Subscribe to Happiest Minds Technologies: Prabhudas Lilladher

Prabhudas Lilladher's IPO report on Happiest Minds Technologies

Led by focus on digital and limited exposure to the legacy business, Happiest Minds derives ~97% of its revenues from new technologies including cloud (~31% of revenues), SaaS (~29% of revenues), Security solutions (~15% of revenues) and Analytics & IoT. Comparatively, mid-cap IT services companies listed in the US such as EPAM, Globant and Endava derive ~80-90% of their revenues from new technologies while Indian IT generates ~35-50% and Accenture generates ~65-70%. The company’s key business verticals include Edu-Tech (21% of revenue), Hi-Tech (21%), BFSI (18%) and Travel, Media & Entertainment (17%). Over the years, product engineering (51% of revenues) segment and TME vertical have clocked fastest growth. Its FY20 revenue stood at Rs6,982mn (US$ 98mn) with EBIT margin of 11%. USD revenue has grown at 17% CAGR over FY15-20 while EBIT margins have improved from -9% in FY18 to 11% in FY20 and 18.5% in 1QFY21. FCF/EBITDA stood at ~80% in FY20 with the company generating RoE of 31.3% in FY20.

Valuation and Outlook

We recommend Subscribe rating on Happiest Mind Technologies Ltd. IPO. Catalyst for Multiple expansion: 1) Margins to expand, 2) Client mining, 3) Large Deal wins. Key Risk: 1) Scalability, 2) Management transition, 3) Long tail of accounts.

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