Happiest Minds Technologies Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from Happiest Minds Technologies Ltd (HAPPSTMNDS) Q4 FY24 Earnings Concall

• GenAI Business Unit
  • Dedicated business unit for Generative AI, a transformational change in IT industry.
  • 14 active customers across industries, 20 projects spanning use cases like chatbots, learning simulators, contract management, sentiment analysis, content generation.
  • Building replicable solutions across industrial technology streams.
  • Plans to train all engineers in GenAI, unit expected to grow to 250 employees by year-end.
• Acquisitions
  • Acquired PureSoftware and Macmillan Learning, strategically aligned to enhance profitability and productivity.
  • Added 1,250 employees, strengthening BFSI, Healthcare, and EduTech industry groups.
  • Selective and valuable acquisitions after a careful wait.
• Bioinformatics Capability
  • Collaborating with medical research community from prestigious institutions in India and abroad.
  • Working on solutions using metagenomics on gut microbiome, anomaly detection in MRI/CT scans, and large cohort research studies for early disease prediction.
  • Transformational and significant value-added area for the population.
• Financial Performance
  • Total income of ₹1,710 crores, 18% growth year-over-year.
  • Operating revenues of $196 million, 11% growth in constant currency.
  • EBITDA of ₹421 crores, 24.6% margin, beating guidance range for 16th straight quarter.
  • Profit before tax (PBT) of ₹335 crores, 19.6% of revenues.
  • Profit after tax (PAT) of ₹248 crores, 14.5% of revenues, 7.5% growth YoY.
  • Strong cash conversion, free cash flow of ₹411 crores, 97.5% of EBITDA.
• Operational Highlights
  • Ended the year with 250 customers, net addition of 13 customers.
  • Crossed milestone of 5,000 employees (organic), net addition of 251 employees.
  • Utilization rate of 75.1% in Q4, drop due to hiring for GBS and recent campus hires in training.
  • Attrition rate dropped to 13% from 19.8% in the previous year.
• FY25 Guidance
  • Estimated revenue growth of 35% to 40% for FY25.
  • EBITDA margin guidance of 22% to 24% for FY25.
  • Guidance factors in significant investments, acquisitions, drop in cash reserves, investments in GBS, and time for realizing synergies from acquisitions.
• Customer Traction and Growth
  • Crossed $50 million quarterly revenue milestone and $200 million annualized revenue.
  • Increase in $10 million customer count to 2, and $1 million to $3 million customer count to 37.
  • Added 9 new $1 million customers during the year.
• Organic Growth Outlook
  • Strong organic growth momentum expected, surpassing industry peers.
  • Confident outlook backed by new growth engines (six industry groups) and emerging capabilities (GenAI, bioinformatics).
  • Bioinformatics capabilities in healthcare expected to drive significant organic growth.
  • Industry-leading organic growth achieved in the past year, anticipating substantial improvement in the coming year.
• Cross-selling Opportunities
  • Cross-selling potential between existing and acquired customer bases contributes to variability in growth guidance.
  • Speed of integration and ability to leverage cross-selling will impact the upper and lower ends of the guidance range.
• Growth Factors
  • Strong pipeline at record high levels expected to translate into new orders and logos.
  • Unique growth drivers like new industry groups, GenAI, and bioinformatics capabilities.
  • Confident outlook despite muted guidance from larger industry peers.
• India Opportunities
  • India market remains a bright spot, with highest revenue share among Indian IT firms.
  • Focus on India market from inception, driving consistent quarterly revenue increases at good margins.
  • Continued opportunities in the India market expected to contribute to growth.
• Healthcare and Bioinformatics
  • Healthcare vertical witnessing steady revenue growth quarter-on-quarter.
  • Significant demand in bioinformatics and convergence of hardware/software in MedTech.
  • Opportunities in digital transformation for pharma industry.
  • 40% revenue growth expected in railway business this year.
• PureSoftware Synergies
  • PureSoftware brings complementary capabilities in BFSI and healthcare/life sciences domains.
  • Cross-selling opportunities for Happiest Minds’ offerings like AI, GenAI, automation, cybersecurity, digital engineering, and Pimcore platform.
  • Potential for cost optimization synergies as the two companies integrate operations.
• EdTech Vertical Outlook
  • Vertical facing challenges, with higher education sub-segment impacted by factors like declining enrollment and budget cuts.
  • Diversifying focus to K-12, professional development, and workforce development sub-segments.
  • Developing offerings and expanding market reach in the new sub-segments to mitigate risk.
  • Year-over-year growth in the vertical, despite recent quarterly declines.