The ‘Happiest’ IPO hitting the D-Street
Happiest Minds Technologies the smallcap IT services company is coming up with its initial public offering on September 7 (till Sept 09).
Here are 10 key things that you should know before you subscribe.
1) About:
Founded in 2011, Happiest Minds Technologies Ltd (Happiest Minds) is a digital services company based out of Bengaluru. Happiest Minds delivers services across industry sectors such as Retail, Edutech, Industrial, BFSI, Hi-Tech, Engineering R&D, Manufacturing, Travel, Media and Entertainment.
2) Business segmentation:
- Digital Business Services — drives overall digital modernisation and implementation of solutions
- Product Engineering Services — helps in building product and platforms
- Infrastructure Management & Security Services — helps in monitoring applications and infrastructure
3) Clients:
As of June 30, 2020, Happiest Minds had 157active clients and has a global presence in countries like US, UK etc. Its services are delivered across industry sectors such as retail, edutech, industrial, BFSI, hi-tech, engineering R&D, manufacturing, travel, media and entertainment, and others. The company sees global players such as EPAM, Endava and Globant as its competitors. It had an employee base of 2,600 as of June 30.
4) Issue details & Valuations:
IPO Date: Sep 7, 2020 — Sep 9, 2020Issue Type: Book Built Issue IPOIssue Size: 42,290,091 Eq Shares of ₹2Face Value₹2 per equity shareIPO Price₹165 to ₹166 per equity shareMarket Lot: 90 SharesMin Order Quantity90 SharesListing At: BSE, NSEFinalization of Basis of Allotment: Sep 14, 2020IPO Shares Listing Date: Sep 17, 2020
- QIBs: 75%
- Non-Institutional Investors: 15%
- Retail Individual Investors: 10%
In the Rs 165–166 price band, the issue is seeking a valuation of 26.76 times FY20 earnings per share. The valuations look a bit high, but given the demand for midcap and smallcap IT stocks these days, good demand is expected from risk-taking investors.
5) Offering details:
Ashok Soota (Promoter) would offload 8,414,223 shares while JP Morgan Asset Management will sell its entire 19% stake or 27,249,362 shares in the offer for sale (OFS) which amounts to Rs 592 crore. The company would also raise Rs 110 crore by offering fresh shares.
6) Financials:
After posting a net loss of Rs 22.47 crore in FY18, the company’s profit came in at Rs 14.21 crore in FY19 and Rs 71.71 crore in FY20. Revenue from operations increased 22.8% compounded annually during the same period to Rs 698.21 crore. The company reported revenue of Rs 590.36 crore in FY19 and Fy462.89 crore in FY18. For June quarter, the company reported a net profit of Rs 50.2 crore on a revenue of Rs 177 crore.
7) Objects of the Issue:
The company proposes to utilise the Net Proceeds from the fresh issue towards funding the following objects:
1. To meet long term working capital requirement; and
2. General corporate purposes
8) Go Digital!
The Company received 96.9% of its revenues from digital services segment, which is one of the highest among Indian IT companies, in FY20.
9) Pros:
- The company is promoted by Ashok Soota, one of the co-founders of Mindtree.
- In Fiscal 2020, 96.9% of the company’s revenues came from digital services which is one of the highest among Indian IT companies.
- Covid 19 Impact: The company said 76% of his company’s business was not impacted.
- Happiest Minds has the highest annualised growth rate of profit before tax among peers.
10) Cons:
- The digital firm has 157 active customers and derives about 77.5% of its revenue from the US and 11.9% from India.
- The company’s top 10 clients account for 48% of revenues, with the top client alone contributing 12% of its revenue.
- The average cost of acquisition for the Promoter Selling Shareholder is ₹34.68 and the Investor Selling Shareholder is ₹24.91, and the offer price at the upper end of the price band is 166.
- Economic slowdown due to Covid-19
- Ashok Soota’s age is 77 so after he retires, management may have to search for a strong leader who is as good as him, which is it self a big challenge.
Suggestion: As the grey market premium on the issue has risen by Rs 115–125 a share over the IPO price band of Rs 165–166 a share. If you are applying for listing gains or willing to hold for longer term, in both the cases you can happily SUBSCRIBE.
Akshay Seth
Business Analyst
