Buy Happiest Minds; target of Rs 1030: YES Securities

YES Securities' research report on Happiest Minds

Happiest Minds (HAPPSTMN) reported broadly inline financial performance for the quarter. Both, the sequential revenue growth and EBIT margin were inline with expectation. It reported constant currency growth of 1.3% QoQ(up 1.4% QoQ in USD terms, up 3.0% QoQ in INR terms), led by Hitech vertical( up 28.0% QoQ) and Manufacturing(up 10.2% QoQ). There was sequential decline in EBIT margin(down 72 bps QoQ) led by higher cost of revenue. Employee attrition continues to decline as LTM attrition decreased by 110 bps QoQ to 19.8%. Digital accounts for 96.3% of revenue as of Q4FY23 vs 96.5% as of Q3FY23. The long term demand environment remains robust led by strong deal wins and robust deal pipeline. However, the clients especially in select sectors have become cautious regarding the evolving macroeconomic situation. The deal pipeline remains strong and it supports near term growth visibility. Management guidance of revenue growth of 25% in cc terms for FY24 with EBITDA margin band of 22-24% remains strong. Falling employee attrition is expected to support operating margin going ahead.

Outlook

We estimate revenue CAGR of 24.1% over FY23‐25E with average EBIT margin of 21.3%. We maintain our BUY rating on the stock with revised target price of Rs 1,030/share based on DCF methodology. The stock trades at PER of 44.7x/35.3x on FY24E/FY25E EPS.

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