Accumulate Happiest Minds Technologies; target of Rs 765: KR Choksey

KR Choksey's research report on Happiest Minds Technologies

HAPPSTMN Q3FY25 earnings fell short of our estimates. In Q3FY25, HAPPSTMN reported a revenue of INR 5,308 Mn, up 29.5% YoY (+1.8%% QoQ), missing our estimates. EBIT miss our projections and stood at INR 729 Mn, up 10.3% YoY (+6.2% QoQ). EBIT margin stood at 13.7% (- 239bps YoY/+57bps QoQ). PAT declined by 16.0% YoY (+1.2% QoQ) to INR 501 Mn; PAT margin down 511bps YoY (-5bps QoQ) to 9.4%. We lower our FY26E/FY27E EPS by 14.8%/10.0% to INR 21.4/28.3, incorporating the impact of a weaker-than-expected Q3FY25 performance, primarily due to margin compression. The company remains committed to strategic investments in its Generative AI Business Unit, expansion of its sales force, and inorganic growth initiatives through acquisitions. While these efforts are expected to drive revenue expansion, we anticipate margin pressures to persist in the near term, with a more gradual trajectory toward improvement. Additionally, the company continues to face headwinds in its EduTech and TME verticals, where demand softness is expected to remain a near-term challenge. However, we believe in long run the company has ability to explore new markets and capitalize on opportunities through its recent acquisitions driving robust top-line growth.

Outlook

We roll over our valuation to FY27E and assign a P/E multiple of 27.0x, to arrive at a reduced target price of INR 765 per share (previously: INR 803). Consequently, we maintain ACCUMULATE” rating on the shares of HAPPSTMN.