Shares of Happiest Minds Technologies Ltd. have gained more than 35% in the last two trades after Nomura initiated coverage on the Ashok Soota-founded information technology company with a ‘buy’ rating.
The stock breached the Rs 480-apiece target set by the research firm on Wednesday, and gained another 15% on Thursday.
“While the recent run-up in the stock is likely to limit the upside in the near term, we like Happiest Minds as we see it as a consistent compounder,” Nomura’s Rishit Parikh said in a note.
- Expects Happiest Minds to continue to grow at nearly 2 times the pace of large caps and 1.5 times the pace of its mid-cap peers, owing to its digital presence.
- “Exposure to product and engineering services provides differentiation and stickiness at clients as it allows Happiest Minds to penetrate into the heart of the customer’s enterprise, making it difficult to displace. This is supplemented by the presence in digital and infra services that increase cross-sell opportunities at clients and allow for scalability & annuity stream of revenues.”
- Factors in its ability to sustain EBIT margins similar to mid-cap peers despite being one-tenth their size.
Nomura expects the IT company’s U.S. dollar revenue to grow at an annualized rate of about 25% over FY21-24. It, however, sees an 18% decline in its EBIT margin by FY24 compared with 22% in FY21. Nomura also highlighted the stock’s potential to scale owing to its exposure to more than 38 clients who have revenues of over $1 billion, increased focus on account mining and investing in domain and consulting expertise along with onsite presence.
“Our 32x target multiple is 20% higher than the target multiple for Infosys and TCS and 10% higher than the one-year forward average trading multiple of mid cap IT services,” the note said.
Happiest Minds listed on the bourses on Sept. 17 after closing one of India’s most successful initial share sales of the decade ended 2020. The company earned 97% of its revenue from digital services FY20 compared with 40-50% for IT peers. According to research and advisory company Gartner, digital is likely to see a record CAGR of more than 16% over the next five years as clients accelerate investments in core transformation to drive better customer experience.
Shares of Happiest Minds have more than tripled since listing. The stock has been rallying for eight straight sessions—the best run on record. It closed 20% higher on Wednesday, and gained as much as 15.7% on Thursday to a record high of Rs 559 apiece. The scrip is trading 21% higher than its Bloomberg consensus 12-month price target of Rs 432.5 apiece.