The US is the single largest revenue head for all domestic software companies primarily because the country is the most tech-savvy market with the highest adoption levels and also the largest investor in technology and automation.
Happiest Minds Technologies, which last week reported a 30 per cent jump in net income at over Rs 44 crore for the September quarter, wants to bring down its dependency on the world’s largest software market US to under-65 per cent on a sustainable basis.
The US is the single largest revenue head for all domestic software companies primarily because the country is the most tech-savvy market with the highest adoption levels and also the largest investor in technology and automation. On average, the US gives 48 per cent of the revenue to domestic software companies, down from 55-60 per cent earlier. For Happiest Minds, that is still much higher at close 70 per cent on average barring in Q2 when it slipped to 66 per cent. This is because the US companies are much more accessible and also take faster decisions on tech investment.
“We used to have around 80 per cent of our revenue from the US alone. We’ve been diversifying our revenue pool to lower our revenue dependency on that market. In the September 2021 quarter, it was down to 66 per cent from 77 per cent a year ago. But we know such a drastic drop is not possible nor it is sustainable,” Joseph Anantharaju, executive vice-chairman of Happiest Minds, told PTI from their California headquarters earlier this week.
Anantharaju added that the idea is to cap the revenue share from the US at under-65 per cent on a sustainable basis over the next few years. Its Managing Director and CEO Venkatraman N said from the Bengaluru headquarters, “The sharp drop in the US revenue share in Q2 was because of a big one-time deal from a West Asian client which also boosted the rest of the world revenue share to over nine per cent from 2.6 per cent for long, and also a multi-million deal from a German engineering company.”
He added that the company is also on course to win a few more large West European deals, primarily from Germany over the coming quarters.
“We could close a large German deal because we got a good opening to the West European markets after we bought the Austrian PGS which sells its services as Pimcore in Q1,” Venkatraman said. As the company reduces its dependency on the US for revenue, the same will go up elsewhere, with European share touching 14 per cent from 11 per cent now on the back of German inductions, and that of India retaining the current 13 per cent share going forward from 10.9 per cent last year, he said.
“We want to maintain the European share at 14 per cent or even lower because of tough marketing conditions there,” Anantharaju said.
He added that the company would like to focus on Europe but that will not be at the cost of defocusing the US, which is an easier market to win when it comes to marketing. “Therefore the US will continue to grow and we want it to grow further.”
Why the US tops in tech revenue for all domestic software companies is that the digital-first story began in the US, and Europe only caught up much later and so did the rest of the world. Secondly, it’s a lot easier to talk to a US company and so is meeting its chief technology officer who takes much faster decisions, Venkatraman said.
Last week, Ashok Soota-founded firm reported an over 30 per cent spike in net income at Rs 44.44 crore for the September 2021 quarter, while the total income rose to Rs 274.12 crore from Rs 187.91 crore. Venkatraman said they continued to show healthy cash flows of Rs 67.43 crore and improved on the capital return ratios prompting it to declare an interim dividend of Rs 1.75 a share.