I chose to value Happiest Minds as the company’s meteoric rise since its IPO intrigued me. It was one of the most successful IPO’s of the last year and the stock had stabilised after growing over 30% in one week in February.
Numbers and Narratives
Happiest Minds Technologies is a newcomer in the massive IT Services and Consulting Industry. It is trying to disrupt the bigwigs (Infosys, Wipro, TCS) by focusing on new age technologies such as Cloud, SaaS, IoT, AI and Security. It is very much in its growth phase and will need to reinvest to keep it up. I see it growing aggresively over the next 5 years and then focusing on increasing its margins.
The core numbers that I arrive at based on the story are
- Compounded revenue growth for next 5 years = 20% (21.35% historical average)
- EBIT margin in year 10 = 18% (~20% industry average)
- Initial cost of capital = 8.62%
Valuation
I’ve used the above numbers along with the financial information to compute my DCF valuation for Happiest Minds as seen below.
As you can see, the valuation price came out to ₹199.80, about 62% lower than the last traded price of ₹522.60.