The Initial Public Offering (IPO) of Happiest Minds Technologies opened for subscription today, as promoter Ashok Soota looks to raise funds to meet the long term working capital requirements. Ashok Soota also plans to sell part of his stake. The Rs 700 crore issue will include an offer for sale for 35.66 million shares and a fresh issue of 6.6 million shares. The company, Happiest Minds Technologies, will only receive funds from the OFS, which translates to Rs 110 crore. Happiest Minds IPO will close for subscription on September 9.
What makes it an attractive bet?
“Happiest minds Technologies is a strong brand in the digital IT services space. Company derives 97% of its revenue from digital services while compared to 50% by its closest midcap peer,” said Vinod Nair, Head of Research at Geojit Financial Services. The customer base of Happiest Minds consists of more than 35 Fortune 2000/Forbes 200 corporations, and repeat customers contributed around 90% of the revenue. Between financial year 2018-2020, the IT services firm reported a 22.8% CAGR rise in consolidated revenue. The company had a positive operating cash flow over FY18-20, which increased by 229.4% CAGR to Rs 112 crore in the last fiscal year.
According to Choice Broking, at the end of June this year, Happiest Minds had 148 active customers. “Over the years and currently during the ongoing outbreak of Covid19, the company has successfully implemented its business continuity plans including to achieve efficient work-from-home practices to ensure connectivity across the enterprise,” the brokerage firm said in a note. The company management said that 76% of the business was not impacted by Covid 19 pandemic.
Digital Spending increase
Analysts have been predicting that in the aftermath of the pandemic, companies across the globe will look to speed up the upgradation of their digital infrastructure. “The global enterprise digital spend is expected to be ~US$691 billion in 2019 and is expected to grow to US$2,083 billion by 2025 at a CAGR of 20.19%,” said ICICI Direct. With 97% of its revenue coming in from the digital services segment, Happiest Minds is well positioned to capitalize on this.
Business division
Happiest Minds has three business segments; Product Engineering Services which, analysts estimate, is 51% of their revenue; Digital Business Solutions, which accounts for 27% of the revenue and Infrastructure Mgmt. & Security Services which generates 22% of the revenue.
Key risks
The biggest risk aligned with the company stems from the spread of the coronavirus and the uncertainty surrounding it. “The company’s revenues are highly dependent on a limited number of industry verticals. Any decline in demand for outsourced services in these industry verticals could reduce revenues,” said ICICI Direct. Additionally the brokerage believes that Happiest Minds’ lack of having long-term commitments with customers could hit the business.
Valuations
Considering FY20 adjusted EPS of Rs6.2, the price band implies a P/E ratio of 26.6X, comparable to its larger mid-cap peers such as LTI, Mindtree and NIIT Tech, said IIFL Securities. “If we annualize the Q1FY21 numbers and based on the EPS P/E works out to be 12x which is attractive compared to global as well as domestic peers,” Vinod Nair added while recommending investors to subscribe with a long-term view:
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