September 4, 2020


By Roy

This liquidity-driven rally in the stock market has caught the attention of the world and companies who were waiting in the side-lines with their public issues are jumping on this bandwagon to capitalize on this investor euphoria. let us see the opportunities and risks associated with the issue and all relevant matters we need to keep in mind before applying for this public issue.

Topics for discussion:

  1. Overview of The Company
  2. Issue Snapshot
  3. Financials in a Jiffy
  4. Key Points
  5. Summary and Verdict

Now let us discuss each point one by one.

Happiest Minds is a Bangalore based IT Company who started their journey on 30th March, 2011. Happiest Minds, positioned as “Born Digital, Born Agile” is an IT service provider that offers various digital services to its customers. The key aim of the firm is to deliver customer-centric digital solutions to achieve its mission of “Happiest People, Happiest Customers”.

More than the company, the Promoter of the Company, Mr. Ashok Soota, is in focus.

-He is an IIT Roorkee alumni and holder of a Masters degree in business management from Asian Institute of Management, Phillipines.

-Prior to founding the Company, Ashok was the Founding Chairman and Managing Director of MindTree Limited. He was the Vice-Chairman of Wipro Limited and Senior Vice President of Shriram Refrigeration Industries Limited prior to co-founding MindTree Limited.

-He has been conferred various awards including, the ‘Golden Peacock’ award for technology leadership, ‘Electronics Man of the Year’ award from Electronics Industries Association of India, ‘Dataquest Lifetime Achievement’ award for outstanding contribution in different fields.

The Frost & Sullivan Report estimates the global digital services market of USD 691 billion in 2019 to grow at a CAGR of 20.2% to USD 2,083 billion by 2025. In Fiscal 2020, 96.9% of the company’s revenues came from digital services. This is one of the highest among Indian IT companies. The Report notes that the legacy IT market as a percentage of total technology spend is estimated to decline from 85.7% share in 2019 to 65% share by 2025, with digital spend making up the remaining 35% share by then.

As of June 30, 2020, the company had 148 active customers. Their repeat business (revenue from existing customers) has steadily grown and contributed a significant portion of their revenue from contracts with customers over the years indicating a high degree of customer stickiness.

The company’s agility and resilience has stood out in recent years. In the three months ended June 30, 2020 and in Fiscal 2020, they delivered 90.1% and 87.9% respectively of their projects through agile delivery methodology. Over the years and currently, during the ongoing outbreak of Novel Coronavirus, they have successfully implemented their business continuity plans including to achieve efficient work-from-home practices to ensure connectivity across the enterprise.

The business of the company is divided into three categories; Digital Business Service (DBS), Product Engineering Service (PES) and Infrastructure and Management Security Service ( IMSS).

-The DBS unit offers digital application development & modernization, assistance in designing & testing of operations, management of the platform, consulting and domain led offerings. PES unit helps by transforming the potential of digital by making the product secure and smart. Wherein, IMSS provides an end to end monitoring and management capability for applications and infrastructure of the clients.

-The Company has a global presence in countries like US, UK, Australia, Canada and the Middle East. The business units of the company are assisted by the 3 Centres of Excellence which are Internet of Things, Analytics / Artificial Intelligence, and Digital Process Automation. Happiest Minds delivers services across industry sectors such as Retail, Edutech, Industrial, BFSI, Hi-Tech, Engineering R&D, Manufacturing, Travel, Media and Entertainment.


  • Issue Snapshot


Issue Period Bid/Offer Opens on: Monday, 7th September 2020
Bid/Offer for Closes on: Wednesday, 9th September 2020
The Anchor Investor Bidding Date shall be on 4th September 2020
Finalisation of Basis of Allotment: 14th September 2020
Initiation of Refunds: 15th September 2020
Indicative date of listing on exchanges: 17th September 2020
Credit of Shares to Demat Acct: 15th September 2020
Issue Details Fresh Issue of Equity Shares aggregating up to Rs. 110 Cr+
Offer for Sale of up to 3,56,63,585 Equity Shares of Rs. 590.02 cr
Issue Size (Rs.  Crore) Rs. 698.45~ Cr – Rs. 702.02^ Cr (no. of shares 4,23,30,252~  to  4,22,90,091^)
Price Band Rs. 165-166
Bid Lot 90 Equity Shares and multiple thereof
Issue Structure :
QIB 75% of the Net offer ( 317.48 ~Lakh – 317.18 ^Lakh Shares ) (Rs.523.84~Cr – Rs. 526.51^ Cr)*
NIB 15% of the Net offer (63.50 ~Lakh – 63.43 ^Lakh Shares ) (Rs. 104.77~Cr – Rs. 105.30^ Cr)
Retail 10% of the Net offer ( 42.33 ~Lakh – 42.29 ^Lakh Shares ) (Rs. 69.84~Cr – Rs. 70.20^ Cr)
~ Lower Price Band and ^Upper Price Band
BRLMs ICICI Securities, Nomura Financial
Registrar Kfintechnologioes Pvt Ltd
Mode of Bidding Through ASBA process only (except Anchor Investors)
*may allocate up to 60% of the QIB Portion to Anchor Investors at the Anchor Investor Allocation Price on a discretionary basis, out of which one-third shall be available for allocation to Mutual Funds only
  • Financials in a Jiffy:

                                                                                                                            (In Rs. Crore)

Particulars As on 30-06-2020 31st March 2020 31st March 2019 31st March 2018
Equity Share Capital 20.44 8.79 5.97 3.75
Other Equity 298.57 256.52 -72.02 -112.63
Netwoth 319.01 265.31 -66.05 -108.88
Non Current Liability 31.82 31.18 47.54 67.32
Total Revenue 186.99 714.23 610.81 489.12
Revenue Growth 16.93% 24.88%
Total Expense 146.15 629.36 576.25 512.2
EBIDTA 47.82 113.12 66.28 7.62
Earnings Before Int and Tax 42.7 81.63 28.92 13.13
Profit After Tax 50.18 71.71 14.21 -22.47
EPS (Basic) 3.73 7.04 1.89 -3.13
EPS (Diluted) 3.72 5.36 1.16 -3.13
Ebidta/Total Revenue 25.57% 15.84% 10.85% 1.56%
Return on Capital Employed 12.70% 28.90%
ROE (PAT/NW) 15.73% 27.03%

Numbers for the quarter ended June 30, 2020 have not been annualized

In other equity, there is CCPS (Compulsorily convertible preference Shares). Due to negative retained earnings and cash flow hedge reserve, networth was negative in FY18 and FY19. As net-worth was negative, ROE and ROCE are not calculated for these 2 years.

  • Key Points:


  • IPO Valuation Parameters (Based on Current Earnings):

Valuations as on 31.03.2020, Ratios calculated on upper price band

  • Peer Valuation Comparison

* On the upper price band, All Prices and calculations done as on 31st, March,2020

  • Issue Structure

Fresh Issue of Rs. 110 Cr (Upto 66,26,506 to 66,66,667 Equity shares)

Offer of Sale :

Ashok Soota – Promoter Selling Shareholder – Upto 84,14,223 Shares

CMBD II* – Promoter Selling Shareholder – Upto 2,72,49,362 Shares

* CMDB II is a private equity fund. Managed by J.P. MORGAN INVESTMENT MANAGEMENT INC.

  • ShareHolding
Pre-Issue Post-Issue
Promoters and Promoters Group 61.77% 53.25%
Public 34.16% 42.86%
Others 4.07% 3.88%
Total 100.00% 99.99%
  • SWOT Analysis
Strength Threat
Focused on software product development, Strong Brand in offering Digital IT services, End to End digital lifecycle, Agile Engineering and Delivery, Strong brand presence in digital services as in 2019, it generates 96.9% revenue from digital offerings, Strong Research & Development (R&D) capabilities that focus on automation, blockchain, Robotic technology, etc., Experienced and professional leadership and IT management team Revenue concentration on key clients may negatively affect business revenues and profitability, Intense level of competition from offshore and onshore IT services, the successor of Ashok Soota is still a big question to answer, the company had restated loss for the year in Fiscal 2018. Any restated loss for the year in the future could adversely affect our operations and financial conditions and the trading price of equity shares
Weakness Opportunities
High revenue concentration on US-based clients as in 2020, 77.5% of revenue came from US clients only, Inability to retain skilled and experienced IT professionals, company has grown through organic growth as well as through strategic acquisitions. They may be unable to effectively manage such rapid growth, they do not have long-term commitments with customers, and their customers may terminate contracts before completion, negotiate adverse terms of the contract or choose not to renew contracts, Increasing demand from digital natives, Social networking and platforms could be harnessed by organisations to glean insights from customer conversations, understand emerging trends and topics and adapting quickly to evolving customer requirements., global organisations are looking to shift from an “e-business” model to a more “digital-business” model where interconnected components such as the business, the consumer, the product and the service are brought together into one centralised ecosystem, digital services are Growth Drivers
  • Dissecting The Revenue

The forte of the company is its digital business services from which it garners 96.90% of the revenue and one of the highest in Indian IT companies. It has strategic alliance and partnership with Microsoft and Web services. Happiest Minds is an “Advance Consulting Partner” to AWS worldwide and has completed multiple system integration projects worldwide in Digital Platforms.

Artificial Intelligence and analytics is the future of the world. the company focuses on building platforms in the cloud / on-premise using big data technologies and supplementing them with tool-based solutions for data management and visualization. They have built large scale data and AI solutions for media, education & publishing, retail and industrial businesses.

While the technology industry in India remains one of the most sought after sectors for employment, the industry has predominantly leveraged outsourcing as its major business and has lagged behind countries like the USA and UK when it comes to adopting high-end digital technologies for their operations. There are challenges that remain to be addressed in the market.

Strong brand in Digital IT services

— The company worked with renowned Independent Software Vendors (ISVs) and emerging innovative technology companies that focus on new trends, exposed them to their customers’ business and strategic challenges, allowing them to develop vertical-specific domain expertise. It helped them to grow their business in multiple industries, including Edutech, HiTech, Industrial/Manufacturing, BFSI and Retail. Below is the contribution to the total revenue by customer industry groups:

Growing high revenue-generating customer accounts with a high proportion of repeat revenues and revenues from mature markets

− Happiest Minds has generally witnessed an increase in the number of its top accounts by revenue contribution.

− The Company has repeat business from its customer base, which includes more than 35 Fortune 2000 / Forbes 200 / Billion $ corporations.

− The Company’s average revenue per customer has increased from $471,472 in Fiscal 2018, to $501,562 in Fiscal 2019 to $614,675 in Fiscal 2020.

− The Company’s revenue per sales employee has increased from $2.1mn in Fiscal 2018 to $2.6mn in Fiscal 2019 and further to $3.1mn in Fiscal 2020.

− The United States which has the majority market share of global technology spend (Source: Frost & Sullivan Report) historically has contributed a majority of the Company’s revenues (77.5% of revenues in Fiscal 2020 and 77.3% for Three Months ended June 30, 2020).

Revenue Mix

* Offshore includes revenues from offshore clients served from India and from Indian clients

  • Contract Structure

(The following table shows the contract structure mix in the periods indicated as a percentage of revenues)

FY18 FY19 FY20 June 30 Qtr
Fixed Price 18.40% 16.80% 19.00% 18.80%
Time and Material 81.60% 83.20% 81.00% 81.20%
  • Utilization

(The following table shows the delivery workforce utilization rates in the periods indicated)

FY18 FY19 FY20 June 30 Qtr
Workforce Utilisation 68.40% 77.30% 76.90% 74.90%

—Strong R&D capability with depth in disruptive technologies creating value through newly engineered solutions

—Mindful approach towards systems, employee policies and practices led by an experienced leadership and senior management team focused on sound corporate governance practices

  • Summary and Verdict:

The valuation of this company is a dicey project. The earnings showed huge fluctuations and June 30th quarter was among the best, as in cases of most IPO companies. The previous qtr of going public tends to be the best one. If I take the average of the last 3 quarter earnings, I will say it is adequately priced, neither cheap, not exorbitant. The company is being run by one of the most able hands in the industry, but the company seems clueless about future management.

In a recent interview, Mr Soota mentioned that more than an IT company, Happiest Minds should be considered as Digital Service Providers. There is no listed peer in this segment. If we see globally, Globant, EPAM, Endava, who generate almost 100% of their revenue from digital service operations.

At the upper price band, Happiest Minds is targeting for a market cap of approx Rs. 2,500 crore. It is trading at 60-70% premium in the Grey Market and it is expected to be listed with more than 50% gains. For a punter who is looking for a listing gain, it is a ‘Must Subscribe’. For long term investors, the earnings growth visibility is less. Unless you bet on the current management, I would suggest to come out with a listing gain.

Update on Anchor List :

The issue got a strong anchor backing and as per the market view, it is a 2x candidate. The anchor list is updated below.

‘Market main naam ka hi daam hain.’ – Brand value sells. Ashot Soota is a renowned name in the industry and the market is quite upbeat about it.

*Source- RHP, ICICI Brokerage Report