Happiest Minds: Equity Changes Hands Via Bulk Deal, Will Company Be Able To Achieve Organic Growth?

Address what's happening with happiest Minds and we've got Venkat Ramen Narayan and the MD and CFO at the company joining in on the show right now. Venkat. Hi, morning. Good to have you on the show. To begin with, Venkat, can you explain the rationale of the stake sale by Mr. Suta just yesterday? Also will be the will there be any more such pairing of stake? Good morning. Let me cover the point on the stake sale. When we 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, make sure that the controlling stakeholder of the promoter is, you know, protected at somewhere around 40% that that's been made public. Subsequently, we have also said that Mister Suta is engaged in doing the nonprofit activities of his through an organization called SCAN and he has been contributing a substantial part of his wealth and his earnings towards that. He's also having another company called Happiest Health, which is associated with hellness, health and Wellness primarily, which which got him start, which is something that he started after COVID. So with all of this, he has been saying this consistently that he would be, you know, bearing down his stake to make sure that the contributions happen towards his legacy building. And the the base level was something at 40% that that he had said right now he's at 44.44 point 3% holding in the company, well within that stated objective and limit. There is also he has been meeting certain front flow requirements for his objectives of nonprofit requirements through a pledge. And I'm sure he'll have that removed once this once the seats 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're saying there is further headroom for him to pair down stake a little bit though not immediately? Not immediately because you know, he has raised a substantial amount that this has to be applied for the for the good that he is doing right now through SCAN and Happiest Health. And at a later point in time, you know 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, very important clarification which you have made ah, that this is 800 crore. They're about raised for philanthropic and nonprofit work as stated earlier. So nothing great change in the strategy. Let's come back and talk about the operational part of the story. You have maintained that a billion dollar in revenue by 31 ah is the target. Ah, you know, 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? So just to put the numbers in perspective, from today to 2031, the company has to grow at a CAGR of around 22 percent, 22% and thereabouts. Last year we did 11 1/2% in the challenging market. This year including the acquisitions we will be, we have our estimate is that we'll do something between 35 to 40% and thereabouts. So if you look at it and I'm giving it as an estimate because you know when you do acquisitions there are cut offs for how much, how many months of revenues we can take during the cut off period, the closing date and all of that. We have closed both acquisitions, but nevertheless we have we have set out that estimate of about 35 to 40%. So this year our acquisition plus organic growth, the 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 is getting us you know back to the 22% mark and that billion dollar from here you will have to essentially again build on the the base of the organic muscle that we have. And we will also have to add on a couple of acquisitions as we you know navigate this growth. It's a 2031 and a billion Dollar Tree. So that's that's where we are. Look then when it comes to the margin picture, can you give us a sense as to what it is that you're looking at the estimated to be in the range of 20 to 22%. Are you holding on to that estimation and what would be margin drivers? We are holding on to that estimate. Again, you know in the year of acquisition you have acquisition costs while you can, you do get benefits of acquisition, it takes some time to you know flow through into the PNL, but there are certain investments that you need to make upfront. So including those acquisition costs and you know the cost of integration, I've given a margin guidance of about 20 to 22% and we are hopeful of doing better. But two elements to it as well. One is 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 you know 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, 700 crores of rupees, but nothing you know it's 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 when talking about EBITDA without the other income, it should be between the 20 to 22%. When you say that you're confident of increasing your margins as well, what exactly are the levers for margin improvement which you are applying? So last year we did a utilization of about 76.5%. If you look at our history, our utilization has been between 79 to 81% that that, that was a range while 8081 is very high, 79 is a healthy 1. So 76.5 to 79 you have a heavy second is attrition rates were higher in the past. No attrition requests you to replace people at A at a higher cost and attrition rates today are at about 12% ETM which which means your cost is coming down. 3rd is we have been working on our pyramid. We onboarded close to 600 campus, campus and off campus pressures last year. Unlike other companies, we went ahead and made the commitment with the bullet, got them on and they're going through the training session and training with it. And within the next three to six months they should hit the, you know, the billable workforce as we call them IPS Mines billable workforce, which which means their revenue generating even though at a lower utilization compared to almost zero in the last year. So you know, that also helps in getting an average cost down while also moving utilization and efficiency. So these are the few points that are growing in our favor. Then we have the other things of we haven't seen much of price pushback from our customers. So that's, that's a relief for us. And it's, it may be because we, we, we do not do cost plus we do market demand based pricing, which is something in discussion with customers. So we don't get price pushback. The second aspect is you know there is a repeat sale we do about 90% of my business comes from repeat business, which also has its impact on you know margins. So with all of this, the levers on margins are there for us to you know play on or rather optimize on, which is what gives me some bit of confidence. We created Gen. AI business unit. Can you just tell us a little bit more about the long term vision here? See, we have created the Gen. AI business as a business unit, which means it's not like ACOE kind of structure which many of the other companies have done, which is fine. But from our side we think we have to put it right in the front of the customer and both the customer of the markets have to see the investments that we make. So we just we just again going in line with the transparency of what we do. So we have made it to BU moment you make the BU you'll have, we'll have to give report separate numbers right up to the margin. So that's what we want to do. Maybe it'll happen this quarter, the next quarter we'll start carving out the business and its results up to a up to Abu level, just like what we do for the PD as an IMSS right now. So we have carved it out as a separate BU and we hope that it will contribute at least 10% of our total revenue because if you look at it, IMSS is about 8050% today, BES is about 80%. So if Abu has to stand on its own merits and have its own business structure and you know all the things that go around with that, you have to be 5 to 10% over the reasonable frame time frame which is about let's say two to three years, it has to be there. You have to also look at it from the overall size of our business. We are about 200 million exit run rate last year. This year right now with the acquisitions we are about 250,000,000 near about OR in terms of run rate. And if you're talking about 5 to 10% that gives you a fair understanding of what we are seeing as a possibility for this BU over a period of two to three years to have you on board. Thank you so much for joining in and sharing with us your financial metrics as well as the long term road ahead.