ITC sets stage for its third listed firm, larger IT play with Happiest Minds merger

Bengaluru/Mumbai: Cigarette-to-salt conglomerate ITC Ltd is looking to place its information technology arm, ITC Infotech, in the country’s billion-dollar IT club. The company's acquisition and merger with Happiest Minds Technologies Ltd will create a ₹7,000-crore IT services company, adding scale and stronger artificial intelligence (AI) capabilities.

On Monday, ITC's wholly-owned subsidiary announced acquisition of listed company, Happiest Minds Technologies, wherein it will pick up a 22.1% stake in the firm from founder Ashok Soota for ₹1,330 crore. It will then merge with Happiest Minds, giving shareholders 25 ITC Infotech shares for every 81 Happiest Minds shares they own.

The result would be a ₹7,000-crore revenue, 19,000-employee IT company, in which ITC Ltd will control a 73.4% stake, becoming its promoter. The transaction could potentially create the third listed ITC company following the demerger of ITC Hotels Ltd into a separately listed firm in early 2025.

“Happiest Minds shareholders would’ve been happier if they got a 15-20% premium to the existing share prices,” said Amit Chandra, vice-president at HDFC Securities. “This deal is not all that happening from a margins perspective because they are similar for both companies. The good part is that both companies have expertise in different business lines,” he added.

The deal marks Soota’s second exit as an IT company founder after his previous company Mindtree Ltd was acquired by L&T in a hostile takeover in 2019. Soota and his family will continue to hold about 22.1% stake in Happiest Minds post the ITC acquisition, giving them a significant minority stake.

Shares of Happiest Minds Technologies fell 0.2% on the BSE on Monday to close at ₹407.15. While the deal was announced post trading hours, speculation on the potential acquisition had been rife for the better part of a year now since Soota first explored a stake sale.

ITC’s acquisition of the small IT firm comes at a time when AI has cast a shadow on the future of the country’s $300 billion IT sector, as clients look to shrink their outsourcing bills by deploying AI agents. Shares of Happiest Minds itself have corrected by over 10% this fiscal year despite recent investor interest in the scrip amid acquisition rumours.

“In the AI era, large IT services firms are getting bolt-on acquisitions, to address capability white spaces, while midcapIT is focussing on scale and geo/vertical diversification. The proposed merger is a step in that direction,” said Sushovon Nayak, lead IT analyst at Anand Rathi Institutional Equities. “This is more of a reverse merger where ITC Infotech will combine with happiest minds and the combined entity will list on the stock exchanges, tentatively in 12-15 months.”

He said that the "implied equity value is ₹18,100 crore or around ~$1.9 billion, which is ~2.5-2.6x times the revenue of the combined entity. Fairly valued if you look at Happiest Minds and their performance over the last few years."

Happiest Minds management said the company aims to touch the $1 billion annual revenue mark by March 2028. For now, the combined entity will be the country’s thirteenth-largest tech services firm, below Sonata Software and Firstsource Solutions, both of which have breached the billion-dollar mark.

Of the combined ₹7,000 crore topline of the merged entity, as per FY26 financials, ITC Infotech accounted for ₹4,700 crore, while the rest came from Happiest Minds.

In terms of profit, the larger company reported ₹510 crore in adjusted profit after tax during the year compared to ₹213 crore for the latter.

The implied equity value of the merged entity from the per-share price paid to Soota and the share swap ratio was ₹18,100 crore, Nayak said. This translates to 2.4 times the revenue of the combined entity, which was “fairly valued if you look at Happiest Minds and their performance over the last few years.”

Complementary strengths

The two companies bring different strengths to the table.

Happiest Minds, although smaller, has made more headway into AI and has a larger presence in the banking, financial services and insurance (BFSI) and healthcare sectors. It was amongst the first companies to share details on its revenue from AI. Happiest Minds first detailed its revenue from Gen AI in October 2023, with the technology bringing in about 5% of its revenue.

ITC Infotech leads in manufacturing and retail industries, and its main capability is enterprise IT solutions.

“I am delighted that upon the completion of necessary approvals and legal formalities, Happiest Minds will become an important part of a larger organization through its merger with ITC Infotech. The two organizations are aligned on our values and shared vision for the future,” Soota said in a press release. “There is very significant complementarity in our business portfolios which will ensure synergy. We believe that ITC Infotech is the best partner for Happiest Minds to fulfil its destiny and we are pleased that our team will have a welcoming new home.”

The Happiest Minds team will literally have a new home, as the company’s board on Monday approved a proposal to shift its registered office to Kolkata from Bengaluru.

With this, Kolkata-based ITC has staked claim to be counted among the country's largest diversified conglomerates—a long way from its origins as a cigarette manufacturer.