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Q4FY25 performance impacted by seasonal ramp down in Healthcare vertical

* Revenue for Q4FY25 came at INR 5.4Bn up 30.5% YoY and 2.6% QoQ (vs consensus est. at INR 5.4Bn) and 1.1% QoQ and 27.9% YoY in CC terms. For FY25 company posted 25.6% growth, its best since IPO, though slightly below the 28–30% target. The company expects strong double-digit organic growth in FY26 and FY27, supported by strategic initiatives.

* EBITDA for Q4FY25 came at INR 0.8Bn, up 1.0% YoY but down 10.7% QoQ (vs consensus est. at INR 1.0Bn). EBITDAM was down 450bps YoY & 230bps QoQ to 15.4% (vs consensus est. at 18.5%). The decline was due to investments towards the GenAI business & an expanded sales team, post-adjusting this impact, the normalized margin is 20% within the guided range.

* PAT for Q4FY25 stood at INR 0.3Bn, down 52.8% YoY and 32.1% QoQ (vs consensus est. at INR 0.5Bn). The decline was primarily due to one-time INR 125Mn bad debt provision due to ramp down of one major client in Healthcare vertical, however post adjusting this impact, the normalized PAT is INR 0.5Bn (down 7.8% QoQ and 35.8% YoY).

* Total headcount addition continues to stay linear & stood flattish at 6,632 while attrition rate remained elevated at 16.6% for Q4FY25.

Outlook

* BFSI & Healthcare verticals to drive double digit growth from FY26. BFSI, the largest segment, is poised to drive FY26 growth, aided by PureSoftware/ Aureus acquisitions, Arttha banking platform, & focus on CRM & modernization.

* Healthcare and Life Sciences remain highly promising, backed by investments in bioinformatics, medical devices, and Pharma. This will enable advanced analytics, data engineering, and consumer data platforms to help Pharma clients better understand patients.

* GenAI business evolving towards larger engagements and RFPs with premium pricing to augur well. Though utilization is currently low at 34.5% due to R&D focus, this is expected to improve, supporting overall profitability in the coming quarters. Currently GenAI BU contributes 2% to Top-line. We expect above drivers coupled with easing of recession fears with the US-China trade deal should bring stability in the company’s key geographies and create a favorable demand environment for company's long-term growth trajectory.

* EBITDAM is expected to sustain within the guided range of 20-22% led by strong revenue trajectory. Although earn outs for PureSoftware and Aureus will continue for another year, we expect margins to expand to 20.5% by FY26E and 21.5% by FY27E, driven by operational efficiencies from ongoing transformational initiatives.

Valuation

* HAPPSTMN is well-positioned for growth, driven by organic revival led by BFSI & Healthcare verticals, its expertise in Product development led SAAS solutions & successful integration of acquisitions. We expect Revenue/EBITDA/PAT to grow at CAGR of 14.5%/28.0%/33.2%, respectively, for FY25-FY27E. Factoring in impact of bad debt provisions for FY25, we revise our rating to ADD & lower target price to INR655, with a downward revised PE multiple of 30x (earlier 32x), based on the FY27E EPS of INR 21.8.

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