Happiest Minds Technologies’ Venkatraman Narayanan and Joseph Anantharaju talk about their stellar performance in the first quarter, their strategies for getting there and more importantly, keeping the numbers there. Edited excerpts:
Congratulations on a good set of numbers, it has been a strong revenue growth of nearly 10% in USD terms, EBITDA margins are largely stable and the environment is looking strong; what led to this performance?
oseph Anantharaju: We will take at both the profitability and revenues, I will give a little bit of a colour on the revenues and request Venkat to give a little bit of overview on the profitability path. On revenues we have seen a strong performance across all verticals, we have had very good growth in high tech, edu tech, media, entertainment and retail and to a smaller level at an absolute level growth in the other verticals and equally heartening factors that we have seen at an absolute level are revenues growing across US, Europe, India, Middle East and Australia-New Zealand. We have a couple of large customers who can act as an anchor and we see this trend continuing for the rest of the year, with an uptick in demand that can be sustained.
Venkatraman Narayanan: See, talking of margins, EBITDA numbers have been at 26.1% for the quarter so that is very comparable to the 26.3% that we had in Q4 and higher than the 25.6% that we had in Q1 last year. So, if you look at the margins we have been able to maintain them. We’re looking at stabilising between 22 to 24% in the medium term to long term. As the benefits on account of COVID-19 and work from home retreat, we will see margins getting down to the 22 to 24%. We have been able to maintain the 26% margins. Now we should account for further cost increases that we have taken – we have had wage increases during this quarter and we have also had sub contractors’ costs going up and we have added 310 Happiest Minds to our family so to that extent we have added cost. At the same time, most of this has been defrayed by the volume growth and the strong growth of revenues that we have seen – almost double digits 13.5% on a Q-O-Q basis and about 36% year-over-year – so we have been able to defray the cost and get the benefits or the efficiencies which start to accrue on account of growth and size.
What about deal wins during the quarter? What have you added in terms of clients? Which are the segments that you are looking at? What are the other geographies you are performing well in?
Joseph Anantharaju: So if you look at the deal wins, as we quoted in our press release – there are several, there are 18 new logos that we were able to close during Q1 and again heartening factors that these new logos cut across all the geos. This is not really a concentration so the deal wins have been distributed and secular across all the geos that we operate in and it is in different verticals also we have a few deal wins in the industrial segment, we have company in the electrical vehicle infrastructure space where we are helping them with some analytics. We have signed with a very large security company helping them with their product engineering. We have also signed with a large US based telecom supplier to help them out with some of their cloud security needs. So, we are cutting across analytics, COE, automation, IoT from a centre of excellence technology perspective and across verticals and geos.
Venkatraman Narayanan: If you look at the customer additions we have ended the quarter with 180, we were at 173 last quarter. We have added seven new billion-dollar corporations. Million-dollar customers has gone up by five, so we have gone from 26 to 31. This is the highest addition in the last two years, if I look at that metric which we have published, we are seeing customer account wins, traction within accessing accounts and also the projects that Joseph talked about.
Our talks with industry players suggest that in large geographies like United States, they want to partner with maybe one or two large IT service providers who can offer full scale IT services solutions. Could you tell us how Happiest Minds is differentiating?
Joseph Anantharaju: We have always had to compete with the large players because when you get into deals with billion dollar customers, most – if not all of them – have some outsourcing partner already and the way we have been differentiating ourselves is figuring out pain points or potential pain points for these customers on the digital side and helping them understand the trends. Depending on the area that has been identified – whether it is security, connectivity through IoT or analytics or automation – we act more as a trusted partner to these customers and help them figure out clear a roadmap. That differentiates us as a digital native company. And once we get in and start helping these customers we have a very strong account development and account mining strategy which then allows us to expand. Once we deliver successfully, we have a reference inside and a sponsor within the customer. We look at how to expand into other areas and help with their other digital needs. That strategy has worked out for us quite well, so far.
Venkatraman Narayanan: Also if you look at it vendor consolidation was something that people used to talk about, right now the demand from the customers is so high that they are actually not looking at consolidation. This may not be the time; they want to get projects off the ground and into the market so to that extent they are looking at people who can deliver, who can help them take it to market quickly, that’s their main focus rather than the efficiencies that come out of a vendor consolidation. So, the top two vendors in billion dollar corporations are usually a story of vendor consolidation, which has not really happened. If you look across the spectrum of the Indian IT business – because you typically get a customer and you are then able to stick on with the kind of value that you deliver to them. If you look at the billion dollar corporations like I said we have added numbers and we have ended the quarter with 53 billion-dollar corporations. So that itself shows that we are able to endear ourselves to our customers – large ones and small ones – because we do bring strategic value to them.
The top industry players have actually guided for a double digit growth, can we expect the same from Happiest Minds? Any progress on the M&A possibilities that the management has been talking about for the past few quarters?
Venkatraman Narayanan: You are asking about double digit growth; we have already delivered double digit, high double digit if you look at year-over-year and quarter-over-quarter numbers. Now the trick will be maintain the same trend like we mentioned in our quarterly analyst call, we are looking forward to adding the same number or higher number of Happiest Minds, we added 310 this quarter and our expectation is to add a similar number for the next three or four quarters. And as far as long term to medium term growth targets we have been not guiding, we have been suggesting to our investors that we are looking to grow 20% on an organic basis. So FY22, yes, we are likely to be better that number but we are saying that this 20% number is something that we would like to do on a medium to long term growth number.