Happiness is on steroids—in the Indian stock market, at least. 

Even by the standards of the manic, liquidity-driven bull run underway on the bourses, Bengaluru-headquartered small-tier IT services company Happiest Minds Technologies is on a euphoric trip. Its initial public offering (IPO) last September was among the most successful in the Indian market—it was oversubscribed 151 times. 

The stock more than doubled on listing and has continued its gravity-defying run. At Rs 540 ($7.5) apiece now, it has more than tripled till date from its IPO price of Rs 166 ($2.3). The past week has been particularly good for the stock, with gains of about 35%. 

The latest run-up is thanks to a ‘Buy’ recommendation from research house Nomura, which called the Happiest Minds stock “a consistent compounder”. The company’s continuing dazzling financial performance—profit nearly doubled year-on-year to Rs 42 crore ($5.8 million) in the quarter ended December 2020—seems to be driving investor frenzy. 

But too much happiness, especially when driven by liquidity, is never a good thing; it can leave a bad hangover. Irrational exuberance seems alive and thriving in Happiest Minds. The stock is now among the costliest in the Indian IT space, trading at about 48X its trailing 12-month earnings.

 This is far higher than the trailing price-to-earnings trailing price-to-earnings trailing price-to-earnings Trailing price-to-earnings (P/E) is a relative valuation multiple that is based on the last 12 months of actual earnings. multiples of Indian biggies such as Tata Consultancy Services, Infosys, Wipro, and HCL Technologies (20-34X), and mid-tier players such as Mindtree, Coforge, Persistent Systems, and Mphasis Mphasis The Ken Blackstone’s gain could be Mphasis’ loss in potential exit scenario Read more (25-33X). The stock has also raced past the price target of Rs 480 ($6.6) placed on it by Nomura just last week. What gives? 

Move aside legacy Indian IT companies. Happiest Minds—new-age, pure-play digital services—is being benchmarked with pure-play global digital service companies such as Globant, EPAM Systems, and Endava. These players, mentioned as competitors in Happiest Minds’ IPO documents, trade at a mighty 65 times to triple-digit price-to-earnings. 

So, has the party just about started for Happiest Minds? Sadly, not quite. On the contrary, the Happiest Minds party may have more than run its course riding the ‘digital’ wave. Two IT sector analysts told The Ken that the stock’s valuation seemed quite inflated. The bubble seems ripe to be pricked due to incorrect comparisons, competitive pressure, and a rise in costs. 


Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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