Overview:
On September 7, 2020 Happiest Minds, a Bengaluru based company operating in the digital services industry, entered the primary capital market with its initial public offer (IPO) of equity shares. The IPO was over-subscribed by 151 times and eventually listed on September 17, 2020 with a 123% premium to its offer price.
The size of the IPO was INR 702 crore at an upper price band of INR 166 per share. It included a fresh issue of INR 110 crore and an offer for sale of INR 592 crore by existing shareholders.
About Happiest Minds:
Founded in 2011, Happiest Mind focuses on delivering on seamless digital experiences to its customers. The business is divided in to three units - digital business services (DBS), product engineering services (PES) and infrastructure management and security services (IMSS). These business units are supported by three centers of excellences namely IoT, analytics / AI and digital process automation (DPA).
In FY20, c.97% of the revenue came from providing digital IT services. This differentiates the company from its peers such as Mindtree, Coforge (NIIT Tech), LTI, Tech Mahindra and Zensar, whose revenue contribution from digital services range between 37% to 50%.
As of Jun-20, it had 148 active customers with a global presence in countries like US, UK, Australia, Canada and the Middle East. It employs over 2,600 globally.
Objectives of the offer:
The company intends to use the net proceeds from the fresh issue to meet long term working capital requirements and fund general corporate purposes. It also expects enhancement in brand name among existing and potential customers.
The proceeds from offer for sale will not be available to the company. Promoter Ashok Soota diluted his shareholding from 61.8% to 53.2% while PE fund investor J.P. Morgan Investment Management realized a 40%+ IRR on by selling its entire share holding of 19.4%.
Financials and metrics:
The company debuted on the stock market by listing at INR 351 per share and eventually closing at a price of INR 371 per share, which represents a 123% premium to the offer price.
The company has reported a revenue of INR 698 crore for FY20 which shows a CAGR growth of 22.8% from FY18. Although the company made a loss in FY18, the firm has reported positive EBITDA and net income with margins of 13.9% and 10.3% respectively for FY20.
Pre-IPO the company was valued at an EV / Sales ratio of 3.5x, EV / EBITDA ratio of 25.5x and P/ E ratio of 34.0x. While the EV / Sales multiple is in range with other mid-cap Indian IT firms, the P / E ratio is on the higher side compared to the average P / E ratio of 23.3x of mid-cap Indian firms.
Post listing, the company currently trades at EV / Sales of 7.9x and EV / EBITDA ratio of 69.0x which is significantly higher than its peers. This is the result of its stellar listing with a 123% premium.
The profit for FY20 jumped 5x y-o-y while the return on equity turned positive from negative in FY19. ROE for FY20 was 27.0%.
Scalability, higher growth rate, rich digital services mix and better return on equity are the key differentiators for Happiest Minds.,
The Chesapeake Group was not an advisor to the party in this market listing.
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