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Happiest Minds Share Price Soars Upon Debut: What Made the IPO Such A Hit?

Sep 19, 2020 5:48 AM 4 min read
Editorial

If you are happy and you know it...IPO!

The IPO of Bengaluru-headquartered IT services firm Happiest Minds Technologies opened on September 7th and went on till September 9th.

And boy, it was truly a blockbuster!

The public issue got bids for 3.5 billion shares vs the 23.3 million on offer, which implies that it was oversubscribed by 151.0 times, making it the eighth biggest Indian IPO of the last decade.

The IPO was oversubscribed 351.5 times by Non-Institutional Investors (i.e. Retail investors subscribing for more than ₹2L ($2,727)) and 77.4 times by Qualified Institutional Buyers. Retail demand for the issue was strong as well, with a subscription ratio of 70.9. 

Here’s a look at the top 10 Indian IPOs with the highest subscriptions:

 

 

As per this December 2019 report, Indian companies were expected to rake up ₹40,000cr ($5.5bn)-₹50,000cr ($6.8bn) through IPOs in 2020, a 4x jump from the preceding year. 

While around 35 companies have received approval for IPO, only three - SBI Cards IPO, Rossari Biotech Ltd, and Mindspace Real Estate Investment Trust - have hit the market in 2020 up till now. 

But D-street is slowly warming up, and with the likes of Zomato and Kalyan Jewellers having thrown their names in the ring, are likely to arouse some interest. As per market grapevine, six to ten public issues are expected by December 2020. 

Some other companies that await a soonish public offering are Computer Age Management Services, Chemcon Speciality Chemicals and Gland Pharma. 

A robust IPO market typically bodes well for the markets and the economy. It illustrates a general bullish investor sentiment and a heightened willingness to take risk, which typically cascades through the markets rather well. In that context, a 350x oversubscription for Happiest Minds is an endorsement not just for the stock but also for wider capital markets.

But what made the IPO of Happiest Minds, a relatively unknown company, such a hit?

 

Happiest Minds are the Wealthiest

 

1. Strong Leadership

A company with a strong management at the helm usually makes for a highly saleable story and de-risks the execution profile.

Ashok Soota, Founder of Happiest Minds, is a veteran in the IT industry. He was the President of Wipro's technology business from 1984 to 1999 and was instrumental in its rise to becoming one of the world’s foremost IT services companies.

He later co-founded another IT services company called Mindtree Ltd in 1999, which was  subscribed 103 times in its 2007 IPO.

 

2. A Bet on Digital

The global digital services market was about $691bn in 2019 and is expected to grow sharply at CAGR of 20.2% to over $2trn by 2025. Happiest Minds is ideally positioned to exploit the tailwinds in this space and as such makes for an exciting bet on the surging digital services market.

It provides end-to-end solutions in the digital services space via three business lines: i) Digital business services (50% of revenue), ii) Product engineering services (28% of revenue) and iii) Infrastructure management & security services (22% of revenue).

A lofty 97% of the company’s revenue comes from digital - the highest among Indian software services providers such as Accenture (65%), Mindtree (49%), Infosys (31%)and Cognizant (30%). And at par with its global peers such as Globant, EPAM and Endava - all three at 100%.

 

Top Digital Service Providers Globally
Source: Happiest Minds Tech IPO Prospectus

 

Mr. Soota claims that it is this focus on digital, which enables the company to grow at nearly 21%, even when the IT industry slowed down to 8 -10%.

 

Digital as a % of Total Revenues
Source: Happiest Minds Tech IPO Prospectus: 

 

3. Steady Financials

Happiest Minds’ revenue rose at a compounded annual rate of 22.8% over the last two years. Over that period, EBITDA margin stabilised from a 1.6% in 2018 to a solid 15.8% in 2020, as per their filings.

Strong double digit revenue and EBITDA growth with double digit EBITDA margins in a sector that is expected to tick up at north of 20% CAGR promises to catch investor attention.

A generally stable debt profile with positive free cash flow generation further paints an optically pleasing picture.

Happiest Minds also boasts of the highest annualised growth rate of profit before tax among peers, and expects to expand at an annualised rate of 20%, almost double the industry growth rate.

 

4. Relatively Immune to the Pandemic

The IT industry in India was perhaps the first to have adopted the work from home culture. Given the nature of the work, the impact of the pandemic, therefore, wasn’t as pronounced as it was in the case of some others. In fact, Mr. Soota said that almost 76% of his revenue was not affected by the lockdown

Moreover, its diverse clientele across various industry sectors such as retail, edutech, industrial, BFSI, hi-tech, engineering R&D, manufacturing, travel, media and entertainment, and others is likely to have helped it to balance out any loss it may have incurred due to the pandemic.

Happiest Minds is an interesting play in an interesting space and is a stock that is worth looking at closely. We certainly will!

FIN.

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