Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Happiest Minds Technologies Ltd (BOM:543227, Financial) reported a revenue growth of 10.9% QoQ and 16.8% YoY, with total income reaching INR489 crores, a 20.6% increase from the previous year.
- The company has successfully integrated two significant acquisitions, PureSoftware and Aureus, which are expected to propel growth and expand market presence in APAC, Africa, and the reinsurance space.
- The Generative AI Business unit has shown promising results with reported revenues of USD855,000 in the first quarter, and over 75% of the workforce is already trained in GenAI tools.
- Happiest Minds Technologies Ltd (BOM:543227) has maintained a strong EBITDA margin of 23.9%, demonstrating operational efficiency despite the costs associated with recent acquisitions.
- The company has improved its DSO from 87 to 84 days and maintains a solid cash position of INR1,560 crores, indicating strong cash flow management and liquidity.
Negative Points
- The company experienced a drop in PBT and PAT due to significant noncash charges related to the amortization of intangibles and unwinding interest costs on deferred payments from acquisitions.
- There was a one-time acquisition-related cash charge of INR6.4 crores, which impacted the financial results for the quarter.
- The integration of PureSoftware and Aureus has only contributed 40 and 38 days of revenue respectively, indicating that the full financial benefits of these acquisitions are yet to be realized.
- The company's attrition rate, although improved, still stands at 13.5%, which could impact long-term talent retention and operational stability.
- The forecasted revenue growth for FY25 has been adjusted from 35%-40% to 30%-35% due to the delayed integration of acquisitions, indicating potential challenges in achieving initial growth targets.
Q & A Highlights
Q: Can you provide the absolute contribution from the recent acquisitions of PureSoftware and Aureus?
A: We have only 40 days of revenues from PureSoftware and Aureus included in this quarter. The consolidated growth is 17.8% YoY and 11.4% QoQ. The standalone numbers do not reflect the full impact of these acquisitions yet. (Venkatraman Narayanan, Managing Director & CFO)
Q: What were the one-off write-backs in Q4, and how did they impact Q1 results?
A: In Q4, we had INR13 crores of write-backs due to unwinding of payout provisions. In Q1, we incurred INR6.5 crores of acquisition-related costs, which are nonrecurring. The net impact of these adjustments is around INR20 crores. (Venkatraman Narayanan, Managing Director & CFO)
Q: Is the revised full-year growth outlook of 30% to 35% due to the timing of acquisitions?
A: Yes, the revision from 35% to 40% down to 30% to 35% is primarily due to the delayed closing of the PureSoftware and Aureus acquisitions. The organic growth outlook remains strong. (Venkatraman Narayanan, Managing Director & CFO)
Q: Why is there a perceived weakness in the analytics and AI and security solutions service lines?
A: The percentage of revenues from these service lines appears lower because PureSoftware and Aureus have less revenue from these streams. However, absolute numbers have grown, and we see cross-selling opportunities to leverage our capabilities in these areas. (Joseph Anantharaju, Executive Vice Chairman & CEO, Product and Digital Engineering Services)
Q: Can you provide an outlook on the top account, which has returned to growth after three quarters?
A: The top account, particularly in the higher education space, has stabilized. We expect continued growth as they level set their technology investments and potentially make acquisitions. (Venkatraman Narayanan, Managing Director & CFO)
Q: Will the EBITDA margin guidance of 20% to 22% include other income?
A: The EBITDA margin guidance of 20% to 22% includes other income. The operating margin, excluding other income, is 19.8% for this quarter. (Venkatraman Narayanan, Managing Director & CFO)
Q: What is the rationale behind the NCD proposal to raise INR250 crores?
A: The NCDs will be used to replace existing debt and working capital lines at more competitive rates. This strategy helps maintain liquidity and leverage for future investments and acquisitions. (Venkatraman Narayanan, Managing Director & CFO)
Q: Can we expect higher revenues in the next quarter due to the full integration of the acquired entities?
A: Yes, the next quarter will reflect a full 90 days of revenue from PureSoftware and Aureus, which should result in higher overall revenues. (Venkatraman Narayanan, Managing Director & CFO)
Q: Will the competitive intensity from other contractors impact Happiest Minds?
A: We have not seen significant competitive intensity from similar-sized or slightly larger competitors. However, the establishment of GCCs (Global Capability Centers) is a trend we are monitoring and incorporating into our strategy. (Joseph Anantharaju, Executive Vice Chairman & CEO, Product and Digital Engineering Services)
Q: Can you provide a ballpark figure for the expected earnings per share (EPS) for FY25?
A: It is difficult to provide an exact figure due to the one-off costs and integration of acquisitions. However, we expect the EPS to be similar to last year, with a focus on cash EPS and return on capital employed as key metrics. (Venkatraman Narayanan, Managing Director & CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
