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HDFC Securities Institutional Equities
We estimate Happiest Minds Technologies Ltd. will grow its revenue and earnings per share at 21% compound annual growth rate and 24% CAGR respectively over FY24-26E, which is in line with the mid-tier average (ranging from 9% to 27% EPS CAGR) over the same period.
Happiest Minds’ valuation is higher than peers average with price-to-earning growth at 1.8 times as compared to peers at 1.5 times which is factoring in ‘higher for longer’ revenue growth.
Based on reverse-discounted cash flow at current market price, the implied USD revenue growth for the company over FY23-38E is 16.5%.
Happiest Minds’ valuation premium to the NIFTY IT index is at the lowest level and its valuation premium to larger high-growth peers (Persistent Systems Ltd., Globant, and Endava) has also converged.
We initiate coverage on Happiest Minds with an 'Add' recommendation for target price of Rs 935, based on 38 times FY26E EPS. Our DCF assumptions factor USD revenue growth at 16.6% CAGR over FY23-38E, weighted average cost of capital at 12%, terminal WACC at 11%, and terminal growth at 5.5%.
Faster recovery in discretionary spending in the sector and value accretive acquisition ahead can be positive triggers for the stock which currently trades at 42 times and 34 times FY25E and FY26E (valuation multiples are down more than 15% from 48 times at the beginning of the year).
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