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Yes Securities Report
Happiest Minds Technologies Ltd. reported muted financial performance for the quarter. Both, the sequential revenue growth and Ebit margin were below estimates. It reported constant currency growth of 0.8% QoQ (up 9.4% QoQ in USD terms, up 0.8% QoQ in Indian rupee terms), led by manufacturing vertical (up 18.4% QoQ).
There was sequential decline in Ebit margin (down 61 bps QoQ) led by impact of wage hike in the quarter.
Employee attrition continues to decline as last twelve months attrition decreased by 30 bps QoQ to 14.1%. Digital accounts for 96.2% of revenue as of Q3 FY24 versus 95.3% as of Q2 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. Happiest Minds' management has guided for organic revenue growth of 12% in constant currency terms for FY24 with Ebitda margin band of 22-24%.
Falling employee attrition is expected to support operating margin going ahead.
We estimate revenue CAGR of 22.0% over FY23‐26E with average Ebit margin of 20.8%.
We maintain our 'Buy' rating on the stock with revised target price of Rs 1,080/share based on discounted cash flow methodology. The stock trades at price-to-earnings ratio of 36.4 times/30.0 times on FY25E/FY26E EPS.
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