Happiest Minds Technologies Ltd Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Aditi Patil - ICICI Securities Limited - Analyst : My question is on the edu tech vertical. In prepared remarks, you shared some color on this vertical, but can you let us know the outlook in top client? It has -- the performance in top client has been soft since past few quarters. And also ex of top client, when should we expect recovery in this vertical? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call Joseph Anantharaju - Happiest Minds Technologies Ltd - Executive Vice Chairman and Chief Executive Officer ¡ Product & Digital Engineering Services If you look at the previous -- I'll first touch the previous quarter and then get into the broader segment outlook as well as what we see coming. So for the past quarter, there were two main reasons why we saw a dip in our quarterly revenue. The first was one of our customers, midsized customer, I would say, who has a captive center in India decided based on their PE strategy to in-source all of that work. And so that had a fair bit of impact. The second one was for one of our customers in the K-12 space, we completed the development of their platform. And as a result, the size of the team got reduced because you need a smaller team to continue adding features and supporting the platform. Now, if I look at the broader segment, you can -- if you look at the EdTech segment, you can broadly break it up into four areas: higher ed, K-12, which is a schooling, professional development or workforce development, and I'll keep universities as a separate thing because it is an ancillary of EdTech. And we've not really done much with universities because it's a very specialized segment. Most of our work has been in higher ed, and that's the area that has got impacted significantly due to changing customer preferences, digital transformation and also some secular trends around enrollment and costs that these universities are facing. So one of the -- as part of our FY26 strategy, one of the strategies that we identified is to leverage some of the strengths that we have in this space to parlay that into service offerings for the professional workforce development, where there's a fair bit of focus and investment that's going just to look at how to upskill, multiskill and reskill the workforce with all the rapid changes that you're seeing both in terms of technology and business models. And so that will be something that we will be focusing on closely. The other thing that we are looking at is to see if there are some channels that we can develop to look at the top universities that tend to develop their own platforms as well as to take a couple of the leading platforms and be the implementation partner. So these are two strategies that we will name among a few others that we'll be looking at to get back growth and stability in the EdTech segment.

Question: Aditi Patil - ICICI Securities Limited - Analyst : Understood. My second question is about on Arttha banking platform. So in previous earnings call, we had mentioned about the strong pipeline or traction we are seeing in the Arttha banking platform. Can you share how the pipeline is shaping up over here? And have we already won some deals or are the deal closures on expected lines? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call Joseph Anantharaju - Happiest Minds Technologies Ltd - Executive Vice Chairman and Chief Executive Officer ¡ Product & Digital Engineering Services Sure. So if you look at last quarter, the growth in the BFSI segment, if you notice the BFSI segment was the best performing segment for us last quarter. And I would attribute a big part of that to the Arttha banking platform because we were able to close two deals, finish the implementation and the recognition of those revenues is what has led to quite a bit of the growth that we see in the BFSI vertical. Looking at the current quarter and into next year, there are two, three things that are happening. One is the organic pipeline that PureSoftware has for Arttha banking platform continues to be good, and it should be one of the contributors to our growth and to the growth of the BFSI segment during this quarter. We've also taken a strategic view to Arttha, and we've put together a couple of task forces. One of them to look at the market that we want to take it -- different markets and use cases that we want to take Arttha banking into. Therefore, what is the functionalities that need to be added? What is the strategy we need to adopt? And what is the go-to-market that we should be doing? This is in parallel to all the efforts that we are making. The second is we are seeing quite a bit of traction in the Indian market. We've been in discussion with a few of the banks, and many of them are undergoing their digital transformation initiatives, and they're looking for a digital banking platform like Arttha, which will provide their customers with the kind of experience, digital experience that they're used to. And here, again, we have quite a few good conversations going on. And we are very -- and I'll overlay that with the comment we made about the NN team and the Chief Growth Officer. So that team is coming together really well. And the BDMs that we have in India, they've been able to open up a few of these doors. And so we are very excited about the prospect that Arttha brings to the table in terms of nonlinear revenue, establishing our BFSI capability because we built -- we have our own platform that should make us very credible with customers in terms of our capability in the banking space. So it's both direct revenue and leverage that we get from Arttha that excites us.

Question: Aditi Patil - ICICI Securities Limited - Analyst : Okay, got it. And is the GAVS -- what is the time line for completion of the GAVS acquisition? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call Venkatraman Narayanan - Happiest Minds Technologies Ltd - Chief Financial Officer, Managing Director, Executive Director, Member of the Executive Board It's -- we should be done in [couple of] days. In fact, the SPS we signed -- it was more of a transition of business because we had certain common customers and they had a large presence in the Middle East with about 1,900 people and two very good BFSI customers and relations, about 9 to 10 of them. So those come on to our -- we get it on to our roaster and we take it on from here. So closing should happen -- closing in terms of payments should happen in the next one or two days.

Question: Aditi Patil - ICICI Securities Limited - Analyst : And can you share about progress on the -- so we have been focusing on net new deals, adding net new logos. So can you share progress on this? Joseph Anantharaju - Happiest Minds Technologies Ltd - Executive Vice Chairman and Chief Executive Officer ¡ Product & Digital Engineering Services Yes. So as I stated earlier, and Venkat also mentioned, at the beginning of the year, we took a very strategic decision to separate out our business development or sales team, which was hybrid till then, into farmers and client partners and hunters who would focus on NN new logos. And we have Maninder, who joined us as the Chief Growth Officer in August. And he's been putting his team together, and we have most of the team in place, very seasoned sales executives. And what we've done is we've tried to bring in people to align them with the verticals that we have. So each sales BDM has significant years of experience and depth in one vertical, and that would be the primary vertical. And so this team is mostly assembled, one or two more members to be brought on board. And they came together in the November, December time frame. Very happy to state that we're already seeing a very healthy buildup of pipeline, as I mentioned in my notes at the beginning of this call. And we already have one closure and couple of prospects in very advanced stage, which should lead to pretty decent-sized revenues. So I think the strategic initiative that we put in place has taken root. It's in the execution phase right now, and we're already seeing output out of this. We had seven new logos cutting across various geos and verticals last quarter, and we expect this momentum to continue into Q4 and into FY26.

Question: Prasad Padala - SBI Funds Management Pvt. Ltd. - Analyst : So in terms of the -- I mean, good to know that -- I mean your comments about the order pipeline, deal wins, et cetera. But any quantitative color, if you can provide, that would be great, first. And second, so would that actually translate to a better organic growth for next year? Joseph Anantharaju - Happiest Minds Technologies Ltd - Executive Vice Chairman and Chief Executive Officer ¡ Product & Digital Engineering Services When you say quantitative, is it more from a demand perspective?

Question: Prasad Padala - SBI Funds Management Pvt. Ltd. - Analyst : Also, if I may just extend the question. So how much of it is of the improved pipeline is a function of the strategic initiatives are you taking? And how much of it is because of the market is now looking better? I mean, is the second thing -- the first one is more clear, I think, in terms of how you explained. I'm just trying to understand the second bit and if you can give some color on that.

Question: Vinesh Vala - HDFC Securities Ltd. - Analyst : My question was on the retail vertical where you see ease in some discretionary spending, which is coming in. So can you highlight on that vertical? Joseph Anantharaju - Happiest Minds Technologies Ltd - Executive Vice Chairman and Chief Executive Officer ¡ Product & Digital Engineering Services Yes. So we are seeing a decent traction in two areas. One is if you look at the retail segment in US, especially the -- some of the midsized retail companies, which have been a little behind in their digital transformation strategy, things like e-commerce, leveraging analytics, using some of the technologies like Beacon and others that allow for personalization. We see these companies undertaking or getting into the next phase of the digital transformation journey with a lot of emphasis on analytics and AI. And so that's one area that we are seeing quite a bit of traction. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call In the CPG space, I think some of the large CPG companies are our customers or we've signed them up recently. And we've seen that in the last six to eight months, they all went through a little bit of a strategic review at the beginning of last year. And towards the end of 2024, we saw that these reviews were getting completed, organizational restructurings were being done. And therefore, new initiatives started being initiated and executed. And we are beginning to see that reflecting in additional requirements and pipeline. And as you see for last quarter, we did have the retail CPG vertical showing pretty good growth of around 3% to 4% quarter on quarter. And we expect this to continue. One of the strategies that we'll be playing out, especially on the CPG side of the vertical is to focus on how do we expand our presence and mine more aggressively in the customers that we have. As I said, we have some of the top -- among the top 10, I would say we have 4 of the companies as our customers, and they're all pretty large -- they have pretty large IT spend. So there is a fair bit of opportunity out there. And so we'd have to take a very focused view to our account manning and expansion, which, again, I think our whole verticalization strategy would help by bringing delivery, sales and domain together to come up with account development plans, account strategies and to go about it in a very focused manner.

Question: Vinesh Vala - HDFC Securities Ltd. - Analyst : Yes. Last thing, can you quantify me the wage impact during this quarter on the margins? Venkatraman Narayanan - Happiest Minds Technologies Ltd - Chief Financial Officer, Managing Director, Executive Director, Member of the Executive Board This quarter, we have -- it's for the senior profile, so it will be about 0.6%, if I'm right. That will be the number. 0.6%.

Question: Ruchi Mukhija - ICICI Securities Limited - Analyst : A couple of questions. This year, we saw large acquisition taking precedence, which will purple off our growth in a way, our organic growth would be a single digit lag. So as you commented that BFSI traction is building, we have put in new teams at work. As we proceed towards next year, you see the organic growth for our business catching up and possibly running to a double-digit trajectory. Is that something we are aiming for? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call Venkatraman Narayanan - Happiest Minds Technologies Ltd - Chief Financial Officer, Managing Director, Executive Director, Member of the Executive Board Yes. Ruchi, the question, if I were to -- you're saying this year's growth organic is single digit. And next year, we would like to -- you would like to know what kind of a number that is and would have been double digit. Is that what the question was, Ruchi?

Question: Ruchi Mukhija - ICICI Securities Limited - Analyst : Got it. For our guidance, you mentioned we want to land as close to 30% mark as possible. This imply a very steep acceleration in March quarter. Now with furloughs reversing, Arttha platform, a good seasonality in the quarter, we imply that the March quarter would be substantially growth quarter. Is that right understanding? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call Venkatraman Narayanan - Happiest Minds Technologies Ltd - Chief Financial Officer, Managing Director, Executive Director, Member of the Executive Board Yes. That's what I said. If you have looked at our quarter-over-quarter, which is Q2 and Q3, we have done 27% to 28%. That's the kind of number that we are going into Q4 and the benefits of some more movements that we get from the GAVS consolidation and the reversals that you talked about in terms of work days. But see, we did have furloughs, we did catch up quite a bit of that through certain revenue enhancement measures, which obviously will be a base that we'll have to work on into Q4. But the attempt, I keep saying the attempt will be to touch that 30%. And as of now, it looks to be about 28% -- 27%, 28%.

Question: Sumeet Jain - CLSA - Analyst : So my questions are largely around your generative AI business. I mean it's still very early days and just three quarters of revenue disclosure from your end. But for the last two quarters, we have not seen any material pickup out there. So I want to understand how are you defining the kind of work what you are doing in generative AI, what all kind of work actually entails in it? Because when we look at Accenture's reported gen AI revenues or order book, there's a substantial growth. So I just want to understand that.

Question: Sumeet Jain - CLSA - Analyst : Got it. So just to clarify, the foundation work in terms of data analysis, data aggregation or, let's say, some bit of a cloud migration to access to the GPUs, that part of the work you are not including in GBS, but more in IMSS, right?

Question: Sumeet Jain - CLSA - Analyst : Got it. And are you seeing with the launch of DeepSeek a couple of weeks back, are you seeing the incentive cost to come down materially, that discussion happening with your client base and a lot of POCs probably moving to implementation stages. Any advancement in discussions happening on the back of it?

Question: Sumeet Jain - CLSA - Analyst : Got it. And maybe just last question in the interest of time. I mean, obviously, gen AI is being counted as to provide significant productivity benefits to the IMSS service line as well as product and digital engineering services. And we saw that one of your larger peers did pass on a lot of productivity benefits to one of the largest hyperscalers and even you work with them. So I want to understand, are you also passing on these benefits to them or are you able to retain them? Any thoughts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:30AM, HAPP.NS - Q3 2025 Happiest Minds Technologies Ltd Earnings Call

Question: Sumeet Jain - CLSA - Analyst : Right. So the margin opportunity is very clear, but does it imply that your revenue opportunity comes down because initially, there is a more deflationary environment and probably the Jevons Paradox kicks in after some time where the volumes come in, which will be reflected in your GBS revenues maybe with a few quarter lag?