Why Happiest Minds Share Price is Falling

Benchmark indices recently hit record highs tracking a firm trend in global markets after the US Fed minutes indicated a slower pace of rate increase that bolstered investors' sentiment.

Besides this, macro developments in India showing steady rise in credit growth and capex, assisted the rally.

However, despite this upbeat sentiment, IT stocks continue to fall. One of the stocks that have been on a downtrend, is Happiest Minds Technologies. The share price of Happiest Minds Technologies has fallen more than 3.7% in the last month.

So, why has the stock fallen? Let's find out...

Recession on the horizon

As the Federal Reserve ramps up its fight against decade-high inflation, a growing movement of economists predicts a global recession within the next 12 months.

In fact, this has already started playing out. A wave of recession is looming all over the world. For the last few weeks, global markets were experiencing intense pressure.

Since tech companies are typically insulated from the common issues of the world, layoffs in the industry are a sign of worldwide recession.

Global tech giants such as Facebook, Amazon, and Google have already started laying off a huge chunk of their work force. The main reason for the layoffs can be traced back to the sector's over-hiring. They are now correcting for their optimism.

Now Indian IT stocks follow a similar trend when it comes to technology. So, if the Nasdaq falls overnight, Indian IT stocks usually fall the very next day.

Since the beginning of the year, the Nasdaq is down more than 28%. Tracking this decline is the stock price of tech giants such as TCS, Infosys and Wipro, which are down more than 10-12% for the year.

Smaller IT companies such as Happiest Minds have also felt the heat. The stock is down more than 28% in 2022.

Margins continue to be under pressure

Happiest Minds Technologies posted a 33.4% YoY increase in revenue at Rs 3.6 bn for the September 2022 quarter on the back of strong growth from client's digital transformation initiatives.

Digital comprises nearly 97% of the company's total revenue, the highest among its Indian peers. Within digital, cloud contributes about 45% to the revenue.

In constant currency terms, the company's revenue grew 23.8% YoY to US$ 44.3 m

However, EBIT (earnings before interest and taxes) margins came in flat at 22.7% as employee and other expenses rose.

This was due to the recent intake of freshers (September intake) and continuous investments in facility addition across India especially in Bangalore, Noida, and Bhuvneshwar.

Happiest Minds made a net addition of 393 employees during the quarter, taking the total headcount to 4,581, as of September 2022 quarter.

While the attrition rate on a trailing 12-month basis has moderated to 23.5% from 24.4% in the preceding three months, margins are expected to be under pressure due to wage hikes and higher intake of freshers.

How Happiest Minds Technologies shares have performed lately

Happiest Minds shares have declined by more than 3.5% in the last month. In 2022, the stock is down more than 28% due to pressure in global tech stocks.

In 2022, Top IT stocks experienced a sharp correction, partly due to concerns about a prolonged slowdown in US IT spending.

May 2022, in particular, proved to be a bad month for IT stocks. A growing movement of economists have already predicted a global recession within the next 12 months. The Indian market is unlikely to escape these headwinds.

At the current price, Happiest Minds trades at a PE multiple of 64.06 and a price to book value multiple of 18.66.

The stock's promoter holding stands strong at 53.25% of the company. FIIs have steadily decreased their exposure to the stock. FII ownership stood at 7.05% in September 2021. As of September 2022, FIIs hold a 3.94% stake in the company.

About Happiest Minds Technologies

Happiest Minds Technologies is an IT company that enables digital transformation for enterprises and technology providers.

It does this by leveraging a spectrum of disruptive technologies such as artificial intelligence, block chain, cloud, digital process automation, internet of things, robotics/drones, security, virtual/augmented reality, etc.

The company delivers these services across industry sectors such as automotive, banking and financial services and insurance (BFSI), and consumer packaged goods, etc.

To learn more about the company check out, Happiest Minds' financial factsheet and quarterly results.

For more details about the IT sector, you can have a look at IT sector report on our website.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...