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What does the success of Happiest Minds IPO mean for the Indian IT sector?

Coming amid the pandemic, many questioned Ashok Soota, the man behind the company, and his decision to go ahead with the IPO

September 20, 2020 / 12:29 PM IST
 
 
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It was an exciting week for the IT sector. Happiest Minds, a Mumbai-headquartered digital IT services provider, listed at a huge premium of 111% and its issue was also oversubscribed by 150 times. A news that put to rest doubts over IT industry's performance during COVID-19.

Indeed, coming amid the pandemic, many questioned Ashok Soota, the man behind the company, and his decision to go ahead with the IPO.

However, Soota was confident. His confidence stemmed from Happiest Minds’ digital offerings that accounted for about 97 percent of the company’s revenues. He also said that 76 percent of the company’s business was not affected due to the pandemic.

“Because we are only digital and the digital market is growing so much faster than the traditional IT market. We are able to go 20-plus percent whereas the industry growth rate has come down to 8-10 percent. I think that is the key differentiator. This is the growth segment and that helps us to grow faster,” he added.

The company registered Rs 714 crore for FY20, a 19 percent year-on-year growth compared to last year.

Its success, he had said, would signify that new-age companies with digital as its backbone can grow in size, be profitable and hit the market.

That is exactly what this IPO signified.

Look at the IT services companies' commentary over the last six months. From top IT firms to mid-tier IT companies, the interaction and press briefing were never complete without the mention of digital. For, that is what is driving businesses.

What would usually be an 18-24 month digital transformation journey, is now happening over a fewer months, said Salil Parekh, CEO, Infosys.

C Vijayakumar, CEO, HCL Tech, in a recent interaction with Moneycontrol said that majority of the deals won are in digital space and the company is well-positioned to cater to this growing need. He explained that it is because clients realise that technology is at the core of reinventing business.

“I think this pandemic has brought so much attention to tech to just to enable the survival of the business. Even for the basic, technology has become such a fundamental component. So the interest to know and understand the technology infrastructure at the executive level has gone up,” he said.

He further added that the propensity to spend, improve, enhance and create resilient technology infrastructure has gone up significantly. “Everybody has seen that this is something that can make or break the business. So that is what has fundamentally changed,” he pointed out.

While traditional businesses are beginning their cloud journey, others are looking at more efficient ways of running their businesses. IT firms, too, are pivoting to their client's new normal fast, either by developing solutions in-house or through acquisitions, which has increased since the pandemic.

A recent report from Goldman Sachs said that COVID-19 will lead to third wave of IT outsourcing in the country, this time driven by new age technologies such as cloud.

The report has pegged that top Indian IT service providers to be the beneficiary of this wave and expects them to grow 12.6 percent on average in FY22 as opposed to 9.7 percent as estimated year. This growth would primarily come from adoption of digital solutions.

In a recent interview, Roop Singh, Chief Business Officer, Birlasoft, said that two years from now declaring digital as a separate revenue will not make sense. He reasoned that the line that divides traditional and digital is already blurring.

As the market shifts, organisations are not only reskilling themselves but consumers are also starting to learn what the new world is. “And given that they are looking at digital as a platform to build the technology, they (digital and legacy) all become singular. So, if we look at the industry overall, in a year or two, people will stop talking about Digital because of the way services are delivered,” Singh explained.

That was what reflected in the excitement around pureplay digital IT firm like Happiest Minds and also why IT stocks like those of Wipro, Mindtree and Mphasis have hit a 52 week high during the pandemic.

Like Soota pointed out, as the world comes out of the pandemic, IT sector will be the first to bounce back, probably much stronger and lot more resilient than they did during earlier crisis.

Swathi Moorthy
first published: Sep 20, 2020 10:14 am

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