Happiest Minds-ITC Infotech merger to broaden geographical, vertical reach

What were the key highlights for the company this quarter?

VN: We saw good numbers relative to industry performance, given the global outlook and geopolitical macro. We saw 7 per cent YoY CC growth, 12.5 per cent-plus in rupee terms. Profitability has grown by double digits YoY. Operating metrics are better, and utilization is high at 82 per cent. We are making good progress on the ITC Infotech merger.

We have guidance of 12.5 per cent cc revenue growth, and at midyear, we are at about 6.87 per cent. We have been pursuing a few large deals, which are just moving from Q1 and Q2, because, as a $260 million company, 2-3 large deals throw us off our estimates. We hope to nail it down by Q3 or Q4. If that happens, we’ll show a good exit. The intention is to end the year with double-digit CC growth.

With the merger taking effect next year and the combined entity targeting $1 billion in revenue, what growth trajectory must Happiest Minds maintain to support this target?

As we come closer to the merger, combined revenue will be closer to $850 million. With 12.5 per cent growth for two years, by FY28, we should be a billion-dollar entity. There is minimal overlap between the companies in terms of geography and verticals, so there is plenty of growth opportunity. However, there is also the risk that the global situation may not work in our favour. We should take these things in our stride.

How will Happiest Minds’ business units contribute to the combined entity?

JA: ITCI is more region-oriented. In terms of service offerings, Happiest Minds will bring deeper capabilities around AI. On the SDLC side, Happiest Minds has a few things going. They’re focused on the physical AI, data, and software side. ITCI also comes with deep capabilities in SAP and plant and manufacturing, which we can take to our customers across healthcare, pharma, life sciences, retail CPG, industrial, and manufacturing customers.

Meanwhile, we can take our data capabilities and platform engineering deeper into their customers. We’ve also formed the AI Productivity Center of Excellence, which is a big investment. We’ll be able to cross-sell that. A strength of ours is security. With AI adoption, we see more emphasis on security and the prevention of security incidents. There are many cross-sell opportunities and the ability to work together, which can mean a revenue uptick on both sides.

How do you see the geographical and vertical mix evolving in the combined entity?

JA: In the last 2-3 years, our geo revenues have been diversified. Earlier, we were heavily weighted towards the US, which made up 75-77 per cent of our revenues. We will continue this so we’re not overly exposed to one geo.

The combined Happiest Minds-ITC Infotech entity is expected to have a diversified geographical mix, with the US contributing around 40 per cent of revenue, Europe 25-28 per cent, India 10-12 per cent, Southeast Asia 10-12 per cent, the Middle East 10 per cent and Africa 3-4 per cent.

In terms of verticals, retail and CPG, along with manufacturing, would account for 38-40 per cent of the combined entity’s revenue, while BFSI would contribute 20-22 per cent and healthcare around 8 per cent.

Excluding manufacturing industrial from the broader manufacturing category, the portfolio would be more evenly distributed, with retail and CPG contributing around 30 per cent, BFSI 20-22 per cent, manufacturing and industrial 10-12 per cent, and high-tech and ed-tech about 10 per cent each. Such diversification would help the company navigate challenging market conditions while allowing it to focus on high-growth verticals.

Will the combined entity be better positioned to win larger deals than the two companies could independently?

JA: This was a catalyst for moving forward with the deal, because when customers get into a consolidation exercise, they consider wallet share and breadth of service offerings. Procurement has their own qualification criteria in terms of revenues and other things. The new entity would position us better and allow us to play at one or two levels higher than what Happiest Minds could do. It will give both sides and the merged entity a better shot at becoming a more strategic player for our customers.

Post-merger, how will the workforce and leadership structures be integrated?

JA: Considering both companies’ utilization, we are a little lower than ITCI, which had 86.9 per cent this quarter. Otherwise, given the space we play in and the plurality of skills required, 82 per cent is a good number to have. There’s no slack in the system from a billable or utilization standpoint.

Billed utilisation levels indicate that both companies are already leveraging their employees across enabling functions to the extent possible. For instance, a delivery or project manager handling two to three customers cannot simply be replaced by an employee from ITC Infotech or Happiest Minds who may appear underutilised. Such a move could risk disrupting customer relationships and replacing someone who already understands the client, its people and its requirements.

At the senior level, there could be changes in roles, depending on how the integrated structure is, but the commitment from both sides, especially from ITCI, has been that they would want to see everybody — from ITC Infotech or Happiest Minds — continuing by looking at how this team will contribute to growth.