Happiest Minds Technologies Ltd (HAPPSTMNDS) Q2 FY23 Earnings Concall Transcript

Happiest Minds Technologies Ltd (NSE:HAPPSTMNDS) Q2 FY23 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

Sunil Gujjar — Head of Investor Relations

Ashok Soota — Executive Chairman

Venkatraman Narayanan — Managing Director and Chief Financial Officer

Joseph Anantharaju — Executive Vice Chairman & CEO

Rajiv Shah — President and CEO, Digital Business Services

Analysts:

Karan Danthi — Jetha Global — Analyst

Nilesh Jethani — BOI Mutual Fund — Analyst

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Manik Taneja — JM Financial Institutional Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Q2 FY20 Earnings Conference Call of Happiest Minds Technologies Limited, hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Manik Taneja. Thank you and over to you sir.

Manik Taneja — JM Financial Institutional Securities — Analyst

Thank you, Ashley [Phonetic]. Good morning, everyone. Thank you for joining us today on the Q2 FY’23 Earnings Call of Happiest Minds Technologies Limited. On behalf of JM Financial Institutional Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this earnings calls.

Today we have with us Mr. Ashok Soota, Executive Chairman; Mr. Joseph Anantharaju, Executive Vice Chairman & CEO, Product Engineering Services; Mr. Venkatraman Narayanan, MD & CFO; Mr. Rajiv Shah, President and CEO, Digital Business Services; Mr. Ram Mohan, President and CEO, Infrastructure Management and Security Services; Mr. Aurobindo Nanda, President, Operations & Deputy CEO Product Engineering Services; Mr. Sridhar Mantha, Chief Technology Officer; Mr. Sunil Gujjar Head of Investor Relations; Mr. Praveen Darshankar, Company Secretary and Head of Legal.

I will hand over the call to Sunil Sunil for safe harbor statement and to take the proceedings forward. Thank you. Over to you Sunil.

Sunil Gujjar — Head of Investor Relations

Thank you, Manik. A very good morning to all. Welcome to this conference call to discuss the financial results for the second quarter ended September 30, 2022. We trust all of you are keeping well and staying safe. I’m Sunil, Head of Investor Relations.

For your review, the financial statements, quarterly fact sheet and press release are available on our website. The agenda for this call is as follows. Ashok will begin the call by sharing his perspectives on the business environment and our results. Venkat and Joseph will then speak about our financial performance and operational highlights, after which we will have the floor open for Q&A.

Before. I hand over, let me begin with the safe harbor statement. During the call, we could we could make forward-looking statements. These statements consider the environment we see as of today and carry a risk in terms of uncertainty because of which the actual results could be different. We do not undertake to update those statements periodically.

Now, let me pass it on to Ashok.

Ashok Soota — Executive Chairman

Thank you, Manik and Sunil. Good morning to all of you and excuse me for my voice at the moment. I am proud and happy to share that in all parameters of revenue growth, EBITDA and others, that Happiest Minds continues to be number one or number two amongst all listed companies who have so far declared results. Our EBITDA margin is behind only one company in the top 10 IT services companies. Moreover, for 10 quarters in a row, we have delivered more than 25% EBITDA, indicating the consistency of our earnings and the strength of our value proposition.

During this quarter, we completed two years of being a listed company. I would like to express my gratitude to all the stakeholders for their continued trust and confidence placed in us. We won the prestigious Golden Peacock award for Excellence in Corporate Governance for the year 2022 within two years of our IPO. This is a validation from the institution of Directors of our efforts over the years to build an institution for our stakeholders with a very strong foundation.

To address the growing needs of our customers and in-line with our strategic expansion plans, we have increased our capacity across our delivery centers. This includes purchase of an additional facility in Bangalore, expanding our center at Noida and our Bhubaneshwar center is expected to be operational by end of November. In the US, we have two new offices, in New Jersey and Seattle. This unprecedented expansion or our delivery capacity is an indication of our confidence in sustaining future growth, in line with our articulated vision statements.

Demand environment continues to be strong and we will continue to focus on initiatives that further give impetus to our already strong organic growth, I’d like to give all of you best wishes for Deepavali.

And I will now hand over to Venkat, who will give you all the numbers to support my above statements. Thank you.

Venkatraman Narayanan — Managing Director and Chief Financial Officer

Thanks, Ashok. Good morning to you all on the all. Happy to be presenting a good set of numbers for our second quarter of FY’23. It’s been a good quarter and a good half year from all fronts. In dollar terms, our revenues were at about $44.3 million showing a sequential growth of 5% and a year-over-year growth of 23.8%, let’s say 24%. Our growth in constant currency…

Operator

Sorry to interrupt. Sir, your volume is low.

Venkatraman Narayanan — Managing Director and Chief Financial Officer

I’m on full volume. Can you hear me now?

Ashok Soota — Executive Chairman

Yeah, go ahead Venkat. Your volume was fine actually.

Venkatraman Narayanan — Managing Director and Chief Financial Officer

Our growth in constant currency was 5.7% on a sequential basis and about 26.5% on a Y-o-Y terms. With this quarter, we’ve had nine successive quarters of 5% plus growth in dollar terms. Coming to rupees. In rupees, our total revenues for the quarter were about INR359 crores, showing a sequential growth of 9.8% and the year-over-year growth of 23.9% or 24%. Our EBITDA for the quarter was INR94 crores, which is 26.3% of total revenues and as Ashok referred, we are in the top — one of the top listed IT services companies with respect to this number and the growth parameters that I talked about.

Volume growth, operating leverage in terms of better utilization, rates increase, increase in other income and a favorable exchange rate helped as set off a large part of the pay increase that came in this quarter, while helping maintaining our profitability levels and delivery above margins. With this quarter, we have had 10 successive quarters of EBITDA which is 25% plus, that’s an interesting metric that we’ll be putting forward.

And coming to PBT and PAT, we ended the quarter with profit before tax of about INR81 crores, which is about 22.5% of revenues compared to INR76 crores and 22.9% of revenues in tthe previous quarter. Profit after tax was 16.8% and about INR61 crores, compared to the 17.1% and INR56 crores in the previous quarter. EPS was at INR4.17, showing a sequential growth of 7.5% and a Y-o-Y growth of 36.3%. Our effective tax tate has remained almost at a steady 25.5% over the quarters.

A few highlights of our performance for the first half of the year are, dollar revenues stand at about $86.5 million, showing a growth of 25.5% on a year-over-year basis. Total income in rupees was about INR684 crores versus INR509 crores for the previous half year, showing a growth of 34.4%. EBITDA was INR182 crores versus INR116 crores, showing a growth of 33.5%. So you can see good growth in revenues, total income, and consequently EBITDA. Our performance in the first half of FY’23 has shown significant growth in revenues and profit and is in line with the annual guidance of 25% plus that we had stated earlier.

Some of the operational highlights on our performance for the quarter are, While supply side constraints remain, our attrition numbers have started slowly trending down and on an LTM basis it is — it stands at about 23.5% compared to the 24.4% in the previous quarter. Our attempt to keep those numbers at check and trending down is what we will be focusing on — continuously focused on as we move forward. Utilization levels continued to be high and was at 80.6% compared to 79.1% in the prior quarter. Like we mentioned earlier, we would like to ideally keep this in the range of 78% plus, but however as you know, supply-and-demand situation has warranted us to have those utilization run at the high levels of 80% plus.

We have added 393 Happiest Minds during the quarter on a net basis. This number add a decent number of campus hires, which is about 240, who joined us this quarter. Our diversity metric was at 27.6% of women Happiest Minds compared to the 26% in the previous quarter. As you know, this is the number that we focus on and it finds its way our vision statement thus far.

Revenue share of verticals has shown increase in almost all the verticals except for a slight drop in retail and industrial, and the primary reason for this has been completion of projects with a couple of large customers that we have been dealing with. Repeat business continues to be 91% of our revenues and this stands testimony for the land and expand strategy that we have been following with our customers.

We ended the quarter with about $40 million customers and count amongst them about $54 billion corporations who have revenues of more than $1 billion. That means, we have got $40 million customers and a total of 220 plus customers, and out of which about the 54 corporations have revenues of more than $1 billion and essentially large corporations. We continue to generate healthy cash flows. Aad for the quarter, free cash flow was about INR86 crores, which is about 90% of our reported EBITDA.

As mentioned on the call last quarter, we have deployed about INR128 crores in the purchase of office space in Bangalore, funded primarily through long-term fixed-rate debt of INR120 crores. Looking at the interest rates today, the fixed-rate of 4.2% on the loan make the deal very sweet. We have significant other operating leverages coming out of the transaction and I had covered this in little bit of detail on the last call and it also lends itself as a natural hedge to us. The impact of those loan and this purchase is positive from a P&L standpoint on the cash flow impact standpoint versus rental or lease arrangement that we would have ideally had for those buildings.

Cash and cash equivalents at the end of the quarter stoot at INR670 crores and our capital return ratios continues to be very healthy. Return on capital employed at the half year stands at 35.4% and return on equity stands at about 31.43%. Happy to state that keeping in line with our progressive dividend policy and capital allocation discussion, the Board of Directors of the company have declared an interim dividend of INR2 per equity with a record date of November 3, 2022. Cash outflow on discount will be about INR29 crores.

Finally, as you may have read in the press, the Board of Directors of the company at its meeting held on October 5, 2022 has approved an enabling resolution to raise capital of amounts not exceeding INR1,400 crores. We have now reached out to our shareholders for their consent and the postal ballot process is in progress. Post shareholders’ approval, the Board and the designated committee of the Board — designated committee the Board will decide the next course. The main use of funds will be to fund our inorganic growth aspirations of the company. Ashok did briefly touch upon the Golden Peacock Wward that we were awarded this quarter. Extremely proud to say that we have been able to win this at such a young stage of growth of our company.

With this, I conclude my commentary. Wishing all the participants on the call a very happy Diwali and Dussehra. And now turn it over to Joseph for his comments.

Joseph Anantharaju — Executive Vice Chairman & CEO

Thank you, Venkat. Very good morning to all. We continue our march with a strong set of numbers which reflect our ability to grow profitably and at scale. Growth cut across business units, centers of excellence, geos and verticals, reflecting the relevance of our services to our customers. We are executing bold programs for our customers in their journey to drive growth, cost optimization or both, and to build a resilient enterprise. Our proven land and expand strategy it’s helping us make deep inroads into our customers’ digital journey by increasing our wallet share, which is validated by our average revenue per customer consistently trending up. In the reported quarter, it is at $812,000 compared to $783,000 a year-ago.

Our three business units, product engineering services, digital business services and infrastructure and security services, between them served 226 customers, out of which 55 are billion-dollar enterprises, with 40 customers contributing more than $1 billion in revenue. Through an efficient sales organization and sound account management practices, we able to seamlessly take our offerings across the three business units, resulting in 42% of revenues being across BU [Phonetic]

Enterprises are running compressed transformational initiatives, leveraging the power of digital. For a US-based food retailer, we have been chosen as a strategic partner in their journey to drive e-commerce initiatives. Our customers are deploying outstanding customer experiences across various touch points to increase customer confidence, happiness, brand loyalty and advocacy. For example, a Europe-based mature start-up in the real-estate tech has chosen us to enhance their digital platform to map the entire customer journey from sales to aftermarket. Cyber security continues to be most important than ever. Through our integrated security capabilities from identity to threat to managed security services, we’re helping our customers intelligently assess, manage, detect, and respond to cyber risk. For example, a leading fashion clothing and accessories brand the A&P region chose us to assist their your cyber security, identify threats and gaps and implement remedial measures.

Our best and depth of capabilities help us to drive value across customers business lines. For example, using intelligent automation and superior data visualization techniques, we are able to help our US-based global energy company drive efficiency and take timely decisions across their strategic lines of business. This still most often than not is a force multiplier for enterprise. And in fact, full proof-of-concept engagement done for a business unit can soon open doors for much larger engagement within the customers ecosystem. For example, this FMCG major chose us to implement Microsoft Power Automate platform in a Sout East Asian territory to automate their order entry and purchase requisition processes based on our success in other regions with the same customer. Our compelling people engagement program and the wideband carrier prospects we provide offer value proposition that has [Technical Issues]

During the quarter, we welcomed 393 new Happiest Mind, which includes 247 campus graduates. Great Place to Work. Institute has yet again recognized us the top 50 Best Workplaces for Women and we are ranked 58 among Best Workplaces in Asia. We have grown to 4,500 plus smart and innovative Happiest Minds who are adding tremendous value to our clients for the strategic initiatives. We are also continuously evaluating acquisition opportunities to fill gaps in our offering, strengthen our focus in the market we operate and position us on the leading edge of technology.

Coming to the macro, technology permeates every part of our customers’ business, they’re accelerating growth and transformation agenda, while continuing to build a strong digital core to drive agility, efficiency and resilience.. So in spite of a longer than usual inflationary period and extended geopolitical conflicts causing a little bit of anxiety, demand remained strong, and as of today has not resulted in any major curtailment of spend nor any postponement of projects.

Our strategy will be to keep a close watch on the market to anticipate our customers’ needs in advance, enhance any needed technical and domain capabilities and be a customers partner from strategy to execution to solve their business problems and seize market opportunities, while remaining laser-focused on quality deliveing.

With this, I conclude my commentary. Best wishes to all but happy to Deepavali. Operator, we can open the floor for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have our first question from the line of Karan Danthi from Jetha Global. Please go ahead.

Karan Danthi — Jetha Global — Analyst

Yeah, hi. Thanks for taking my question. Could you explain what proportion of projects are related to cost takeout or optimization because that seems to be — where a lot incremental projects are coming from based on what your peers are saying. If I understand was that — what that proportion is?

And then, I guess the second question would be, if you think about your customer base and the exposure you have and how you’re growing, certainly there is some customers, i.e., startups, which are going to see some headwinds, some enterprises in Europe as wel, maybe. And then there are other customers where digital spend is the last thing they cut. So if you could just frame a little bit of the, I guess the puts and takes across your customer base that would be helpful.

Joseph Anantharaju — Executive Vice Chairman & CEO

So, we really don’t — we’ve not been tracking our revenues across cost takeout and growth and other areas because for several of our customers some of these initiatives are actually contiguous, especially if you look at the mid-size customers and so we’re not being differentiating or tracking this. But in terms of start-ups and Europe enterprise, out exposure to startups is on the lower side and probably it would be in the single digit as a percentage so the impact has not been much in the past had been space, most of the customers that we work with are either mid-sized product and platform companies or most of them are larger product companies which has been a strategic choice that we made because the spends with these customers is much larger. We do have a few startup that we work with and the impact out there has been minimal.

In terms of Europe, we we get around 10%. This quarter was 9.5% or so of revenues from Europe. We’ve seen a little bit of lengthened sales cycle out there, but given that our exposure to Europe is the single-digits, again we’ve not really had much of an impact. Rajiv, you want to add anything, Rajiv?

Rajiv Shah — President and CEO, Digital Business Services

Yes, a couple of things. Karan, if you look at what we serve our customers is driving the digital transformation in their entire ecosystem, which seem to product bill, to integrate, to run digital ready applications. So it’s really thinking about utilization of new technologies, adaption of new technologies — disruptive technologies for really help them try the change in the business model as well as their approach to the customer. So that I think was first part of the questions.

But when you look at some of the newer investments we have made in the areas of low-code environment, which looks at how do we help you reduce your — not only get your platforms out to the market faster, but in the long-run to reduce your support and maintenance cost as well. So it’s not really a cost takeout, but it’s a cost optimization activities that we get involved in by implementing new set of technologies and new sets of disruptive digital-ready platforms in their environment.

Specific to Europe, I think that our large accounts continue to grow and we continue to see the momentum, but at the same time the sales cycle are little bit longer and continues to be cautiously optimistic market for the entire IT services industry.

Karan Danthi — Jetha Global — Analyst

That’s very helpful. Maybe just a quick sub follow-up on the local no-code. Is that — are you building proprietary platform that you simply sort of [Indecipherable] on others — for other companies to provide local market.

Joseph Anantharaju — Executive Vice Chairman & CEO

So think that there — so we have set-up a center of expertise for a low-code environment as part of our digital process automation initiatives. And within that we are going to use set of technologies, whether it’s Microsoft platforms, out systems, etc. But the approach we have taken is how can we look at the current environment that they have or current initiatives that have, relook at in helping them build, get those platforms out in the market earlier than what they had planned for, help them reduce their support and maintenance costs. So yes, we do have set of technologies that we work with. At the same time, it is the changed management and consultative engagements that we go through to really identify the opportunities because some of the applications may not be ready for local kind of an environment.

Operator

Does that answer your question, sir?

Karan Danthi — Jetha Global — Analyst

Yeah, yeah, yeah. I guess I can go back in the queue.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Manik Taneja from JM Financial. Please go ahead.

Manik Taneja — JM Financial Institutional Securities — Analyst

Hi, thank you for the opportunity. I just wanted to pick up Ashok’s thoughts on the fact that right now everybody is worried about the macro volatility and given the experience of what we’ve seen in 2008-’09, do you think a company of our size and the fact that we have spread ourselves across multiple verticals as well as multiple segments, so players like us virtually may be at a disadvantage if customers look at vendor consolidation exercises.

And the second question was with regards to our longer-term aspiration of getting to $1 billion in the yields. How much of that essentially bakes in the organic component give the recent development on increasing outset capital? Thank you.

Joseph Anantharaju — Executive Vice Chairman & CEO

So I’ll take the first part and I’ll as Venkat to chime in on the second part of your question, Manik. The fact that we are operating in multiple verticals in a way acts as a risk mitigation and diversification. And again, if you notice, we have not gotten to every vertical. We prioritize some verticals within the ones that that we are currently focusing on and reporting where we built much deeper capability and expertise. Now going to the risk from consolidation with but most, if not all of our customers, we are an integral part of their digital transformation journey, and with many of them we start off working in a very early phase of their digital journey, helping them with some of their proof-of-concept, validation, figuring out the right kind of technology stack, and therefore we are an integral part to understand what they’re trying to achieve and therefore the risk from a consolidation exercise was carried out is much lower given that we are critical to the journey. Venkat, you want to take the second part of your question.

Venkatraman Narayanan — Managing Director and Chief Financial Officer

So, Manik, if you recollect, we have talked about the 20% organic growth for the medium-term and then maybe 15% after that in the previous quarters, and then the last quarter we then decided to merge both organic, inorganic consistent and said that we want to grow 25% for the next X number of years so that we can tough that billion dollar number. So the difference between the 20%, 15% organic growth and the 25% consolidated growth over the next X number of years by 2031 to reach the $1 billion number has to come in through acquisitions. And if my numbers are right, if we had done about 20% followed by 15% for the next three or four years, we would have touched a number of something like $750 and $780 million by 2031. So effectively, as part of our — if we had to make that aspirational number of $1 billion, we would have had to add about $250 million in the last year of the 10-year horizon, or the 10-year year perid that we’re talking about through inorganic means, which means we have to acquire one or two companies or maybe even more of it would be bolt-ons which will add to that number over this period from today to 2031. Does that answer your question, Manik?

Ashok Soota — Executive Chairman

Can I just add a little bit also, Venkat. There is quite a lot of information. I think, Manik, as you know, an acquisition is a lumpy process, in the sense will add a solid amount of revenue. It may happen in one year, it may not happen in the next. Though we increased our guidance to 25%, factors that all of the current years growth is really organic. So I don’t think that we can make that artificial distinction. There will be a fair share of acquisition and there will be continued strong organic muscle growth. So basically that’s the way we are working and in that way we will certainly keep in mind our vision which we expect to achieve.

Manik Taneja — JM Financial Institutional Securities — Analyst

Sure. Thank you for that. And if I can prod you a little bit on that acquisition pursuit, if you could help us understand what are the kind of targets that looking at? What are the typical revenue or margin for the targets that you looking at? And then subsequently I have a couple of follow-up questions related to the operating performance of the quarter.

Ashok Soota — Executive Chairman

Venkat, I guess on this question we really can’t make any forward-looking statements, but you can address it.

Venkatraman Narayanan — Managing Director and Chief Financial Officer

The first question, we are looking at pure digital assets which will be in areas of Just to identify a few areas like in asset DC, sales, areas of security, certain key verticals into which we would like to grow further and maybe that are horizontal technologies which will serve to certain key verticals, like [Indecipherable] was for us when we did that acquisition a couple of years back. So that’s the area that we’re looking at and it will be pure-play, digital capabilities, digital assets because we don’t want to dilute our positioning which is about 97%, 98% digital business that we are going today So that’s on the indentification of the target.

As far as, there is one more angle to which geography. We are looking at companies in US, Europe, India. India, if there is capabilities on the delivery front, US companies with India, or let’s say offshore delivery capabilities, it could be in India, it could be in Philippines or it could be in another area from offshore delivery capabilities are typically built. Same thing goes for UK. We are not looking at pure-play 100% onsite4 company as of now, I think that that’s something like Ashok mentioned as we progress we could look at it in force. So that’s on the landscape of targets that we’re looking at and we are working very closely with sell-side bankers, buyside bankers on this internally and we have also appointed bankers for that purpose. So that’s something on the acquisiotn front.

With regard to the profitability, we have been delivering 26% of profits EBITDA numbers. So when we look at acquisitions, we’ll be mindful of the fact that we do not want to dilute that too much. Obviously, you know, you have, there are puts and takes on that if it adds capabilities you are willing to and there is a huge growth possibility you have to factor that in. So it’s not it’s not that we are stuck to the 26% number but we do not want to also take a loss-making company or something where we need to turn around the operation from there and the like from there, because we are looking for capabilities of strategic imperitus when we do an acquisition and that’s what will driver us forward when we look at companies.

Manik Taneja — JM Financial Institutional Securities — Analyst

Thank you for that, sir.

Operator

[Operator Instructions] Can I request the management team to mute their lines if they’re not speaking. [Operator Instructions] We have a question from Mr. Karan Danthi from Jetha Global. Please go ahead.

Karan Danthi — Jetha Global — Analyst

Yeah, so I’d love to understand why you win business. I will be really helpful to understand what is the — what is the reason you win digital business vis-a-vis your peers? Is it specific competencies which are hard to recreate elsewhere? I’ve always loved to understand what are the dynamics that justify why you exisit, I guess in a sense as a pure-play versus being as part of a large organization.

Joseph Anantharaju — Executive Vice Chairman & CEO

So, Karn, in different scenario there are different reasons but some of the reasons why we win business from a customer and one of the studies that has really worked well for us is the land and expand strategy. And as I mentioned I alluded in my previous response. With many of our customers we get involved in the early stages of their digital journey and it’s here that some of our strengths really play out well. The focus that we have on the digital space and the debt that we have in digital technologies allows us to help our customers to bridge the gap between their business objectives and the technology landscape. And being a relatively smaller company and being a born — digtial born agile company we’re able to be very nimble in how we work with them and adapt to their compulsions. And once we’ve established ourselves as a partner of choice and they take these initiatives into implementation phase, we become the partner that they go along with. So depth in digital technologies, the agility, the quality of our people both in terms of their technical capabilities and their attitude as born out by all and the happiest people, happiest customers mission. And off late, the domain capabilities that we’ve been building up and the consulting approach that we take to our customers is what has allowed us to compete in the marketplace and win business.

Ashok Soota — Executive Chairman

Yeah, adding to that Joseph, just I want to give a couple of other points. Our focus in terms of agile infrastructure or terms of multi-cloud adaptations on multi-cloud management and migrations and full circle security, right? And these are some of the areas which we specialize in apart from analytics or digital process automation. And those also puts us a little bit, given we are the specialized service providers capability.

Rajiv Shah — President and CEO, Digital Business Services

Just to add couple of things as well. This is Rajiv. So I think that one area that makes us unique is our ability to invest ahead of the forecast is all of us appreciate that technology disruptions are taking place at a much faster pace. So how much in ahead of forecast that we have continued to invest to really help our customers take advantage. So like Blockchain or drones or even a low-code environment, etc., we continue to invest quite aggressively before the real need is identified, this is one.

The second one I think is really we continue to carry a high-net promoter scores customer satisfaction. So a lot of our business comes from repeat set of customers, 92%, more than 92% of our business is repeat customer. And the third aspect is customer referenceability. We continue to get good references from our existing customers or customers have moved to a new location or new company, they continue to attract us as well. So continue to deliver good stuff, continue to look at the investment ahead of the forecast and maintain the sort of customer relationships which as wil win. Got it. Thank you. Thank you. [Operator Instructions] We have a next question from the line of Nilesh Jethani from BOI Mutual Fund. Please go ahead.

Nilesh Jethani — BOI Mutual Fund — Analyst

Hi. Good morning, sir, and thanks for the opportunity. So my first question was, just trying to understand on the acquisition fees. I do not need any specific numbers, but typically when we’re looking out for acquisition, what is the size? In a broad range, can you explain? On similar lines, margins, I believe we are at a high number today, so target would be at lower numbers. So what we would do after acquisition in a year or two to scale up the margin? So what’s the thought process on this? Because the acquisition of, I would believe it have a decent size itself considering the number of INR1,100 crores, INR1,200 crores of planning to this.

Joseph Anantharaju — Executive Vice Chairman & CEO

So, Nilesh, on acquisitions itself, we have been looking at the landscape available with the qualification criteria that I just talked about a couple of questions back. The company sizes range from anywhere between $10 million to let’s say it goes all the way up to $50 million or even $80 million. So that’s the range at which we get targets now a days. And digital assets typically tend to be slightly more expensive than your typical older technologies or traditional technologies. Both of them go hand-in-hand when you talk about the amount of money that needs to be deployed. So one is, it’s a digital asset and the size of the acquisition. Most of the companies that we’re looking at given the — given that we have shared the criteria are in the range of 20% plus in terms of profitability, 20%, 21% profitability either on a standalone on an adjusted basis.

So to answer your question, we are not getting any of those loss-making companies or the ones which require us to do a lot of turnaround and all of that. So that’s the landscape. And the size is anywhere between $10 million to $50 million. And if you look at it, a $50 million company would require a little bit of outlay. And this money that we are seeking to raise is just not, maybe not for one acquisition, it would be kept aside and we could do, let’s say one or two for that matter. The idea is to make sure that we raise capital ahead of time, be ready. It shows; one, seriousness in the process. It also sends a signal out into the market. Second is also the need to ensure that we deploy that capital raise quickly enough to make sure that we don’t track our return on capital employed or equity and all of that. And at the same time also add to the business musscle that’s required. But while doing all of this, nobody is taking their eye off the organic growth and like I have said in the past as well, that muscle is distinctively strong than most companies that are around when we are looking at acquisitions or when we look at other companies around this.

Nilesh Jethani — BOI Mutual Fund — Analyst

Got it. And on the target, broadly I wanted to understand today our offshore, onsite mix is skewed towards 95 and 5 broad range. So the target if it’s more of a company into a foreign location, would we look to convert more offshore and stuff like that or we would make it run into a on-site location only going ahead also. If you, for say acquire a company in a foreign location.

Joseph Anantharaju — Executive Vice Chairman & CEO

That would be a strategy that will be laid out along with acquired company, the target company. But what I have been saying in the past is this 95:5 has happened because we are working on digital capabilities in an agile manner which lends itself lots of offshoring. That’s not something of a number that we are married to. So tomorrow if we get a great asset which happens to be, let’s say 50:50, or 75:25, it’s not that because it’s not 95:5 or heavily leveraged to offshore we will not say, that’s not something that we will look at acquiring. What I’m trying to say is the number of 95:5 is there, but it does not hold me from looking at a target which is doing good business, profitable business, has growth capabilities, and along with us will grow to become a larger enterprise. But these are the things that we will look at rather than say what we have to look at a company because that 95% and that is the metric that cannot be disoted.

This very similar to average. We were very proud of the fact that our average revenue per customer has been trotting up. We are at about $812,000 today. When you acquire a company with capabilities and with a set of customers, there is a possibility that number can go down. But that is not going to be the determinant of me to say, you know what I can’t acquire, I don’t think I should acquire. The metrics are what we are putting out to show you or to display the capabilities, the land and expand that we’re doing rather than that becoming a bottleneck for me to do an acquisition. Long answer, but I hope I’ve answered it.

Nilesh Jethani — BOI Mutual Fund — Analyst

Yeah, that’s really helpful. Second piece was on the Hi-Tech segment. So post two quarters of some de-growth, we have seen upside on that. So wanted to understand lot of IT companies are talking about some slowdown into the segment after a huge or like a strong base of last year. So from Happiest Mind perspective, where are we? How do we see at this segment going forward? Is it one-off reversal or you believe that a strong base will keep impacting the growth rates? Any thought process on that?

Joseph Anantharaju — Executive Vice Chairman & CEO

So if you see the Hi-Tech vertical, actually exhibited a strong growth in Q2, and we expect that this trend will continue. I know we just see Microsoft making an announcement and there is some caution in this space, but we’ve not seen any pullback so far except for when some initiatives or programs get over and they reach a logical conclusion and then the team size obviously gets reduced once the initiative is implemented. So far we’ve not seen any signs of pullback in this segment because the end-customers are still making investments and digitizing and moving their applications to the cloud. They’re leveraging SaaS applications more than ever. They need to use analytics tools and move to adopt various big data platform. So all of those are playing out. You need to automate using some of the tools and frameworks available. So all of these things are playing out. Security is a huge, as I mentioned earlier, is a huge area riks and an an conversion opportunity for the Hi-Tech space. And in the last one, one and half years we’ve signed up three or four customers, pretty large customers in the security space. So the various parts of Hi-Tech where there is enough demand and there continues to be spend.

Nilesh Jethani — BOI Mutual Fund — Analyst

Got it. And one last question from my side. Across segment, be it from tech to manufacturing industrial and the work we do, I believe digital is largely now core to most of the clients. But if I want to just bifurcate at a discretionary and non-discretionary. The question I’m asking because there is a thought process of impending recession going forward. So can you just bifurcate or help me understand what percentage of overall revenues you can bucket into our discretionary and non-discretionary, on a very broad scale?

Joseph Anantharaju — Executive Vice Chairman & CEO

See, the very definition of discretionary and non-discretionary, these are conversation we have internally and sometimes with customers. That itself is — I think has undergone a change. For most customers their digital application and infrastructure has become core now. And in fact, what we’re seeing is that customers are trying to pull money out of thier BAU or business-as-usual technology and infrastructure landscape, in some cases to fund the digitization journey. And therefore the previous way of looking at discretionary and non-discretionary, I believe has undergone a change.

Nilesh Jethani — BOI Mutual Fund — Analyst

So, let me ask this question in a different way. Has over the last six months we have seen any delays in conversation with clients or approvals for a particular project because 80%, 85% is repeat business to us. So any deferment what we have absorbed?

Joseph Anantharaju — Executive Vice Chairman & CEO

Nothing that is out-of-the usual, right, given in the last two years. At times you would have seen based on the company and the business unit that you are working with, their performance, there would be sometimes when a project or initiative could get delayed by a few months and very often if it’s slated to start, let’s say November or so or December, it could get pushed out into January. Those are the kind of things that we are seeing. We’ve not, as we mentioned, both Ashok’s and my initial comment, we’ve not seen any major pullback or delays of programs or initiatives. And in Europe we are seeing a slightly lengthier sales cycles which is understandable given some of the churn that you’re seeing out there in that geo. But again as I, as Rajiv and I mentioned earlier, it’s a smaller part of our business.

Nilesh Jethani — BOI Mutual Fund — Analyst

Got it. Got it. It was really helpful. Thanks again for replying to each one of them and all the best for the future quarters.

Joseph Anantharaju — Executive Vice Chairman & CEO

Thank you.

Operator

Thank you. Wwe have a follow-up question from the line of Manik Taneja from JM Financials. Please go ahead.

Manik Taneja — JM Financial Institutional Securities — Analyst

Thank you for that opportunity. Just wanted to get your thoughts around the fresher addition that we saw this quarter. It appears that the fresher addition was was much lesser than what you had initially envisaged. So if you could help us understand what drove that and also talk about the fresher hiring plan for second half of the year?

And the second question was related to that, that that despite such and overall net addition, what drove the higher utilization?

Joseph Anantharaju — Executive Vice Chairman & CEO

Sure. As we mentioned in our press release, wee’ve had 393 net addition of which 247 are campus graduates. We would have liked this number to be a little higher, but we did have a few dropouts. Our special addition is broken up into two categories. One is the campus hires, the recruits. And we also go to finishing schools, especially on the IMSS, the infrastructure space where the skill-set required is a little different and specific. And in this quarter itself we’ve had that 40 to 50 such freshers who come from training school inducted into the IMSS business unit. In addition to augment this on a quarterly basis depending on the kind of skills that we need and which are in deficit, we go to finishing schools. We have a few of them that we work with and we would — we bring people on-board, which is what we would be doing over the next six months as and when required. But for the next three months I would say because the campus graduates that we brought on-board are oing through the induction and training program and would be available for absorption into projects by end of November, and the focus would be on ensuring that we are able to get them into projects, get them ramped-up at billable. And if there is any deficit, we would go to these finishing schools.

Operator

Does that answer your question?

Manik Taneja — JM Financial Institutional Securities — Analyst

Yes. Thank you.

Operator

Thank you. We have the next question from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Hi sir, I joined the call a bit late. So just again, if you can share like, what macroeconomic conditions are impacting your decision with client? And also the order intake process. Is there any delay or deferment you are facing at this moment?

Joseph Anantharaju — Executive Vice Chairman & CEO

Rajiv, you want to take that, Rajiv?

Rajiv Shah — President and CEO, Digital Business Services

Yeah, so, Chirag. Of course, we are closely watching the macroeconomic environment. But at the same time, I think that we continue to get involved with customers with the discussions on the digital transformation journey. There are pockets that, like Joseph highlighted in Europe that there are some longer sales cycles compared to what it was earlier and rightfully so with all the changes that are taking place which are happening on real-time basis. But overall we have not seen any significant change in the level of discussions that we’re having with the customer or closing of the contracts or collecting money from the customers either. And nowhere in the contracts that we have been asked to even renegotiate the price, instead we have been able to go and get the higher rates for some of the specialized set of activities as well. So overall, we continue to be cautious, at the same time haven’t seen the real impact on drivers for our growth, which gets reflected in the numbers that we just presented.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

So will it make any impact in the near-term target or turnover which we put like as part of our strategy?

Joseph Anantharaju — Executive Vice Chairman & CEO

So we will continue to hold onto whatever guidance that we had provided ealier.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay, sir. Thank you so much and all the very best.

Joseph Anantharaju — Executive Vice Chairman & CEO

Thank you.

Operator

Thank you. We have our next question from the line of Karan Danthi from Jetha Global. Please go ahead.

Karan Danthi — Jetha Global — Analyst

Yeah, I just. I’m very kind of curious. There is this just kind of top-down view if one thinks to it that software is a deflationary force. If we’re going to get out of this inflation spiral, you sort of need the investment in order to get there. I mean, I’m just curious sort of, yes we’re seeing some deal delays, but the composition of the deals as you mentioned –you have low-code, no code should support sustained levels of activity in certain areas. I’m curious where are you seeing acceleration of interest and investment? And let’s assume this environment does not change for the next year and a half, I hope it does, but let’s assume it does not. Which pockets of software you think will attract investment? And which pockets of software do you think will will detract investment?

Ashok Soota — Executive Chairman

If I may just say half heartedly [Speech Overlap] No, no I’m just saying you need more of an economist to respond to your question, it is very broad. Firstly. I must tell you I don’t agree with you that it is an inflationary force, that was the starting point. Having said that, okay let’s go straight away to your second part of your question which says what are the segments which will grow faster or which the ones which are going to continue to attract more attention. In a growing economy frankly everybody need royalty, it is indispensable. It is wrong to think its inflationary. It is bringing down costs on return. Look at the games that you get out since the investments that you make. So productivity improvement is far higher than any inflationary thing that you require. So I’m not sure how you got that. I do disagree with you on your observation. My short answer would be that every segment will continue to grow and it’s fairly evident. So what are the high-growth segments, but Joseph may want to add a little bit more and maybe even Rajiv.

Joseph Anantharaju — Executive Vice Chairman & CEO

Sure, sure. Again, if you look at — I think there’ll be two broad areas which will benefit, a focused company like Happiest Mind. One is, there still continues to be a paucity of talent in most — technical talent in most of the markets and so that will continue to drive demand for services from companies like Happiest Mind. And the second is if this inflationary trend continues and customers have to optimize their cost, they will look at offshoring as a way of still getting work done without, while managing the cost. And both I think are pro offshoring and in favor of a company like Happiest Mind.

Ad again within each industry you will see specific areas that will draw attention. For instance, in the industrial space most customers are looking at adding connectivity and looking at how to pull data out, how to have cloud platforms into which they can get this data and then post that, analytics becomes a huge piece. Some of them are little more advanced in their journey, others are beginning their journey. At the same time, they looking at how do they make the devices also more intelligent. So the two broad trends over there. If you get into manufacturing, they’re looking at how to digitize their plangs, how to adopt some of the newer technologies, how to adopt things like e-commerce and then remote monitoring just given the challenge they had in COVID and I can get into other verticals, so I thought I’l take couple of examples because each vertical has something specific that that is being impacted by the the digitization trend which affords opportunities and that need to be done by customers. Rajiv, you do want to add Rajiv.

Rajiv Shah — President and CEO, Digital Business Services

Yes, so just a couple of things, that I think that customers will continue to evolve the new business models and our responses will continue to help them find new ways of doing things, right? So while technology landscape will continue to change and I think just picking up Joseph’s example on manufacturing. ERP was a standard flat better for lot of organizations when they were establishing, but — so now we look at manufacturing or industrial or retail CPG more, connected devices, how to utilize data, etc. So from that perspective, yeah technology landscape for utilization of technology will continue to evolve and within that maybe specific set of technologies might become redundant and come into play, but our ability to continue to look at new ways of doing things and take advantage of the newer technologies, that’s going to be continously challenged. So just wanted to differentiate it. Yeah, the technology will have all self life but continue to innovate and finding ways for them to become more efficient and effective is not going to change.

Operator

Mr. Danthi?

Karan Danthi — Jetha Global — Analyst

Thank you.

Operator

Thank you. I would now like to hand the conference over to Mr. Manik Taneja for closing comments. Over to you, sir.

Manik Taneja — JM Financial Institutional Securities — Analyst

Thank you. On behalf of the, entire team at JM Financial Institutional Securities, we would like to thank the management of Happiest Mind Technologies for giving us the opportunity to host this call. I’m going to pass over to Sunil for any closing comments. Over to you, Sunil.

Sunil Gujjar — Head of Investor Relations

Thanks, Manik. Thank you all for joining us today. We thank JM Financial Institutional Securities for hosting this call on our behalf. We look-forward to interacting with you. You may want to reach out to me at ir@ happiestminds.com. Best wishes to all for Deepavali. Good day.

Operator

[Operator Closing Remarks]