Motilal Oswal Securities granted the ‘Subscribe’ rating to the IPO of Happiest Minds Technologies which opened today on Monday. Happiest Mind Technologies Ltd (HMTL) is one of the leading next-generation digital transformation companies, focused on delivering a seamless digital experience to its customers. “At the upper end of the price band, the issuance is valued at 29 times FY20 P / E (fully diluted), which is comparable to larger midsize IT companies,” the brokerage said. Motilal Oswal Securities likes the company for three main reasons: strong presence in digital services, scalable business model with end-to-end capabilities, and rapidly improving financial performance.
The brokerage firm is optimistic about the bright outlook for post-covid IT companies. “Considering further market conditions and bright prospects for post-Covid IT companies, trading gains can also be made,” the broker said.
The Happiest Minds Technologies IPO will close on September 9. The offer price band has been set at ₹165 to ₹166 per share of capital.
These are the key points of the Motilal Oswal Securities report on Happier minds IPO technologies:
Strong brand in digital IT services: HMTL derives 97% of its revenue from digital IT services by offering services such as cloud, SaaS, security, analytics and IoT, compared to 30-50% from traditional IT services in India. It serves multiple business verticals, of which the largest contribution comes from Edutech (21% in FY20), Hitech (21%), BFSI (18%) and TME (Travel, Media & Ent; 17%). High Revenue Client Accounts for HMTL increased 1.6x to 25 (148 Total Clients) during FY 2018-20, with a high proportion of repeat revenue and mature market revenue.
Scalable business model with multiple drivers of constant growth: Happiest Minds Technologies has expanded its business model across business verticals, functions, and geographies. This is well reflected in the improved billing rates for customers onshore and abroad at a CAGR of 1% / 3% (FY18-20). Even average revenue / active customer has grown at 14% CAGR during the 2018-20 fiscal year.
Improving finances: During Fiscal Year 18-20, HMTL’s revenues grew at a CAGR of 23% to ₹7bn, while it remained stable during the first quarter of fiscal year 21. Its EBITDA margin improved from -4% in FY18 to 13.9% in FY20 and 21.4% in Q1FY21. His adjusted PAT improved from the loss of ₹225mn in FY18 to Rs830mn in FY20. For Q1FY21, it stood at ₹502mn. The FCF / PAT conversation remained high at 134% in FY20 while RoE / RoCE was healthy at 31% / 26%.
Issue size: the ₹The 7 billion IPO consists of a new issuance of ₹1,100 million and OFS (8.4 million shares per promoter and 27.2 million shares per investor – CMDB II) of ₹5.9bn, which would translate into a reduction in the promoter’s stake from 61.8% before the IPO to 53.3% after the IPO. The funds raised from a new issuance will be used to meet long-term working capital requirements ( ₹1bn) and balance by general corporate purpose.
.
