Happiest Minds Q4 Review - Muted Financial Performance; Acquisitions To Drive FY25 Revenue Growth: Centrum

Centrum Broking Report

Happiest Minds Technologies Ltd.’s performance for the quarter was slightly below estimates. Reported revenue of Rs 4.2 billion ( up 1.8% QoQ in Indian rupee terms, up 1.4% QoQ in USD terms). The sequential growth was led by IMSS( up 3.5% QoQ) and DBS( up 3.1% QoQ).

Digital revenue increased to 96.8% of revenue vs 96.2% in Q3 FY24. Ebit margin increased by 25 bps QoQ to 16.4% led by control on direct cost (higher offshore revenue mix). Offshore revenue mix increased by 100 bps QoQ to 87.2%. Added five customers QoQ to reach 250 customers versus addition of one customer in Q3 FY24. Headcount was down 78 QoQ to 5,168 employees. Attrition was down 90 bps QoQ to 13.1%. Utilization was down 160 bps QoQ to 75.1%.

The near term demand environment remains challenging led by slowdown in discretionary tech spending. It has guided for 35% to 40% revenue growth for FY25 that includes significant inorganic component on account of two recently announced acquisitions, Macmillan Learning India and Puresoft Technologies.

We expect revenue/Ebitda/profit after tax to grow at 26.5%/31.4%/34.5% over FY24-FY26E. We have revised up our FY25E/FY26E EPS by +0.1%/+4.5%.

We maintain Add rating on the stock with revised target price of Rs 878/share (versus Rs 908 earlier) at PE of 31 times on FY26E. We have reduced target price-to-earning multiple from 33.0 times to 31.0 times to account for weak outlook for FY25E.

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