and the automation space is an area we will continue investing and building deeper capabilities in, apart from platforms, cloud and other areas.
Attritions climbed 24.4 per cent and your net addition was 20. What happened and what is your hiring outlook?
Anantharaju: Our campus batch will come in August and so as a result, in the first quarter, we eased up on hiring freshers because we’re going to get a significant number relative to our size of around 250-300 people in August. We’ll take them through induction and we’ll have to start deploying and utilising them.
We also wanted to retain a little bit of operational flexibility. For the current quarter, while we continue to hire aggressively depending on demand, we will leverage partners a little bit more than we normally do, which gives us some operational leverage.
In May, our headcount was much higher than the net end-quarter headcount we reported. Coincidentally, we had quite a number of people leaving towards the end of the quarter, which resulted in the actual net headcount reported as of June 30th being lower.
What measures are you looking at to combat attrition?
Anantharaju: Starting July 1, we’ve been encouraging people to come back to the office… One of the things that really stood out is that the attrition in people who joined us post-pandemic is almost two to three times that of people who joined us earlier. This number is increasing as a percentage because we've been growing aggressively and we've had higher attrition.
One of the things we’ve done is we’ve tried to bring people back. We’ve had OK success. Would we have liked it to be better? Absolutely. But we also did not push hard because of the increase in the number of cases.
This also allows us to increase people engagement activities which we did to some extent in virtual mode. Doing it in person should allow us to build those connections better and get back to the way we had built our culture earlier. We are looking at how to increase training and people development initiatives to just give them another reason to think about staying back.
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