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Yes Securities Report
Happiest Minds Ltd.'s reported slight miss on financial performance for the quarter. Both, the sequential revenue growth and Ebit margin were below estimates.
It reported constant currency growth of 3.6% QoQ (up 3.4% QoQ in U.S. dollar terms, up 4.0% QoQ in rupee terms), led by Edutech vertical (up 7.9% QoQ). There was sequential decline in Ebit margin(down 247 basis points QoQ) led by impact of wage hike in the quarter.
Employee attrition continues to decline as last twelve months attrition decreased by 220 bps QoQ to 14.4%. Digital accounts for 95.3% of revenue as of Q2 FY2024 versus 95.1% as of Q1 FY24.
The near term demand environment remains challenging as the clients especially in select sectors remain cautious regarding the evolving macroeconomic situation and it has led to near term moderation in revenue growth.
The deal pipeline remains strong and it supports revenue growth visibility. Management has guided for organic revenue growth of 12% in constant currency terms for FY2024 with Ebitda margin band of 22-24%. Falling employee attrition is expected to support operating margin going ahead.
We estimate revenue compound annual growth rate of 19.6% over FY23‐25E with average Ebit margin of 20.5%.
We maintain our 'Buy' rating on the stock with revised target price of Rs 1,100/ share based on discounted cash flow methodology. The stock trades at price-to-earnings ratio of 45.6 times/33.9 times on FY24E/FY25E earning per share.
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