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The Happiest Minds IPO: Should you invest?


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Happiest Mind Technologies, a IT service company based out of Bangalore is expected to hit the markets this September.  The company is positioned as “Born Digital. Born Agile” and is focussed on providing flawless digital experience to its customers. In this post we look at the prospects of Happiest Mind.

Key points covered in this post

  • Size of the IPO and shares on offer 
  • Increased spend on digital IT services, how Happiest Mind is well positioned to tap this opportunity
  • How the company has been able to navigate the pandemic by applying its happiest people framework
  • Business unit (BUs) of Happiest Mind
  • Global Peers and how they are stacked​​​​​​​

The Offer

The details of the offer are as below

Issue Size – 4,22,90,091 of which

Fresh Issue – 66,25,506 (aggregating to Rs 110 Cr)

OFS – 3,56,63,585 (aggregating to 592.02 Cr)

Inflows – Rs 702 Cr

IPO Price – Rs 165/166 per share

Market Lot – 90 shares

Retail Portion – 10%

IPO Date – Sep 7,2020 – Sep 9, 2020

The OFS is by Ashok Soota, founder and executive chairman for 84 lakh shares and JP Morgan CMDB II for 2.72 Cr shares.

The fresh issue will be used for meeting the working capital requirements of the company. Below is the projection of working capital that the company will need over the next 2 years

Working Capital

Source: Happiest Minds, DRHP

Working capital will be required primarily on the back of increase in receivables in FY21. Off the projected requirement of Rs 153 Cr, 101 Cr will be meet from IPO proceeds and the balance will be funded through internal accruals.


The issued and paid up share capital of the company prior to the offer is 10.78 Cr shares, the company has 1,98,617 14% non cumulative compulsorily convertible preference shares, these will be converted into 3.23 Cr shares. The conversion ratio stands at 163 equity shares for 1 preference share. The issued share capital taking this into consideration stands at 14.01 Cr shares.

Promoters hold 61.77%. Ashok Soota holds the majority stake at 48.83%. Below is the SHP of the promoter, promoter group and selling shareholder before the offer.


Source: Happiest Minds, DRHP

An important point to note is that promoters have pledged 4.2 Cr shares in 2019.


Source: Happiest Minds, DRHP

The management has stated on the call with investors on 2nd September that the pledge will be revoked after the IPO.


The Indian IT-BPM (business process management) industry in India stood at $ 177 billion in 2019. The industry is expected to grow by 6.2% and reach $ 252 billion by 2025. The Indian IT-BPM industry has 7.9% share in the national GDP.

The global IT spend in 2019 stood at $ 4,219 billion and is expected to grow at 6.3% and reach $ 6,080 billion by 2025.

IT service companies are at an interesting juncture, digital IT/services are expected to drive the growth going forward. While legacy IT is here to stay, digital IT will spearhead the industry going forward.

But what is legacy IT and digital IT?

Legacy IT/systems use technology that is relatively old/outdated but is critical to run the business. For companies offering these legacy systems, revenues from this stream are regular and sticky. From a customer perspective, large investments have been made in these systems and they are resistant to replace them.

Digital IT/service includes the combination of hardware and software services that enable the delivery of information and content across multiple platforms and devices like mobile or web. For instance applying for a job and making a hotel reservation are examples of digital services. Some of the benefits of implementing digital services are – improved efficiency and productivity, faster reach to the market and cost efficiency. Digital IT requires making regular investments and domain expertise in areas like automation, data analytics and machine learning.

Why is this important?

Happiest Mind is the only Indian company which derives 97% of its revenues from digital IT services. As companies spend more on digital services, Happiest Mind is well placed to capitalize this opportunity.

The digital services market in India was $ 26 billion in 2019 and is expected to grow at 12% over the next 6 years to touch $ 52 billion in 2025. The legacy market on the other hand was $ 65 billion and is expected to grow by 3% and reach $ 78 billion in 2025.

The global digital spend in 2019 stood at $ 691 billion, 16% of the total technology spend within the IT sector. The market is expected to be $ 2,083 billion by 2025, growing at 20% and representing 34% of the total technology spend.

Indian IT services exports were $ 85 billion in FY20, the BFSI vertical contributed 54% of total exports. In terms of region, revenues from USA were 62%. Domestic revenues from IT services stood at $18 billion during the year.

The Mindful IT Company : Happiest Mind

Happiest Mind was founded in 2011 by Ashok Soota. Mr Soota is recognized for his contributions to the IT industry in India. Prior to starting Happiest Mind, he was the vice chairman of Wipro, senior vice president of Shriram Refrigeration Industries Limited and founding chairman and managing director of Mindtree Limited. It was during his tenure that Mindtree completed its successful IPO.

The tagline of the company is ‘The Mindful IT Company’. The belief behind this is that happy people lead to happy customers. There are systems, practices and frameworks in place which enable its people to realize their full potential and enable happiness. For instance, the company already had an existing work from home (WFH) policy and remote working tools for its workforce. This helped the company navigate the pandemic better than other companies. Another feather in the cap of the company is that it is among the Top 25 India’s best workplaces for women by great places to work.

The company has a happiest people framework built on 7Cs – culture, credibility, collaboration, contribution, communication, community and choice complemented with the SMILES value (sharing, mindful, integrity, learning, excellence and social responsibility) to enable its people to make the right choices in managing their day to day work, careers and well being.

Business Verticals

The companies business is divided into three business units (BUs)

Business Units

Revenues from these segments for the FY18-20 period is as below


PES has been the fastest growing segment, registering growth of 30%. IMSS has grown by 25% and DBS by 12%.

These services offered by the company span across the digital lifecycle from planning to deployment and maintenance.

The digital business services team is the customer facing team, the team helps the customer have a web presence and move them to the cloud. For instance, solutions that the company will build for a supply chain customer would be digitization of processing of invoices, building a web based portal to manage return of goods, build an application to monitor breakdowns. Digitization will help in reducing downtimes, faster invoice processing and efficient handling of returns.

The DBS offerings are complemented by analytics and AI tools, Internet of things (IoT) – helps in tracking people, devices and products and digital process automation (DPA).

The companies IoT offerings focus on

  • Manufacturing plants, renewable energy and utilities
  • Smart buildings/offices, retail, telecommunications
  • Healthcare, home and security

The PES team is the engineering team, this is the back end of Happiest Mind. This team builds products and platforms across software and hardware. The companies PES BU focusses on the following sectors – education and publishing, consumer solutions, industrial and networking. For instance, the company may build a common platform to bring various verticals – content management, content delivery, assessments and grading systems for an online learning company. The platform built would also be mobile friendly. Digitaztion will help in improving student learning outcomes.

One of the other solution that the PES BU has built is an IoT platform which helps appliance manufacturers transform their existing products into smart products. For instance companies like Syska are offering smart home solution products.

The IMSS BU provides monitoring and maintenance of the customer’s application and infrastructure. Companies have to provide 24*7 support to its customers. The objective is to ensure the data centre, cloud infrastructure and applications are safe, secure, efficient and productive.

97% of the revenues in FY19 and FY20 were from digital IT services, the break up of it shown below

Digital IT

All segments apart from digital infrastructure/cloud have shown impressive growth in FY20.

Other Key Metrics

The key verticals for the company are – Edutech, Hitech and BFSI, these constituted 60% of the revenues in FY20. Below are the various verticals from which the company derives revenues for the FY18-20 period



USA is the major market for the company. 78% of revenues in FY20 were from the US. 12% of the revenues were from India. USA and India contributed to 89% of FY20 revenues.

78% of revenues in FY20 were from offshore services and 22% from onsite services. This has been the same over the FY18-20 period. Average billing rates for onsite services in the FY18-20 period have been $90 and $25 for offshore services.

The company had 157 active customers at the end of FY20. Below are the no of customers who contributed more than $1,5 and 10 million revenues for the FY18-20 period

Customer Profile

The companies services are offered under fixed price contract and time and material contract. Fixed price contracts contributed 19% to revenues in FY20 and 81% were from time and material contracts. The ratio between the contracts has been similar in the FY18-20 period.

In a fixed cost contract the company has to make assumptions on the cost that it will incur to complete the project. If any of the assumptions are wrong, costs will escalate and the company will not be able to pass on the increase to the customer.

In a time and material contract, customers are charged for the hours that are spent on the project and material costs (travel and out of pocket expenses). Digital projects are iterative in nature and hence time and material contract is the best fit.

Utilization rate of the companies workforce in FY20 was 77%, up from 68% in FY18. The company has 2,666 employees in FY20, as compared to 2,253 in FY18.

The compensation of Ashok Soota and Venkatraman Narayanan, ED and CFO for FY20 was 2.45 Cr. Compensation of the three heads of businesses and compliance officer at the end of FY20 was 5.3 Cr. Profits were Rs 72 Cr in FY20, the compensation of the senior management is 11% of net profits.

Financial Highlights

​​​​​​​​​​​​​​Revenues for FY20 stood at Rs 698 Cr, growing 23% CAGR in the FY18-20 period. PAT for the year was 72 Cr, clocking net margins of 10%. The company made a net loss of 22 Cr in FY18 and a profit of 14 Cr in FY19. One of the reasons profits have jumped is revenues have grown faster than expenses. The biggest expense for an IT company is employee costs, these have grown by 11% as compared to growth of 23% in revenues. The company is reaping the benefits of operating leverage, we had written about operating leverage earlier.

EBITDA margins for the FY20 stood at 14%, the margins of the company cannot be compared to other IT service companies in India. For instance the EBITDA margins of Infosys and TCS in FY20 stood at 24% and 27%.

Profits in the last 2 years have also been hampered due to impairment of goodwill. The company had made acquisitions in the past and over paid, impairment charges in FY19 and FY20 were Rs 13 and 11 Cr.

Debt at the end of FY20 stood at 71Cr, the debt/equity ratio was 0.26. However, cash and equivalents at the end of FY20 stood at 228 Cr.

Receivables at the end of FY20 were 115 Cr, the company collects monies from its customers once every 60 days.

The ROE for FY20 was 27% in FY20, for the prior 2 years the company has had a negative equity base and hence we do not have a trend to analyse the ROE of the company. Two things have helped the company turn to the black

  • Profits of 72 Cr during the year
  • Conversion of preference shares to equity, these were earlier shown as a liabilites

Revenues for Q1FY21 stood at Rs 187 Cr, the company made 26% EBITDA margins during the quarter. The company is confident of maintaining these margins in the future.

Final Thoughts

Happiest Mind has a long runway as it is the digital IT services space that is going to drive IT spending. The company derives nearly all its revenues from this segment and is well placed to capitilize on this opportunity.

Below is the comparison of Happiest Mind with other global players who derive all their revenues from digital IT services.

Global Peers

Indian IT services companies derive majority of their revenues from legacy services. For instance Infosys digital service revenue is 30% and in the case of Mindtree it is 49%. These companies are focussing on this space and there will be tough competition for Happiest Mind going forward.

The ROE, ROCE and EBITDA margin of Happiest Mind is similar to its global peers, however these are recent numbers, we need to see if the company can sustain these.

The issue price is 165-166/share. Diluted EPS at the end of FY20 was Rs 6. At the expected issue price, the company trades at 27-28X. This is way below to what its global peers trade at, however these companies are larger and have a longer operating history. At these expected valuations of 27-28X, the company is close to its Indian peers. However, the EBITDA margins for Q1FY21 have come in at 26% and the company expects to maintain these going ahead.

Given the management pedigree and runway ahead of the company, we suggest to apply for the IPO. The retail portion is 10% and there is possibility retail participation will be large. For higher probability of allotment, we suggest retailers apply for 1 lot.

NOTE: There is no other relationship between Capitalmind and the above company. Do not consider this article as a recommendation, It is purely for information purposes only. For full access to our premium content, portfolios and member forum, upgrade to Capitalmind Premium. Use CMPOFF10 to get 10% off regular price.


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