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Happiest Minds reported Q4FY24 revenues at $50.1mn, up 1.4% QoQ and 9.5% YoY in cc terms. In USD terms, reported revenue was up 1.4% QoQ and 9.1% YoY. INR revenue stood at INR4,173mn, up 1.8% QoQ and 10.4% YoY. For FY24, company reported revenues at $196.1mn, up 11% YoY in cc terms and 10.3% YoY in USD terms while INR revenue stood at INR16,247, up 13.7% YoY. During the year, company added 13 customers taking the total to 250 active clients. Reported PAT for the year came in at INR2,484mn, up 7.5% YoY, whereas reported basic EPS stood at INR16.7. The cash conversion remains strong with a free cash flow of INR4,107mn translating into 97.5% of EBITDA.

*  Company established a new business unit, Generative AI Business Services (GBS) focused on GenAI which will offer full-scale GenAI offerings across multiple domains. It is generating new business opportunities into various industries and the use cases include contextual chatbots, learning simulators, contract management, sentiment analysis and content generation which can be replicated for multiple customers. GBS business unit is expected to grow to strong 250 people from current 70 people by end of FY25E. Secondly, the existing PES and DBS businesses will get combined into the Product and Digital Engineering Services (PDES) business unit and there will be no change in IMSS segment, therefore retaining 3 BUs: PDES, IMSS and GBS. Growth shall also be driven by the two strategic acquisitions done in early FY25E. Company remains committed to its long-term growth aspiration of achieving $1bn revenue by FY31E for which it has to grow at a CAGR of 22% post FY25E performance. Company has created six new growth engines structured under six leaders covering many industry verticals.

*  Company has built a very unique capability which is believed to be another transformational change and adds a significant value to the entire clan. They have built a capability in bioinformatics, which no one in the industry has. This comprises of experts in molecular biology, data scientists, data engineers and healthcare domain specialists. The team is working closely with the medical research community from prestigious medical institutions in India and abroad. The team is also working on finding solutions using metagenomics on gut microbiome, anomaly detection, MRI and CAT scan images, and conducting large cohort research studies to identify early predictions in stroke, cardiovascular diseases, etc.

* Company delivered a healthy EBITDA margin of 24.6% on total income, exceeding its margin guidance of 22-24%, despite the wage hikes, strong net additions and continued payout of variable pay. Management expects EBITDA margins on total income to be rangebound between 22-24% for FY25E.

Outlook and Valuation: Happiest Minds shall fuel its long term growth aspirations through continued investments to enhance its technical capabilities and venture into new markets through acquisitions. It is estimating a growth of 35-40% in FY25E after considering synergies from acquisitions.  We maintain our BUY rating and arrive at a revised target price of INR905 implying a PE of 43x on FY26E EPS of INR21.

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