Happiest Minds IPO Financial Analysis (Subscribe for Long Term)

Happiest Minds Technologies IPO Key Highlights

Strong brand in digital IT services
High revenues from customer accounts which include high proportion of repeat revenues.
Ashok Soota, the promoter has several years of experience in IT industry.
Strong research and development capabilities.
Exposure to “Edutech” and “high tech” verticals which have grown during the pandemic.
Global organisations like Globant, EPAM and Endava have 100% of their revenues derived from digital services. Amongst the Indian IT firms, Happiest Minds' digital IT revenues as a proportion of overall revenues is highest at 97% as of March 31, 2020 as compared to leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra.

Challenges

78% of revenues are generated from US clients; too much geographic concentration may affect its revenues negatively.
Inability to retain experienced and skilled IT professionals.
Delivering a track record of sustainable growth in profits in subsequent years appears as a key challenge.

Happiest Mind IPO Size

Happiest Minds aims to raise 4.23 crore equity shares amounting toaround Rs 702 crore via public issue, at higher end of the price band. The IPO opens on 7^th Sept and closes on 9^th Sept. The allotment date is 14^th Sept.

IPO share offering

Fresh Issue: Fresh Issue ofequity shares amounting to Rs 110 crore.

Offer for sale: Offer for sale of equity shares of upto 3.56 crore equity shares which includes 84 lakh shares held by promoter Ashok Soota and 2.72 crore equity shard held by private equity Fund CMDB II managed by JP Morgan Investment management Inc.

Price band: Rs 165-Rs 166 per equity share.

Minimum bid- Bids for the IPO can be made for a minimum of 90 Equity shares and in multiples of 90 equity shares thereafter.

Book running lead managers- ICICI securities limited and Nomura Financial Advisory and Securities Pvt. Ltd.

Registrar to the offer- KFin Technologies Pvt. Ltd.

About the company

Incorporated in 2011, Happiest Minds, positioned as “Born Digital, Born Agile” is an IT service provider that offers various digital services to customers. The key aim of the firm is to deliver customer-centric digital solutions to achieve its mission of “Happiest People, Happiest Customers”.

Happiest Minds is primarily engaged in 3 key business segments;

Digital Business Service (DBS); DBS unit works to drive digital modernization and transformation and innovative digital solution
Product Engineering Service (PES);PES BU focuses on capitalizing digital transformation potential.
Infrastructure Management and Security Service (IMSS); IMSS unit aims to offer end-to-end monitoring and management services

All of these business segments are supported by three Centre of Excellence (CoE):

Internet of Things
Artificial Intelligence
Digital Process Automation

Apart from this, the business further offers various digital technologies such as Robotic Process Automation (RPA), Software-Defined Networking (SDN), Big Data and Advanced Analytics, cloud, Business Process Management (BPM), and others. The firm serves various industries i.e. BFSI, manufacturing, travel, media and entertainment, automotive, retail, engineering R&D, and many others.

The business has a worldwide presence with operations across countries i.e. US, UK, Australia, Canada, and the Middle East.

Currently, it has 157 active customer base, among which, major customers are based in the US. In 2019, it was ranked as India’s Top 25 Best Workplaces for Women and also won Great Place to Work Certification.

Happiest Minds IPO Objective

The net proceeds from the IPO issuance will be used for the following purposes;

To satisfy general working capital requirements of the business
To meet general corporate purposes of the business

Financial Review/Financial Performance

Total revenue for FY20 has increased by 19% to Rs 714.23 crore from Rs 601.81 crore in FY19. Profit after tax has increased to Rs 60.53 crore attributable to increased revenue (19% inc.) and fall in interest cost by 50%. The cost decreased due to loss on fair market value adjustment on compulsory convertible preference shares and (ii) interest expense on borrowings as a result of a decrease in rate of borrowings.

Gross profit margins show an increasing trend with margins of 15.84% and 11.01% in FY 20 and FY 19 respectively. Net profit margins have jumped to 8.47% in FY20 from 2.88% in FY19.

Happiest Minds posted Rs 186.9 crore as total revenues for Q1FY21. PAT for the quarter increased significantly to Rs 54.51 crore mainly because of rise in other income during the quarter and reduction in rental cost due to work from home in the current covid situation.

In the virtual analyst meet, it was highlighted that 76% of its business has not been affected by the pandemic as its exposure to travel and hospitality is limited.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	Q1FY21	FY2020	FY2019	FY2018
Total Revenue	186.9	714.23	601.81	489.12
PAT	54.51	60.53	17.36	(25.22)
EBITDA	47.82	113.12	66.28	7.62
Total Accets	573.08	508.15	413.52	386.99
Gross profit margin (%)	25.59	15.84	11.01	1.56
Net profit margin (%)	29.17	8.47	2.88	(5.16)

Conclusion

Happiest Minds has good business prospects as e-commerce and digital service providers are seen as growing sectors. The sector has shown growth even during the pandemic. However, one should be mindful of the fact that the financial performance of the Company is not consistent over the last three years. Furthermore, in the latest quarter ended on June 30, 2020, the Company has reported a sudden surge in its profits and margins. Also, there is a pledge on promoter's shares amounting to Rs 40 crores.

Hence looking at the above factors investors may subscribe for the long term but they should be watchful of Happiest Minds financial performance. Since there are few more IPOs lined up in the coming period, those Investors who have limited resources may look for better opportunities.

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 2nd Sep 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.