Company to grow at a CAGR of 22% to reach $ 1 billion by 2031: Venkatraman Narayanan, Happiest Minds

Company to grow at a CAGR of 22% to reach $ 1 billion by 2031: Venkatraman Narayanan, Happiest Minds

"So, just to put the numbers in perspective, from today to 2031, the company is to grow at a CAGR of around 22% and thereabouts. Last year, we did 11.5% in a challenging market," says Venkatraman Narayanan, MD & CFO, Happiest Minds.

To begin with can you explain the rationale of the stake sale by Mr Soota just yesterday, also will there be any more such pairing of stake?Venkatraman Narayanan: So, let me cover the point on the stake sale. When we recast the vision for the company about three years back post-IPO, we said that we are designing and building a company for perpetuity and one of the key conditions or one of the key things that was to be done at that point in time is to make sure that the controlling stakeholder or the promoter is protected at somewhere around 40%, that has been made public.

Subsequently, we have also said that Mr Soota is engaged in doing the non-profit activities of his through an organisation called Scam and he has been contributing a substantial part of his wealth and his earnings towards that.

He is also having another company called Happiest Health, which is associated with health and wellness, primarily which is something that he started after COVID. So, with all of this, he has been saying this consistently that he would be paring down his stake to make sure that the contributions happen towards his legacy building.

And the base level was something at 40% that he had set. Right now, he is at 44.3% holding in the company, well within that stated objective and limit. He has been meeting certain fund flow requirements for his objectives of non-profit requirements through a pledge and I am sure he will have that removed once proceeds of the sale comes through into his account. So, this is all as per disclosures made and in line with what we have planned for the company.

So, you are saying there is further headroom for him to pare down stake, a little bit though?Venkatraman Narayanan: Not immediately because he has raised a substantial amount and this has to be applied for the good that he is doing right now through Scam and Happiest Health. And at a later point in time, he has got dividend streams and other income as well to apply. So, he is best suited to answer that, but as of now, there are no immediate plans, I can say that much.

Let us come back and talk about the operational part of the story. You have maintained that a billion dollar in revenue by 31 is the target. The entire industry has become very challenged. Some companies such as high growth companies, such as yours, of course, are doing a good job. But the growth from here on, what percentage of that growth or your movement between now and a billion dollar revenue will come on the back of buyouts and how much will it be organic?Venkatraman Narayanan: So, just to put the numbers in perspective, from today to 2031, the company is to grow at a CAGR of around 22% and thereabouts. Last year, we did 11.5% in a challenging market. This year, including the acquisitions, our estimate is that we will do something between 35% to 40% and thereabouts.

If you look at it and I am giving it as an estimate because when you do acquisitions, there are cutoffs for how many months of revenues we can take during the cutoff period, the closing date and all of that, we have closed both acquisitions but nevertheless we have set out that estimate of about 35% to 40%.

This year, our acquisition plus organic growth, strong organic growth, we did 11.3% last year, this year we are hopeful of doing something similar or higher, along with acquisitions puts us in the range of 35 to 40 and on an average basis it is getting us back to the 22% mark.

From here, you will have to essentially again build on the base of the organic muscle that we have and we will also have to add on a couple of acquisitions as we navigate this growth towards 2031 and a billion dollar dream. So, that is where we are.

Then when it comes to the margin picture, can you give us a sense as to what it is that you are looking at? They are estimated to be in the range of 20% to 22%. Are you holding on to that estimation? And what would be margin drivers?Venkatraman Narayanan: Yes, we are holding on to that estimate. Again, in the year of acquisition, you have acquisition costs, while you do get benefits of acquisition, it takes some time to flow through into the P&L, but there are certain investments that you need to make up front. So, including those acquisition costs and the cost of integration, I have given a margin guidance of about 20% to 22% and we are hopeful of doing better.

There are two elements to it as well. One are the companies that we have purchased are profitable and they are at a relatively similar margin profile as us on the operating side.

But we also had a healthy other income, the last year, because we had raised capital that was on my books for quite a period of time, that got me about 81 crores of other income last year.

I still am sitting on a reasonable amount of cash reserves, but nothing, it is not as much as 1300 that we had last year, so that adjustment also needs to be made while you do the margin.

From an operating margin standpoint, we are hopeful and we want to target between 20% to 22%. When I say operating margin, essentially, I am talking about EBITDA without the other income, it should be between the 20% to 22%.

When you say that you are confident of increasing your margins as well, what exactly are the levers for margin improvement which you are applying?Venkatraman Narayanan: So, last year, we did a utilisation of about 76.5%. If you look at our history, our utilisation has been between 79% to 81%, that was the range.

Second is attrition rates were higher in the past, attrition requires you to replace people at a higher cost and attrition rates today are at about 12% TTM, which means your cost is coming down.

Third is we have been working on our pyramid. We onboarded close to 600 campus and off-campus freshers last year. Unlike other companies, we went ahead and made the commitment, bit the bullet, got them on and they are going through the training period and within the next three to six months they should hit the billable workforce as we call them which means they are revenue generating even though at a lower utilisation compared to almost zero in the last year, so that also helps in getting an average cost down while also moving utilisation and efficiency up.

These are the few points that are growing in our favour. Then, we have the other things, we have not seen much of price pushback from our customers, so that is a relief for us and it may be because we do not do cost plus, we do market or demand based pricing which is something in discussion with customers, so we do not get price pushback.

The second aspect is there is a repeat sale, about 90% of my business comes from repeat business, which also has its impact on margins. So, with all of this, the levers on margins are there for us to play on or rather optimise on, which is what gives me some bit of confidence.

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