Ashok Soota-led Happiest Minds Technologies posted a net profit of Rs 59.4 crore for the September quarter, up 33.7% from a year ago and 5.4% sequentially. Revenue at the Bengaluru-based software services firm grew 34.4% from a year earlier and 8.1% sequentially to Rs 355.5 crore for the second quarter. Venkatraman Narayanan, managing director & CFO, Happiest Minds, talks about the growth drivers, macro-economic challenges and M&A strategy, in an interview with Ayushman Baruah. Excerpts:
What factors have driven your growth in the second quarter?
The most important thing was that demand was good. Repeat business continues to be at 90-91%. So, it is a combination of demand from existing customers, as well as a good number of sign-ups. We added over 20 new customers during the quarter and it has been across verticals. On a percentage basis, there was a slight drop in the retail and industrial vertical, simply because of a project completion we had. If you look at the geographies, the US continues to perform because there is continued demand for digital services. Digital is an imperative. It is no longer a discretionary spend. Driven by the need for digital services, the revenue contribution from the US has grown from about 66% to 67%. And that 1% effectively has come out from some softness in the European region that has been slightly soft, and the sales cycles have become slightly elongated, primarily because of the geopolitical conditions they are in right now.
Also Read: Happiest Minds Q2 net profit up 33.7% YoY to Rs 59.4 crore
Given the macro-economic challenges, do you see a cut in client budgets or a slowdown in decision making?
There have been talks of a slowdown since the beginning of this financial year. We see that the word digital has become part of our clients’ mainstream, and investments in technology and digital continues. Second, given the way the inflationary scenario in the US is playing out, we need to realise that clients need to keep control of costs. An inflationary situation means wage increases are happening at 9-10% in the US right now. So, to that extent, offshoring and outsourcing becomes a no-brainer, and you have to do it because it has always helped in productivity and profitability improvement.
You have not done any acquisitions this quarter, but what is your mergers and acquisitions (M&As) strategy going forward?
We have given a market guidance of 25% for this year and the medium term, which is the rate at which we need to grow to reach our vision of a billion dollars by 2031. Acquisitions play a significant role in that growth number. And it needs to be plugged in at reasonable intervals because they tend to be lumpy. We have been looking at companies. But it happens when it happens. We will look at acquiring digital assets, profitable companies that have the ability or the propensity to do things offshore, not necessarily in India. They must have decent customers, come with certain vertical strengths and vertical expertise.
How does the pricing environment look right now and in the next few quarters?
We have not seen any pricing pressure. That is also probably because we have been talking about transformational deals, where we are trying to help our clients achieve their growth objectives, not just profitability. We are not doing cost take out deals.
We see Happiest Minds’ attrition has moderated on a sequential basis. Do you see it coming down further over the next few quarters?
Attrition has reached a point where things can only improve from here. In the September quarter, our attrition moderated to 23.5% from 24.4% in the preceding three months. This is the beginning of a trend which goes downwards. During the Covid pandemic, people came in virtually and they left virtually. So, to that extent, there was not much we could do. But with people coming back to offices slowly, I think attrition numbers are beginning to come down.