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    Happiest Minds: Should you book profit after stellar debut?

    Synopsis

    Analysts said digital is the big theme playing out the world over. “Though valuation concerns persist for Happiest Minds after its strong listing, it has enough potential to be a long-term wealth creator,” they said.

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    Analysts’ advice for long-term investors is to ‘hold’ the stock, while short-term investors can offload 50 per cent of their holdings and book profit. Those who missed the bus can wait for a fall, in any, to buy the stock, they said.
    NEW DELHI: Happiest Minds scripted history on Thursday with a stellar debut. At 111 per cent listing pop, the stock beat previous star performers DMart and IRCTC.

    Analysts said digital is the big theme playing out the world over. “Though valuation concerns persist for Happiest Minds after its strong listing, it has enough potential to be a long-term wealth creator,” they said.

    What makes analysts stay positive on the stock is the fact that the company reported healthy earnings even for the Covid-hit June quarter. They expect strong quarter-on-quarter growth in the near future.

    Following the debut, the stock now commands a valuation that is in line with its global peers and is capturing most of the gains.

    “The outlook for Ashok Soota firm is strong,” said analysts, who added that even as though the short-term upside looks limited, the counter is unlikely to see a steep downside in the near term.

    Analysts’ advice for long-term investors is to ‘hold’ the stock, while short-term investors can offload 50 per cent of their holdings and book profit. Those who missed the bus can wait for a fall, in any, to buy the stock, they said.

    "The business is good, but the valuation is capturing most of the gains. Investors with a one-two year view can still hold the stock. At Rs 351, the stock is trading at about 35 times our FY22 EPS estimates. International peers also trade at 28-35 times forward earnings. Prospective investors can wait for some downside to enter it," said Sunil Jain of Nirmal Bang Securities.

    He said the outlook for Happiest Minds remains strong as it is likely to keep on growing at over 20 per cent growth rate, even when traditional IT firms are expanding at 10-12 per cent.

    The company sees global players such as EPAM, Endava and Globant as its competitors. The firm has 157 active customers and derives about 77.5 per cent of its revenue from the US and 11.9 per cent from India. It had an employee base of 2,600 as of June 30. For June quarter, it reported a net profit of Rs 50.2 crore on a revenue of Rs 177 crore.

    Soota in an pre-IPO interview to ETNow said Covid-19 has not given the company a ‘huge tailwind’ in terms of growth, and his company’s growth this year will not be like last year’s. That said, he expects the industry to recover next year.

    "There will be pent-up demand and our growth rates will go back to normal and above,” he said.

    Asked why he listed the firm now, Soota said running a public company brings about corporate governance, transparency, disclosures at a much higher level. He said his company was not in favour of going for additional rounds of private equity funding, raising market-cap to a huge level, which may not leave much head space “for new retail investors when they come."

    DMart, which was listed in 2017, had seen 101 per cent listing gain. Analysts said DMart's business model was unique. IRCTC, a monopoly in online railway ticketing, too had a similar start.

    In case of Happiest Minds, the over 90 per cent revenue from digital space compared with traditional players, which have 35-50 per cent of their revenues coming from the segment, is seen as a USP.

    “The extent of correction that we see in the stock is limited, as there are hopes that such companies may grow strongly quarter after quarter. Valuation is high, but I do not see a correction will be good enough. Digitisation is the current story in the market and investors are willing to pay premium to such stories. DMart even today is trading at 67 times,” said Vinod Niar of Geojit Financial Services.

    Astha Jain said lucky investors, who got share allocation in the draw, can book a part of the profit. “IT as a sector is looking good. And this company generates over 90 per cent revenues from digital that nobody in India does. It is a stock to keep in a portfolio. We predicted its annualised P/E at 14 times for FY21, based on Q1 earnings. It has jumped to 25 times post issue. Short-term investors can sell 50 per cent of their holdings at current levels," She said.

    Nair of Geojit Financial Services said the way the company has managed its June quarter results despite the pandemic is giving confidence that Soota’s company will maintain the good show.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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