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What’s behind the cheerful confidence at Happiest Minds?

The company has always done things differently. Happiest Minds was the first Indian IT company to get on the Digital bandwagon and this has helped it to weather the Covid storm comfortably. Now, it is launching an IPO at a time when the world and its economies have been laid low by the global pandemic. And it is confident of sailing through comfortably

September 04, 2020 / 10:41 AM IST

Bengaluru-based IT firm Happiest Minds’ initial public offering (IPO), which opens on September 7, is the first public issue by an IT company in four years. And it comes bang in the middle of the worst pandemic the world has seen in a century.

The IPO consists of a fresh issue of Rs 110 crore, which the company wants to use for working capital purposes. It will also include an Offer for Sale component of up to 3.56 crore equity shares by the promoters — 84,14,223 shares will be put on the block by founder Ashok Soota, and 2,72,49,362 shares by investor CMDB II, a private equity fund managed by JP Morgan Investment Management Inc.

For the record, L&T Infotech, the last IT company to be listed, saw its IPO oversubscribed 11.67 times in 2016. Mindtree’s public issue was oversubscribed 100 times in 2007.

Happiest Minds’ IPO success or otherwise will be telling about perceived prospects of the IT industry, which has seen its growth taper to 8 percent from 12-14 percent in 2016 and 40-50 percent back in the 2000s.

A different world

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Soota, 77, started Happiest Minds in August 2011 after leaving Mindtree, which he co-founded in August 1999. Back then, Digital was not the buzzword it is today, though companies were working on certain digital segments such as analytics.

However Soota, who has seen no less than five recessions in his lifetime, knew the disruptive role technology could play better than anyone else.

When he headed Wipro Infotech between 1984 and 1999, the company’s IT business grew from $2 million to $500 million. He weathered the dotcom bust in the 2000s, when Mindtree had just been founded, and later the global economic crisis that began in 2008.

Perhaps it is not surprising then, that Soota chose to focus on digital. “We were the only ones to say we will do digital technologies. Which is why we say we are born agile,” he explained.

Happiest Minds has 97 percent of its business coming from the Digital segment. The company grew 19 percent year-on-year in FY20 with total revenues of 714 crore.

Digital now accounts for 35-40 percent of IT firms’ revenue and this segment is growing upwards of 20 percent annually. However, the overall growth of legacy and digital services combined is 8 percent, on average, since legacy services have not been growing as rapidly as the latter.

Nine years after it was founded, Happiest Minds is going for an IPO, which Soota said is demonstrative of the fact that new-age companies can quickly gain size and profitability to go public.

Staying happy amid a pandemic

Joseph Ananthraju, President and CEO, Product Engineering Services, said that when the pandemic hit, the company shifted its focus to identify technologies that would drive growth. These include edu-tech and hi-tech, which account for about 42 percent of the company’s revenues.

Sridhar Mantha, Chief Technology Officer, said Happiest Minds continues to invest in new-age technologies such as drones, robotics and blockchain. In fact the company won two small drone deals in the last six months as the pandemic accelerated tech adoption.

Amid the Covid outbreak, the company was also able to win a tender floated by the Airports Authority of India, beating more than 40 companies, including large Indian IT players.

“In a way, the pandemic has helped,” says Ananthraju, enabling smaller firms to compete with large IT players. Clients want companies that have delivered such projects rather than those that have done legacy work, he said.

Stable ownership structure

Soota has no plans to dilute his shareholding further. After the IPO, the public shareholding in the company will rise to 28 percent, while Soota and his family will own a little over 53 percent after diluting a 6 percent stake. The rest will be owned by the senior members of the company.

Current shareholder CMDB II, which will exit with the IPO, has a 19.4 percent stake.

According to Soota, this is a stable structure and will ensure there is no threat of the management losing control.

Last year saw the hostile takeover of Mindtree by the engineering major L&T. The founders, who had a 13 percent stake, could not fend off the takeover after the late VG Siddhartha, founder, Café Coffee Day, sold his 20 percent stake to reduce his debt burden.

It is still not clear why Soota left Mindtree abruptly in 2011. He sold his 3 percent stake in the company to Siddhartha in 2012.

Doing things differently

Unlike traditional companies, the company does not have a CEO designate. Instead it has an executive board that collectively functions as the CEO of the company.

“We could say we were also the same (as traditional companies) earlier. But we thought of this, socialised among themselves and the board that existed at that time, and decided that it was a good thing to try. It is working very well,” Soota explained.

The company saw two of its CEOs, Vikram Gulati and Sashi Kumar, exit in 2014 and 2018, respectively. The change in organisational structure came in early 2018.

The board consists of three former Mindtree executives — Joseph Ananthraju, President and CEO, Product Engineering Services; Chaluvaiya Ramamohan, CEO, infrastructure management and security services; and Venkatraman Narayanan, CFO — apart from Rajiv Shah, CEO, Digital Business Services.

“I am not poking my nose in everyday business,” said Soota, who is the Executive Chairman. He gets involved only during the quarterly board review and in other board-level decisions such as financial plans.

The board runs the company and resolves any issues that arise. For instance, it takes calls on how to develop an account (client).

The company has performed well under the executive board and it has also seen a lot of cross-collaboration that is yielding good results, Soota said. “So, there is really no need to touch something that is working really well. The fact that it is different frankly does not really matter,” he explained.

“The idea is to try and do things differently. Otherwise we can all continue to follow traditional models,” he said, signing off.

 
Swathi Moorthy
first published: Sep 4, 2020 10:41 am
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