Broker’s call: Happiest Minds (Outperform)

International check

Target: Rs 1,096

CMP: INR 846.75

The happiest of minds Revenue reported in the fourth quarter of fiscal 2013 At Rs 378 crore (3.2 per cent lower than our estimate), up 25.8 per cent yoy and 3 per cent qoq. Revenue in cc grew 1.3% qoq and 17.6% yoy to $46 million (+1.4% qoq and +15.2% yoy in ₹ terms).

Ninety-nine percent of total revenue came from next-generation digital transformation businesses while 94 percent came from agile business solutions. The fourth quarter results include a contribution from the SMI business acquired on January 23 (revenue contribution of Rs. 17.80 crore). Management is hinting at a good Q1 on the back of deal closings and a strong pipeline.

EBITDA margins for the fourth quarter of fiscal year 2013 were 21%, flat year-on-year and down 72 basis points quarter-on-quarter. Margins were marginally affected due to a lower level of utilization of 74.6% versus 80.1% in the third quarter. However, the company delivered a healthy EBITDA margin of 26.2 percent beating margin guidance of 22-24 percent.

We believe the company has a huge opportunity in cloud migration, modernizing legacy applications and platforms, and monetizing data by building data platforms and applying analytics. We have revised our forecasts taking into account management guidance and macroeconomic uncertainties. We maintain our Outstanding Performance rating and give a discounted cash flow (DCF) based price target of $1,096 (implicit PE of 53 times FY24 EPS of $20.5).