BFSI Gained Momentum With Acquisitions, May Become Top Vertical By Q2: Happiest Minds Execs

Happiest Minds Technologies saw a big drop in its Q1 FY25 Profit After Tax (PAT), which came in at Rs 51.03 crore, a decrease of about 12.5 per cent year-on-year (YoY) and 29.1 per cent from the previous quarter. The company explained this was due to one-time expenses and higher costs for things like amortisation and financing due to recent acquisitions. Meanwhile, the company’s revenue for the quarter grew to Rs 463.83 crore, up from Rs 417.29 crore in Q4 FY24 and Rs 390.87 crore in Q1 FY24. Also, EBITDA reached Rs 116.71 crore, or 23.9 per cent of total income, a 13.3 per cent increase from last year. 

In an interview with BW Businessworld’s Rohit Chintapali, Happiest Minds Technologies’ MD & CFO Venkatraman Narayanan and Executive Vice Chairman Joseph Anantharaju discuss company’s inorganic growth, future of BFSI vertical and 30-35 per cent growth forecast for FY25. Excerpts:

Happiest Minds had a big Q1 with two important acquisitions. Can you tell us about the impact these acquisitions had on your revenue and overall performance? 

Anantharaju: We had been in discussions for some time, introducing Aureus and PureSoftware to our capabilities and expertise. This allowed us to hit the ground running in Q1, successfully cross-selling and leveraging each other’s strengths in innovation, technical skills and domain expertise. What excites us most is the depth in banking, financial services and insurance (BFSI) that these acquisitions bring, along with large customers from both companies. This is strengthening our BFSI (Banking, Financial Services, and Insurance) vertical, which, though initially small, is now our second-largest vertical and could soon be the largest by Q2. I would not be surprised if it becomes the largest vertical once we take in the full quarterly revenue in Q2. These acquisitions have put us back on track to achieve our billion-dollar goal by 2031.

So, the acquisitions were the primary reason for the BFSI vertical’s strong performance?

Anantharaju: They have been a huge contributor. But if you look at the quarterly plans from Q2 to Q3 and Q3 to Q4, there was already quarter-on-quarter growth even before the acquisition. The acquisitions have simply accelerated that growth.

Are there more acquisitions in works? 

Narayanan: Acquisitions are clearly a cog in our overall growth strategy. For now, our focus is on integrating the two recent acquisitions and setting the foundation for long-term success. While we are actively looking for new opportunities, it typically takes about a year to a year-and-a-half to finalise such deals. We hope to do another sizeable acquisition in about a year to a year and a half. Right now the focus is to integrate, digest and deliver on the two acquisitions we have done. 

India-based revenue has been steadily increasing, but the largest share from the US has seen contraction. This downward trend seems consistent for many quarters now. What is the reason behind this?

Anantharaju: If you look at the growth in the Americas on an absolute basis, there has been around 6-7 per cent growth from Q1 to Q4. However, PureSoftware, which has fair bit of revenue from Southeast Asia and Africa, has shifted the revenue mix. When their contributions are aggregated into Happiest Minds, APAC and Africa now account for almost 4 per cent of our revenue, which made the Americas’ percentage of total revenue appear lower. Still, the Americas grew by around 7 per cent and this diversification is beneficial, reducing our dependence on the US from around 75-78 per cent to 66.5 per cent, thanks to growth in India and upticks in Europe and ANZ.

Management had provided guidance of 35-40 per cent for FY25, which included inorganic growth. Is there any revision to this? 

Narayanan: Firstly, the 35-40 per cent wasn’t guidance but a forecast. I mentioned it while we were still in discussions and hoping to include full-quarter revenues from both acquisitions. However, due to delays, we only captured 40 and 38 days of their revenue in our financials. So, it’s not a revised guidance but an adjustment to the initial forecast. We are now back to a 30-35 per cent forecast range. The broader range accounts for needing to adapt to how the acquired companies forecast revenue, allowing some cushion for these differences.

Can you talk about EBITDA a bit…

Narayanan: Regarding the bottom line, we forecasted 20-22 per cent EBITDA and we are currently at 23.9 per cent, so we are on track or exceeding that forecast. I can discuss top line and EBITDA performance, but one-time costs related to purchase price allocation affected our PBT this quarter. These costs, totaling around Rs 20-21 crore, impacted our reported figures but don’t reflect the business’s fundamental strength. Revenue and EBITDA are growing, and we expect to return to similar PBT and PAT levels, in absolute terms, as in previous quarters without such one-time impacts.

Regarding Generative AI Business Services (GBS) unit’s performance in Q1, there was huge anticipation. It has reported Rs 7 crore in revenue. Can you give us an idea on the current demand and pipeline? A recent Gartner report on GenAI mentioned that many deals might be dropped after the POC stage. What is your perspective on the Gen AI landscape and demand trends?

Anantharaju: Interest in generative AI and related technologies is genuine, with many conversations occurring at the CEO or board level. In Q1 FY25, we had about 15 POCs, with some from Q4 FY24, totaling around 20. These POCs span both horizontal and vertical use cases, with a few already advancing to the implementation stage. I believe customers will want to validate these POCs thoroughly to ensure they deliver the expected benefits before moving to full implementation. Therefore, we anticipate seeing more conversions of POCs in the second half of the year and into FY25.