Shares of Happiest Minds Technologies Ltd. experienced significant pressure on Tuesday, declining 10.92 percent to close at Rs 362.70. This drop brings the stock close to its listing price of Rs 350 from September 17, 2020, and represents a 35.97 percent decrease over the past year. The sharp fall comes in the wake of the company's announcement regarding a proposed merger with ITC Infotech Ltd.
Details of the Proposed Merger
The transaction outlining the merger between Happiest Minds and ITC Infotech is structured in two primary steps. Initially, ITC Infotech is set to acquire a 22.1 percent stake in Happiest Minds from the promoter group, led by Ashok Soota, for Rs 1,330 crore in cash. Following this acquisition, Happiest Minds will be amalgamated into ITC Infotech through a share swap arrangement.
Under the terms of the share swap, Happiest Minds shareholders are slated to receive 25 shares of ITC Infotech for every 81 shares they currently hold. This valuation places Happiest Minds at Rs 405 per share for the purposes of the transaction. Post-merger, ITC Ltd. is projected to hold approximately 73.4 percent of the combined listed entity, while existing Happiest Minds shareholders will collectively own around 26.6 percent. This complex transaction, however, is subject to various regulatory and shareholder approvals and is anticipated to take approximately 15 months to finalize, according to Choice Institutional Equities.
Analyst Perspectives on the Merger
The proposed merger has elicited mixed reactions and varying advice from market experts regarding the future of Happiest Minds shares.
Choice Institutional Equities Maintains 'Buy' Rating
Choice Institutional Equities has reiterated its 'BUY' rating on Happiest Minds, setting a 12-month target price of Rs 440. The brokerage firm believes that the combination with ITC Infotech will provide Happiest Minds with greater scale and a broader range of capabilities, while allowing it to maintain its strategic focus on artificial intelligence (AI) and digital engineering. Following the recent correction, Choice stated that Happiest Minds trades at an attractive ~18.8x FY28E EPS, presenting a favorable entry point given the potential benefits of the combination. The brokerage expects the transaction to be value-accretive for shareholders over the medium to long term, though it highlights execution, revenue growth, cross-selling, margins, and differentiation as critical areas to monitor.
Other Market Experts Offer Caution
Kranthi Bathini, an Equity Strategist at WealthMills Securities, advised existing investors to hold Happiest Minds stock from a long-term perspective. He suggested that fresh buying opportunities might arise after positive quarterly results and clear signs of earnings recovery, noting that an earnings overhang is likely to persist in the short to medium term.
Ravi Singh, Chief Research Officer at Master Capital Services, observed that the stock remains under pressure due to the proposed merger and its intricate transaction structure. Singh highlighted that the combined entity is projected to achieve revenues of approximately Rs 7,033 crore and employ over 19,000 individuals, specializing in AI, digital engineering, cloud, cybersecurity, and enterprise technology. While acknowledging the merger's potential for greater scale and access to ITC Infotech's resources, Singh pointed out that the initial market reaction has been negative, with investors focusing on the transaction's specifics and valuation. From a technical standpoint, Singh indicated that the stock shows weakness and could face further selling pressure, potentially towards Rs 330.