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Nomura
Target: ₹480
CMP: ₹483.55
We initiate coverage on Happiest Minds Technologies with a Buy rating and TP of ₹480, based on a 32x FY23F EPS of ₹14.9. We expect Happiest Minds to record dollar revenues CAGR of nearly 25 per cent over FY21-24, but build in EPS CAGR lagging at about 17 per cent on EBIT margins falling to 18 per cent by FY24 (vs 22 per cent in FY21) and the full impact of tax rate starting in FY22.
We expect Happiest Minds to trade at a premium as: 1) we think it will continue to grow at about 2x the pace of large-caps and about 1.5x of mid- caps, led by its presence in digital; 2) we like the stickiness offered by PES and scalability offered by DBS/IMSS; and 3) we factor in its ability to sustain EBIT margins, similar to mid-caps (despite being 110th their size).
While the recent run-up in the stock is likely to limit the upside in the near term (2.5x of the IPO price), we like Happiest Minds as we see it as a ‘consistent compounder’.
Our 32x target multiple is 20 per cent higher than the target multiple for INFO/TCS and 10 per cent higher than the one-year forward average trading multiple of mid-cap IT services.
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