Happiest Minds' says it is gaining market share; Margins to continue to decline in FY25

Company expects the operating margin to reduce further and fall within the 20-22 percent range in FY25

Information technology (IT) services company Happiest Minds on May 7 said it is gaining market share in a tough macroeconomic environment, albeit, on a smaller scale than its larger peers. Nonetheless, the company expects the operating margin to reduce further and fall within the 20-22 percent range in the financial year 2024-25.

The Bengaluru-based company’s revenue increased by 10.4 percent year-on-year to Rs 417 crore for the fourth quarter. Profit for the period increased by almost 25 percent to nearly Rs 72 crore.

The company’s revenue grew 13.7 percent for the full year.

“If the industry grows at, say, X percent, and we grow at 1.5X, you gain market share, because obviously, the pie has grown only at X, we've grown faster than the pie so we've been market share,” Executive Chairman Ashok Soota said while addressing the media after declaring company’s fourth quarter results ended March 31, 2024.

He said the company is operating in a giant market and its share in the pie is relatively smaller.

When asked about vendor consolidation deals being handed over to bigger rivals, Soota said the company has not witnessed any such occurrence in the market. He further added that Happiest Minds continues to expand into accounts, which have traditionally been “strongholds” of the larger players because that is where the larger market is.

“We never found ourselves squeezed out in any account during the whole year on the grounds that there's a vendor consolidation taking place,” Soota said. Vendor consolidation deals in the IT industry involve reducing the number of suppliers in order to improve efficiency while negotiating better terms and pricing. This often results in deals going to the larger IT companies as they have the muscle power to negotiate better pricing due to their sheer size.

The company’s active customers increased by 13 for the full year and 5 sequentially to 250.

The company’s cash operating margin was under pressure in the last quarter of FY24, decreasing 150 basis points (bps) to 24.5 percent. For the full year, the metric decreased by 140 bps to 24.6 percent, although better than the company’s guidance of 22-24 percent.

Cash operating margin is calculated as earnings before interest, tax, depreciation, and amortisation as a percentage of revenue.

Happiest Minds said it was able to sustain margins despite pressures on account of salary increases, employee additions and campus hires, and variable payments.

Going forward, the company said it will not give margin guidance, however, it expects margins to grow by 20-22 percent.

The reduced expectation on the margins front is because of significant investments in the acquisitions, the time taken to pull in the synergies coming in from the acquisitions, reduced other income, and investments in new business units.

The company acquired Pure Software for Rs 779 crore and Macmillan Learning India for Rs 4.5 crore in April. The acquisitions aimed to enhance offerings in sectors such as banking, financial services, and insurance, healthcare, life sciences, educational technology, and learning solutions.

Other income is anticipated to reduce on account of a reduction in interest income which jumped by over 300 percent to over Rs 85 crore.