HAPPSTMNDS - Happiest Minds Technologies Limited Share Price

In the Q1 FY '26 earnings call, Happiest Minds Technologies Limited management provided a positive outlook, reporting a solid performance with a 17.5% year-on-year growth in constant currency and maintaining an EBITDA margin of 21.4%. The EBITDA for the quarter was Rs.124 crores, reflecting a sequential growth of 12.9%. Management highlighted that they are confident of achieving double-digit growth through FY '27, supported by their investments in Generative AI and a strong focus on digital transformation.

Key forward-looking points include:

1. Continued momentum in key sectors like BFSI and Healthcare, with BFSI being the largest vertical contributing 26% to revenues.
2. Successful integrations of previous acquisitions, which have enhanced capabilities and market reach across 13 countries.
3. Strong results from the Generative AI business units, reporting 14.5% sequential growth and 89.8% year-on-year growth, with utilization improving from 34.3% to 40.8%.
4. An increase in active customers from 281 to 285 and a rise in million-dollar customers from 57 to 59, indicating deepening client relationships.
5. The company aims to maintain EBITDA margins between 20% to 22% for the year while driving investments in cloud, cybersecurity, and AI-led transformations.

Management acknowledged the challenges within the global IT environment but emphasized their strategic initiatives that position Happiest Minds for sustained high-quality growth in the upcoming quarters.

Q&A Section: Key Questions and Answers

1. Question: "Could you help us understand how the U.S. market performed for us outside the top accounts?"

Answer: I shared that we've strategically diversified our geographic revenues, reducing the U.S. share from 75% to around 60%. There was a sequential decline in revenues from India due to a completed engagement and another customer pausing programs. However, despite macroeconomic challenges, demand is resilient, particularly in the second half of Q1 and into Q2.

2. Question: "Do we expect the growth momentum from India and APAC to continue in the near future?"

Answer: While India and APAC showed remarkable growth, I anticipate it will not continue at the same pace. Our acquisition of PureSoftware has brought in significant BFSI accounts in APAC, which we expect to scale. India, particularly in Healthcare, is a focus area, and we've transitioned several engagements to local centers, contributing positively.

3. Question: "Could you please share any updates regarding our $1 billion revenue target?"

Answer: Our goal of reaching $1 billion by FY '31 remains, but market conditions have changed. Our CAGR from FY '21 to FY '25 was 23.5%. Achieving our target will require maintaining a 22-23% growth rate, which we believe is still feasible. We'll continue to monitor the situation and provide updates as necessary.

4. Question: "Could you provide some insights into the current status of the order book and pipeline?"

Answer: While we don't share specific order book numbers, we see robust growth across our order book and pipeline driven by our Net New strategy and successful customer acquisition. With increased $1 million customers and some larger contracts in early stages of execution, we expect second half performance to improve, despite seasonal impacts.

5. Question: "What has driven the sharp growth in revenue from automation in Q1?"

Answer: Our automation revenue surged due to renewed customer focus on efficiency, driven by cost pressures. We define automation broadly, encompassing RPA, business process automation, and low-code platforms. This increased emphasis aligns with our established Digital Process Automation center, contributing significantly to our revenue growth.

6. Question: "What has led to the softness in the Hi-tech vertical?"

Answer: The Hi-tech segment faced declines due to a major customer write-off and project discontinuation, impacting our revenue. While we've seen some fluctuations, significant investments in industries like networking and media are expected to stabilize and drive future growth in this vertical.

7. Question: "Will the momentum in the Travel and Manufacturing vertical continue moving forward?"

Answer: Current momentum is tied to various new projects, particularly in Media & Entertainment. We expect ongoing contributions as we ramp up implementations. Notable investments in ad-tech and customer engagements suggest a positive outlook for sustained growth in this area as well.

8. Question: "What impact will the wage hike have on margins?"

Answer: We expect the wage hike in Q2 to impact margins, but we'll assess the situation as the cycles progress. While specific figures aren't finalized, we aim to manage this while focusing on maintaining our EBITDA margins between 20% and 22%.

9. Question: "What are we doing to mitigate risks associated with investments in new business ventures?"

Answer: Our focus on efficiency, particularly with utilization rates at 78.9%, plays a critical role. We anticipate Generative AI and other investments will break even and contribute to profitability shortly. Continued investments in our new sales engine are also intended to generate returns and uphold our margins.

10. Question: "Moving forward, how do you envision the correlation between headcount and revenue?"

Answer: We grossly added 150 employees and have strategically replaced non-billable staff with those ready to contribute to revenue generation promptly. We expect to maintain revenue momentum, despite observing declines in overall headcount as we align resources effectively based on project needs.