1
Please refer to important disclosures at the end of this report
1
1
Happiest mind is a small sized IT services company promoted by Mr. Ashok
Soota who was one of the founding members of Mindtree Ltd. Happiest Mind
is uniquely positioned as derived 96.6% of its revenues in FY2020 from
digital services that are expected to be the fastest growing segment in the IT
sector. The company has been positioned as “Born Digital. Born Agile” and
focuses on delivering a seamless digital experience to its customers. The
company’s offerings include digital business, product engineering,
infrastructure management and security services among others. We believe
that strong presence across digital technologies will help the company to
grow at a faster rate as compared to the Industry.
Strong presence in digital technologies to drive growth for the company: In
FY2020, 96.9% of company’s revenues came from digital services and is
amongst the highest Indian IT companies. The company is divided into three
business units’ viz. 1) Digital Business processing 2) Product Engineering Services
and 3) Infrastructure management and security services. A frost & Sullivan Report
projects that digital spend is expected to grow at a CAGR of 20.2% from USD
69,100 crore in 2019 to 2,08,300 crore by 2025 and will account for 35% of
total digital IT spend with legacy services making up for the balance 65%.
Strong promoter background and client relationship also provides comfort:
Happiest Mind Ltd. is founded by Mr. Ashok Soota who is also the Executive
Chairman and Director of the company. Before founding Happiest Mind in 2011,
Mr Soota was one of the founding members of Mindtree Ltd prior to which he was
also the vice chairman of Wipro Ltd. The company had 148 active customers as
of Q1FY2021 with the share of repeat business growing consistently over the year
to account for a significant portion of revenues indicating a high degree of
customer stickiness.
Outlook & Valuation: At upper price band, it is offered at 23.6x FY2020 EPS,
demanding market cap of `2,438cr, which is at a slight premium to few of the
smaller sized IT companies. Considering the very high exposure to digital services
and strong promoter background, we expect that the company will continue to
grow at a faster pace as compared to similar sized companies and therefore
should command a premium valuation to peer group. We would therefore
recommend investors to SUBSCRIBE to the IPO.
Key Financials
FY18
FY19
FY20
462.9
590.4
698.2
-
27.5
18.3
3.8
14.3
71.8
-
277.0
402.2
1.7
11.2
16.2
(3.1)
1.9
7.0
N.A
87.8
23.6
(2.9)
(7.5)
2.7
N.A
N.A
28.9
N.A
N.A
27.1
N.A
6.6
4.5
0.7
0.7
0.7
(109.0)
(67.3)
264.2
Source: Company, Angel Research, valaution done at upper end
SUBSCRIBE
Issue Open: September 7, 2020
Issue Close: September 9, 2020
Of f e r f o r s a le : ` 5 9 2 c r * *
In s tit u t io n a l In v e s to rs 75%
No n -In s t itu tio n a l 15%
R e t a il 10%
P r o m o t e r s 5 3 .3 %
Oth e rs 4 6 .7 %
P o s t Is s u e S h a r e h o ld in g P a t t e r n
Is s u e s iz e ( a m o u n t ) : ` 7 0 2 c r**
P r ic e B a n d : ` 1 6 5 -1 6 6
L o t S iz e : 9 0 s h a re s a n d in m u lt ip le
th e r e a f te r
P o s t- is s u e im p lie d mk t. c a p : ` 2 , 4 2 4 c r *
- ` 2 4 3 8 c r **
P r o m o t e r s h o ld in g P re -Is s u e : 6 1 .7 %
P r o m o t e r s h o ld in g P os t-Is s u e : 53.3 %
*C a l c u l a te d o n lo w e r p r ic e b a n d
** C a lc u la te d o n u p p e r p r ic e b a n d
B o o k B u ild in g
Yash Gupta
+022 39357600, Extn: 6872
Research Analyst
[email protected]
Happiest Minds Technologies Ltd
IPO Note | IT
September 05, 2020
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Happiest Minds Technologies Ltd | IPO Note
September 05, 2020
2
Company Background
Happiest Minds Technologies Limited (“Happiest Minds”) incorporated on March
30, 2011, Promoted by Ashok Soota and Positioned as “Born Digital. Born Agile”.
Ashok Soota is the Promoter, Executive Chairman and Director of the company. He
was the Founding Chairman and Managing Director of Mindtree Ltd and the vice
chairman of Wipro Ltd. He has several decades of experience in the information
technology industry. Company offerings are digital business, product engineering,
infrastructure management and security services focuses on delivering a seamless
digital experience to its customers. Its capabilities provide end-to-end solution in
the digital space.
Key Highlights of Happiest Minds Technologies Ltd
Positioned as “Born Digital. Born Agile” Happiest Minds Technologies Limited
(“Happiest Minds”) focuses on delivering a seamless digital experience to its
customers.
In financial year 2020, 96.9% of company’s revenues came from digital
services. This is one of the highest among Indian IT companies.
It also offer solutions across the spectrum of various digital technologies such
as Robotic Process Automation (RPA), Software-Defined Networking/Network
Function Virtualization (SDN/NFV), Big Data and advanced analytics, Internet
of Things (IoT), cloud, Business Process Management (BPM) and security.
The Frost & Sullivan Report estimates the global digital services market of USD
691 billion in 2019 to grow at a CAGR of 20.2% to USD 2,083 billion by
2025.
The Frost & Sullivan Report notes that the legacy IT market as a percentage of
total technology spend is estimated to decline from 85.7% share in 2019 to
65% share by 2025, with digital spend making up the remaining 35% share
by then.
Company had 148 active customers. Its repeat business (92 % of FY20
revenue from existing customers) has steadily grown and contributed a
significant portion of its revenue from contracts with customers over the years
indicating a high degree of customer stickiness.
Revenue Mix
The United States which has the majority market share of global technology
spend (Source: Frost & Sullivan Report) historically has contributed a majority of
our revenues. Revenue from USA has increased from 73.5% in FY18 to 77.5%
FY20, in the following exhibit sets out the proportion of our revenue from contract
with customers based on the location of the external customer.
Exhibit 1: Geography wise revenue mix
Location
FY 18
FY 19
FY 20
USA
73.50%
75.50%
77.50%
India
11.70%
11.90%
11.90%
UK
11.40%
9.50%
7.20%
Others
3.40%
3.10%
3.40%
Source: DRHP, Angel Research
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End-to-End capabilities
End-to-End capabilities spanning the digital lifecycle from roadmap to deployment
and maintenance. Core competency is full lifecycle software development services
including design and prototyping, product development and testing, component
design and integration, product deployment, performance tuning, porting, cross-
platform migration and ongoing support. Company multiple BUs also help us
cross-sell our solutions and services to existing customers. We help our customers
to prepare a digital roadmap for the transformation or upgrading their existing IT
systems and implementing SaaS platforms. The company is divided into three
business units viz. 1) Digital Business processing 2) Product Engineering Services
and 3) Infrastructure management and security services.
Exhibit 2: Revenue from contracts & customers
Particular
FY 18
FY 19
FY 20
Infrastructure Management &Security Services
98.6
129.4
153.6
Digital Business Solutions
154.0
180.9
191.7
Product Engineering Services
210.2
280.0
352.9
Total revenue
462.8
590.4
698.2
Source: DRHP, Angel Research
Business Update: Covid-19
The Indian IT sector was quick to respond to the COVID-19 crisis, ensuring a
business continuity through establishing effective work-from-home policies
during the national lockdown.
Economic slowdown is inevitable given the outbreak of COVID-19. Many
companies, globally, will be forced to cut costs and put non-essential spending
on hold. IT projects and spending will be pushed to the next few quarters and
many ongoing projects will be delayed until the economy recovers or at least,
until the widespread lockdown is lifted
Company is engaged in the business of providing IT services including digital
solutions, around product engineering, cloud, analytics, automation,
infrastructure management, security, automated testing, etc. to enterprises
across the world.
Risk
Promoter Pledge – Promoter having total pledge of 4.2 cr shares, which is
48.5% of pre IPO promoter holding.
Fluctuations in in Net Profit of last 3 years, in FY2018 Company clock negative
profit after tax of `22.44 cr. In Last couple of Years Company getting benefit
of deferred tax assets, this will not be sustainable in future.
Q1FY21 EBITDA margins not sustainable in nature, company clock 27.1%
EBITDA margins in Q1FY21 due to decrease in employee cost and other
expenses.
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Issue Details
Happiest Minds is raising `110cr through fresh issue & Offer For Sale of `592cr
(3,56,63,585 shares), price band of `165-166.
Exhibit 3: Pre & Post Shareholding
(Pre-issue)
(Post-issue)
Particular
No of shares
%
No of shares
%
Promoter
8,66,26,176
61.77%
7,82,26,380
53.3%
Public
4,79,09,567
34.16%
6,29,63,054
42.9%
Other
57,01,307
4.07%
55,82,352
3.8%
Total
14,02,37,050
100.00%
14,69,04,000
100.00%
Objects of the offer
Fresh Issue of `110cr to meet long-term working capital requirement of the
company and general corporate purpose.
Offer for sale from promoter and CMBD II of `592cr.
Key Management Personnel
Ashok Soota is the Executive Chairman and Director of Happiest Minds. Prior to
founding Happiest Minds , He was the Founding Chairman and Managing
Director of Mindtree Limited, a company that completed a successful IPO during
his tenure. He was the vice chairman of Wipro Limited and senior vice president
of Shriram Refrigeration Industries Limited prior to co-founding MindTree Limited.
Venkatraman Narayanan is the Executive Director and Chief Financial Officer of
our Company. He is a fellow of the Institute of Chartered Acountants of India,
New Delhi. He has been associated with our Company since April 23, 2015 and
has over 25 years of experience in the area of finance and accounts.
Avneet Singh Kochar is a Non-Executive Director of our Company. He holds a
bachelors’ degree in commerce from Shri Ram College of Commerce and a
masters’ degree in business administration from the College of William and Mary
in Virginia. He is a chartered financial analyst with the CFA Institute.
Anita Ramachandran is an Additional Director (Independent) of our Company.
She has been associated with our Company since June 4, 2020 and has over 35
years of experience as a management consultant.
Rajendra Kumar Srivastava is an Additional Director (Independent) of Company.
He holds a bachelors degree in mechanical engineering from Indian Institute of
Technology, Kanpur, a master’s degree in industrial engineering from University
of Rhode Island, a masters degree in business administratation and a doctorate in
philosophy from the University of Pittsburgh.
Shubha Rao Mayya is an Additional Director (Independent) of our Company. She
holds a bachelor’s degree in commerce from University of Mumbai and is an
associate of the Institute of Chartered Accountants of India, New Delhi.
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Income Statement
Y/E March (`cr)
FY18
FY19
FY20
Total operating income
462.9
590.4
698.2
% chg
-
27.5
18.3
Total Expenditure
481.5
535.5
601.0
Employee Benefit Expense
356.9
385.1
441.2
Other Expenses
124.6
150.4
159.8
EBITDA
-18.6
54.9
97.2
% chg
-
-
77.0
(% of Net Sales)
-4.0
9.3
13.9
Depreciation& Amortisation
20.8
24.8
20.2
EBIT
-39.3
30.1
76.9
% chg
-
-
155.4
(% of Net Sales)
-8.5
5.1
11.0
Interest & other Charges
10.0
15.9
8.0
Other Income
26.2
11.5
16.0
(% of Sales)
5.7
1.9
2.3
Exceptional Items - Impairment of goodwill
0
12.58
11.28
Recurring PBT
-23.1
13.1
73.7
% chg
-
-
464.0
(% of Net Sales)
-5.0
2.2
10.5
Tax
-0.6
-1.2
1.9
PAT (reported)
-22.4
14.3
71.8
% chg
-
-
402.2
(% of Net Sales)
-4.8
2.4
10.3
EPS (as stated)
-3.13
1.89
7.04
% chg
-
-
272.5
Source: Company, DRHP
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Balance Sheet
Y/E March (`cr)
FY18
FY19
FY20
SOURCES OF FUNDS
Equity Share Capital
3.8
6.0
8.8
Other equity ( Includes Preference shares)
-112.6
-72.0
256.5
Shareholders Funds
-108.9
-66.1
265.3
Total Loans
58.0
38.1
18.6
Other liabities
8.1
9.4
12.6
Total Liabilities
-42.8
-18.5
296.5
APPLICATION OF FUNDS
Net Block
95.0
61.1
37.8
Current Assets
277.9
334.0
445.1
Sundry Debtors
94.4
129.3
114.9
Cash &Bank Balance
27.9
97.2
235.3
Investments
138.6
98.2
83.4
Other Assets
17.0
9.4
11.6
Current liabilities
429.8
432.0
211.7
Net Current Assets
-151.9
-98.0
233.5
Other Non Current Asset
14.1
18.4
25.2
Total Assets
-42.8
-18.5
296.5
Source: Company, DRHP
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Cash Flow Statement
Y/E March (`cr)
FY18
FY19
FY20
Profit before tax
(23.1)
13.0
73.6
Depreciation
20.8
24.7
20.2
Change in Working Capital
(15.9)
(39.6)
18.3
Interest Expense
8.6
5.6
7.6
Direct Tax Paid
0.2
(3.4)
(6.1)
Others
5.0
42.1
11.0
Cash Flow from Operations
10.3
57.6
112.2
(Inc.)/ Dec. in Fixed Assets
(1.1)
(0.8)
(0.5)
Net sale of Investment
0.7
1.8
3.8
Others
(25.0)
(1.0)
(77.1)
Cash Flow from Investing
(26.9)
(0.3)
(73.7)
Interest paid
(5.2)
(5.5)
(4.1)
Borrowings
10.6
(38.6)
(2.8)
Dividend paid on equity shares
(4.8)
(5.7)
(3.3)
Others
4.1
(1.6)
4.4
Cash Flow from Financing
26.3
(58.8)
(13.3)
Inc./(Dec.) in Cash
9.8
(1.5)
25.1
Opening Cash balances
7.0
16.5
16.3
Closing Cash balances
16.5
16.3
43.5
Source: Company, DRHP
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Key Ratios
Y/E March
FY18
FY19
FY20
Valuation Ratio (x)
P/E (on FDEPS)
-
87.8
23.6
P/CEPS
-
13.1
7.9
P/BV
-
-
2.7
EV/Sales
0.7
0.7
0.7
EV/EBITDA
44.6
6.6
4.5
Per Share Data (Rs)
EPS (as stated)
(3.13)
1.89
7.04
EPS (fully diluted as stated)
(3.13)
1.16
5.36
Cash EPS
(1.2)
12.7
21.0
Book Value
(58.1)
(22.1)
60.4
DPS
-
-
-
Returns (%)
ROE
-
-
28.9
ROCE
-
-
27.1
Turnover ratios (x)
Asset Turnover (net)
11.5
27.5
90.1
Receivables (days)
74.4
79.9
60.1
Payables (days)
19.7
17.8
18.0
Working capital cycle (days)
54.7
62.1
42.1
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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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