Happiest Minds IPO may see listing gains: Report2 min read . Updated: 07 Sep 2020, 11:10 AM IST
The price band of the offer has been fixed at ₹165 to ₹166 per equity share
Motilal Oswal Securities gave 'Subscribe' rating to the Happiest Minds Technologies IPO which opened today on Monday. Happiest Mind Technologies Ltd (HMTL) is one of the leading next generation digital transformation company, focusing on delivering a seamless digital experience to its customers. "At the higher end of the price band, the issue is valued at 29 times the FY20 P/E (fully diluted), which is comparable to larger mid-sized IT companies," said the brokerage house. Motilal Oswal Securities likes the company due to three main reasons -- strong presence in digital services, scalable business model with end-to-end capabilities and fast improving financial performance.
The brokerage house is optimistic on bright prospects for IT companies post covid. "Further considering market conditions and bright prospects for IT companies post Covid-era, one may also get listing gains," the broker said.
The IPO of Happiest Minds Technologies will close on September 9. The price band of the offer has been fixed at ₹165 to ₹166 per equity share.
Here are the key points of the Motilal Oswal Securities report on Happiest Minds Technologies IPO:
Strong brand in digital IT services: HMTL derives 97% of its revenues from Digital IT services by offering services like cloud, SaaS, security, analytics and IoT, compared to 30-50% for traditional Indian IT services peers. It caters to multiple business verticals of which major contribution comes from Edutech (21% in FY20), Hitech (21%), BFSI (18%) and TME (Travel, Media & Ent; 17%). High revenue generating customer accounts for HMTL has increased 1.6x to 25 (148 total clients) over FY18-20, with a high proportion of repeat revenues and revenues from mature markets.
Scalable business model with multiple drivers of steady growth: Happiest minds Technologies has scaled up its business model across business verticals, functions and geographies. This is well reflected in improving billing rates for both onshore/offshore clients by 1%/3% CAGR (FY18-20). Even average revenue/active customer has grown at 14% CAGR over FY18-20.
Improving financials: Over FY18-20, HMTL’s revenue grew at a CAGR of 23% to ₹7bn, while it stood flat for Q1FY21. Its EBITDA margin improved from -4% in FY18 to 13.9% in FY20 and 21.4% in Q1FY21. Its adjusted PAT improved from loss of ₹225mn in FY18 to Rs830mn in FY20. For Q1FY21, it stood at ₹502mn. FCF/PAT conversation stood high at 134% in FY20 while the RoE/RoCE were healthy at 31%/26%.
Issue size: The ₹7bn IPO consists of fresh issue of ₹1.1bn and OFS (8.4mn shares by promoter and 27.2mn shares by investor –CMDB II) of ₹5.9bn which would result in promoter’s stake reducing from 61.8% pre-IPO to 53.3% post-IPO. The funds raised from fresh issue will be utilized to meet long term working capital requirements ( ₹1bn) and balance for general corporate purpose.