We are getting ahead of all mid-sized players: Happiest Minds

About 76% of our business was hardly impacted by Covid, says Ashok Soota, Executive Chairman and Director, Happiest Minds Technologies.

What are the key verticals that are currently driving your revenues and profitability?
Firstly, we are a digital born agile company and what that means is that 97% of our business is digital and 88% of our delivery is agile and for us agile is not just delivery but it is a way of working. When I say that 97% of our business is digital, remember, the other Indian IT companies are 30-50% digital now that makes a lot of difference. Our true competitors are EPAM, Endava and Globant -- the three global companies -- and not the Indian IT companies. In terms of businesses, we are organised into three business lines -- product engineering, digital business services and infra and security. The reason for doing this is these are organised according to customers and are aligned with the customers and this enables us to meet the entire digital requirements of an enterprise.

Answering your question on the verticals driving our revenues, in Covid times, we find ourselves in a good place about 76% of our business is hardly impacted I would not say that nothing got impacted, probably in Q1 everything got impacted to some extent. But it is less so. Edutech and hitech balance did get impacted but we are beginning to see recovery.

There are a lot of other segments where I would not give you the numbers because they are not included in our TRHP but healthcare is one, life sciences is growing fairly rapidly and we are well positioned there.

On the flip side, I must also tell you that fortunately for us at this stage, we have a marginal presence in travel and hospitality and it is a segment which has faced the maximum impact from Covid. So, it has turned out to be a blessing in disguise for us.

Where is the focus area and where will future growth come from? Digital is a key offering. Is it digital services businesses, is it product engineering, IoT, infra or security services?
Essentially, you got to go back to my first response to you. We are in three business lines, each one of them is growing, each one of them has a need for specific requirements in customers. Let us take product engineering. Here the customers are either the CTO of the company or the head of engineering and we are in a world where everybody is creating platforms and running businesses of those platforms. Software is being delivered as a service and that segment of the business focuses on this.

In digital business solutions, we have many more customised offerings. We have specialised relationships like we have with a company like Cloud Lending, we have got a relationship with a company like Pimco and we deliver solutions around all of those.

The third one is infra and security. In infra, we do not do any legacy work. It is all cloud and hybrid clouds and other areas like that. Security is an area which is huge and the security needs are growing enormously day by day because you see the number of attacks, the need for increased security due to everybody working from home.

These are some of the segments which are in each one of the business lines. I would say that there is growth. There is another common factor which drives a lot of work growth and that is the fact that we do a lot of development upfront on new emerging technologies. We are essentially a technology and solutions company. Whenever a new technology emerges, we begin to create prototypes, create proofs of concept, demonstrate capability that sets us up for getting into the business.

I will give you an example. We began the business with just the tech as it used to be called. After that we have added Internet of Things, Blockchain, virtual in Augmented Reality, we have added robotics and drones and in each of those areas we are able to get business. The approach is saying how do you use state-of-the-art technologies to leverage new business? I will give you a further example. We have solutions accelerators. They lead to just 10% of our business but in turn they leverage another 30%. So, you can understand how this adds up as a grand strategy.

What are the factors that have led to you to list now? Apart from giving some prior investors an exit, what were the other key motives?
Let me start with the second part. The first thing is I have always wanted to and prefer to run a public limited company and we needed to reach a certain size of growth, certain profitability levels which we believe were sustainable and we felt that we would go public at that time. Clearly we have reached that point as of now.

I believe that running a public company brings about corporate governance, transparency, disclosures at a much higher level and there is something about which I have always taken pride. Companies that I run have always been known for their highest standards of corporate governance. It was a decision that we will go public. I am not in favour of going for additional rounds of private equity raising market cap up to some huge levels and then find that you got no headspace left for the new retail investors when they come.

You can see globally how many companies went public and are today running at levels below their listed price. We do not want to get into that danger. We were looking for the right time. We believe this is the right time. Now in terms of the issue, the key aspect is that it does give an opportunity for our only large external investor which is CMDB II to exit and I am assuming it is exiting at a good price, where they are also comfortable.

We now turn our attention to future shareholders and that is one area.

The second one is it is not very large and I am also divesting a bit and that is because we also need to commit that you are not the only one exiting, we also believe it is a worthwhile thing and we create an issue of a certain size and that is basically it. In terms of the UCs there are all the standard UCs as defined statutorily. It is working capital need, so called strategic purposes or whatever and by definition our law requires to keep it unstated.

Has Covid given you a tailwind? How much of the growth is coming in because of it and can it match what you have seen over the last five years?
See two things; I do not want to say that it has given us a huge tailwind in terms of growth, it has not. We will get growth this year but it is not going to be like last year’s growth but we expect that as the industry recovers next year or so, will we also recover. There will be pent-up demand and our growth rates will go back to normal and above.

What happens is that the profitability improves for two to three reasons; one is it is not just that it bumped up from last year’s levels to now. In last year’s Q4, we were already up to about 19% EBITDA. We have been building on from there.

Secondly, other tailwinds have come; one is the depreciation of the rupee which applies to everybody but I think we benefitted a little bit as compared to the others. We do not have premises of our own. We are in rental premises and obviously in a situation of work from home, we negotiated massive reductions in the rents. Travel came down to a lower stage because 95% of our people are working from offshore. We benefitted more by the rupee depreciation than the others have done. So these are the factors which helped the whole industry to come out with better numbers and specially ourselves.

Who are your peers in the listed space and what differentiates you from them?
That is exactly the first point I made; given the facts that we are 97% digital, we have said that we compare ourselves with EPAM, Endava and Globant -- all three are listed in different geographies. Their growth rates are comparable to our growth rates but they have done a lot more acquisitions but they are also larger. They have done four, nine, whatever and our growth up till now has been almost completely organic. So they are comparable in terms of profitability and in terms of current growth rates as measured by EBITDA and growth and also in offshore ratio.

We are right then the top one or two on all these parameters as compared to those three. In terms of the others, you can see that we are obviously well ahead on growth. We are behind the larger players on profitability and we are getting ahead of all the mid-sized players but I do not want to make comparative statements only to the extent that those numbers are already available as published data.

Who are your key clients and customers?
The Indian IT industry is really an export focussed business, 77% of our business comes from the US and therefore that has to be the major growth area. Today, in Q1, our European revenues went up from about 8-10%. Now, we will keep increasing that because we would like a larger presence in Europe and therefore those will be the two growth markets where we will focus.

In India, we have got a strong presence and it will grow in any case. We are also present in the Middle East and Australia, where we are getting some good wins. But in terms of grand total percentage to sales, it will take a while before they come significant. We have no plans of getting into newer geographies beyond these because it is enough. We will focus on these and do a good job.