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    Happiest Mind Technologies: Investment Summary

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    Adesh Kyal
    Happiest Minds technologies is an IT services company that has shown strong growth despite macroeconomic headwinds, driven primarily by its EdTech business. It is well positioned for continued growth as companies accelerate digital transformations. While the IT industry is expected to grow at a moderate pace overall, Happiest Minds is forecasted to grow revenues over 20% annually through focus on digital services and potential M&A activity. The company trades at a discount to its estimated fair value based on long-term growth potential and represents an attractive investment opportunity.

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    Happiest Mind Technologies: Investment Summary

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    Adesh Kyal
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    Happiest Minds technologies is an IT services company that has shown strong growth despite macroeconomic headwinds, driven primarily by its EdTech business. It is well positioned for continued growth as companies accelerate digital transformations. While the IT industry is expected to grow at a moderate pace overall, Happiest Minds is forecasted to grow revenues over 20% annually through focus on digital services and potential M&A activity. The company trades at a discount to its estimated fair value based on long-term growth potential and represents an attractive investment opportunity.

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    HM

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    Happiest Minds technologies is an IT services company that has shown strong growth despite macroeconomic headwinds, driven primarily by its EdTech business. It is well positioned for continued growth as companies accelerate digital transformations. While the IT industry is expected to grow at a moderate pace overall, Happiest Minds is forecasted to grow revenues over 20% annually through focus on digital services and potential M&A activity. The company trades at a discount to its estimated fair value based on long-term growth potential and represents an attractive investment opportunity.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views2 pages

    Happiest Mind Technologies: Investment Summary

    Uploaded by

    Adesh Kyal
    Happiest Minds technologies is an IT services company that has shown strong growth despite macroeconomic headwinds, driven primarily by its EdTech business. It is well positioned for continued growth as companies accelerate digital transformations. While the IT industry is expected to grow at a moderate pace overall, Happiest Minds is forecasted to grow revenues over 20% annually through focus on digital services and potential M&A activity. The company trades at a discount to its estimated fair value based on long-term growth potential and represents an attractive investment opportunity.

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    Happiest Mind technologies

    Investment Summary
    Happiest minds has shown signs of better growth among its peers despite tough macro
    conditions, with EdTech sector being the major revenue driver, forward looking demand
    indicators looks strong with employee addition and a strong project pipeline. With corporates
    going through digital transformation working as a strong tailwind for the industry and Happiest
    Minds having most of its revenue from this segment only is perfectly placed to capitalize on.
    Company is also on the verge of closing potential M&A deals.

    Industry Outlook Digital services growth trend


    Happiest Minds is a mid-sized IT services company.
    IT sector in India grew by 11% last fiscal year; however,
    90%
    it is expected to grow at 6% for the current fiscal year
    with a growth outlook of around 10% for the medium 70%
    term. 60%
    Demand is expected to pick from post FY 24 in lines 40%
    with long term growth story of IT services. 10% 30%
    Apart from the revenue from offshore IT services
    demand will also be driven by domestic needs with 2015 2020 2025
    government pushing for digital initiatives and Traditional Digital
    increasing digitization and cloud adoption of Indian
    companies. Demand for digital solutions has been one
    of the driving factors in recent times.( CAGR~20%)
    Despite unfavorable economic factors all major players are closing record deals which shows
    the medium to long term story of IT is still in place.
    With technological advances happening regularly, companies today can’t afford to be left
    behind, hence we are also seeing an increase in spending of technologies like AI and cloud
    computing.
    Therefore, Global IT spending is expected to top $5 trillion for the first time this year
    BFSI and health care segments to be biggest growth drivers for the Industry. 3777
    R 3148
    Company Analysis C AG
    2623
    24%
    About the company 2098
    1652
    Happiest Minds is a next-generation digital 1333
    1034
    transformation, infrastructure, security and product
    engineering services(PES) company providing end-to-
    end digital lifecycle solutions to 244 active clients.
    FY22 FY23 FY24E FY25E FY26E FY27E FY28E
    • High offshores revenue ensures scalability considering huge Indian talent pool.
    • Diversified across geography and sectors minimizing concentration risk.
    • Continuous effort to explore inorganic growth, Acquired SMI and Copula and in talks
    with 3 companies .
    Financials
    Company is expected to grow at 22-24% this fiscal
    year, with growth hitting up to 27-28% in next fiscal
    year.
    Potential M&As and high demand from edtech
    services( 12% up) along with new demand generated
    from health sector will drive revenue growth.
    HM getting advantage of smaller base it should
    sustain high growth phase for a greater no. of years,
    helping it to achieve a revenue of $ 1 billion within
    next 10 years.
    HM has been able to stabilize it’s EBITDA margin at 24% which is 2% better than most of its peers.
    HM has been able to generated highest revenue and employee count growth among it’s peers
    this fiscal year.
    Valuation
    A DCF is performed to understand the value of the
    company.
    For DCF the revenue growth assumptions is based on the
    industry outlook and growth, HM’s guidance and
    expansion plans and company’s past record on execution.
    As IT services industry is not much capital intensive,
    therefore for Depreciation we have assumed the margins
    according to industry standards.
    HM currently is trading below its fair value with upside of
    around 30%

    Investment thesis
    HM generates most of its revenue from digital solutions which is growing rapidly under IT services.
    ( 95% revenue comes from digital solutions vs 40-60% for its peers).
    With great diversification across different geographies and sectors company has managed risk well
    and poised to grab opportunities while scaling up, with management having previous experience of
    doing the same at LTI Mindtree.
    Modular solutions technique has also helped the company to scale up much efficiently while maintain
    a client retention of around 90% vs a 75-80% of industry average.
    Strong Industrial tailwinds combined with companies deal pipeline and execution history gives
    confidence of a very strong growth for next 5-6 years.
    HM is current trading at a forward PE multiple of 50x compared to it’s last two-year avg of 64x, it’s
    high valuation can be factored due to its high growth.
    DCF model captures the company’s long-term growth potential given the management vision to reach
    US$1bn in revenues by FY 2031 and smaller base size compared to peers.
    That gives us a TP of 11550with upside of about 37%.
    Risks
    Longer than expected global macro slow down cycle extending beyond FY24.
    Management’s inability to scale up as per the demand across various sectors.
    Potential M&A deals not closing or not driving growth successfully.
    Some services like PES is discretionary in nature which could impact revenue in case of budget cuts.

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