KR Choksey IPO report on Happiest Minds Technologies
Happiest Minds Technologies Limited (“HMT”) is a digital IT and product engineering service provider that positions itself as “Born Digital. Born Agile”. The company focuses on delivering a seamless and end-to-end digital experience to customers. Its key service offerings include digital business, product engineering services, infrastructure management services and security. HMT offers solutions across the spectrum of digital technologies including Robotic Process Automation (RPA), Software-Defined Networking/Network Function Virtualisation (SDN/NFV), Big Data and Analytics, Internet of Things (IoT), Cloud, Business Process Management (BPM) and security. In FY20, 96.9% of company’s revenues came from digital services, which is by far the highest among Indian IT services companies. Corresponding figure for 1QFY21 was 96.3%. 87.9% of its projects were delivered through the agile model in FY20, with the figure for 1QFY21 at 90.1%, reflecting a true digital-focused enterprise. HMT recorded revenue of ₹ 6.89 bn, EBIT of ₹ 769 mn and PAT of ₹ 717mn in FY20, with corresponding figures for 1QFY21 at ₹ 1.77 bn, ₹ 327 mn and ₹ 502 mn, respectively. HMT has reported robust revenue CAGR of 22.8% over FY18-FY20, and has steadily improved profitability as well, from - 8.5% EBIT margin in FY18 to 11% in FY20 and further to 18.2% in 1QFY21. The company’s IPO includes an offer for sale of ₹ 5.88 bn to ₹ 5.92 bn, and a fresh issue of ₹ 1.1 bn, with a post-issue market capitalisation of ₹ 24.2 bn to ₹ 24.4 bn.
Valuation and Outlook
Given HMT’s growth profile and >97% digital revenue share, we believe the company can comfortably command a PE of 24x-25x, which makes the IPO valuation fairly attractive for long term investors. We recommend a SUBSCRIBE to the issue, with the potential for healthy listing gains as well as long term stock price appreciation.
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