2. Overview of IT Sector
• The Information Technology & Information Technology Enabled Services (IT-ITeS) sector is a field which is undergoing rapid evolution
and is changing the shape of Indian business standards. This sector includes software development, consultancies, software management,
online services and business process outsourcing (BPO).
• India’s IT industry contributed around 8% to the country’s GDP in 2020 and is expected to contribute 10% to India’s GDP by 2025.
• According to STPI (Software Technology Park of India), software exports by the IT companies connected to it, stood at Rs. 1.20 lakh crore
(US$ 16.29 billion) in the first quarter of FY22.
• The key competencies and characteristics of Indian IT have attracted substantial investment from major countries. Between April 2000 and
June 2021, India's computer software and hardware business garnered a total of US$ 74.12 billion in foreign direct investment (FDI).
• Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra are diversifying their offerings and showcasing leading ideas in
blockchain and artificial intelligence to clients using innovation hubs and research and development centers to create differentiated offerings.
3. IT SECTOR PORTERS FIVE FORCE
1. Threat of new entrants
• India's IT sector faces a high threat of entry by new companies owing to its low setup costs and lack of infrastructure requirement. Thousands of
new IT companies have started in the last few years catering to clients worldwide.
• As a result, small and medium players have a difficult time winning large deals since large players have better infrastructure and resources. The top
five IT firms in India contribute around 25% of industry revenue, showing a fairly competitive industry
2. Bargaining power of suppliers
• IT infrastructure and hardware providers, transportation service providers, recruitment firms/engineering colleges, and office space providers are
among the Indian IT industry's suppliers. Because suppliers are fragmented and provide services with little difference, their bargaining power is
limited.
• Apart from the aforementioned, the government and policymakers play a critical role in providing the necessary infrastructure, land, and resources.
To encourage IT companies to expand their operations, the government has set aside land and resources in Tier 2 and Tier 3 cities at a relatively low
cost.
3. Bargaining Power of Buyers
• IT services can be broadly classified as Niche and Conventional.
• Implementation projects involving emerging technologies such as machine learning, big data, artificial intelligence, ERP deployments, and so on
are known as niche services. High customer involvement, considerable product difference, and strategic influence on the client's business are all
part of these services. Customers have little bargaining power because these are partnership-style engagements with higher risk and reward, as well
as higher margins.
• Traditional IT services entail a lot of repetitive work and little client interaction. They choose Indian IT firms for traditional IT services because of
the onsite-offshore model, which provides clients with round-the-clock support at a lower cost. Many customers have begun to establish their own
captive unit in India to handle traditional IT services so, the bargaining power is high
4. 4. The threat of substitutes
• Apart from internal IT departments, which have lost weight over the years and are becoming increasingly scarce in terms of numbers
and significance, there are no significant substitutes for IT services.
• The threat of substitution if you consider geography area we have to rate it is as moderate, as new geographies such as China and the
Philippines emerge and gain ground quickly due to low costs and the skilled manpower.
5. Competitive Rivalry
• The IT industry landscape is characterized by fierce competition for traditional IT services such as application development and
maintenance, IT infrastructure management, network management, data center services, and so on, resulting in commoditization. There
are other companies in the market that provide identical services, making it difficult to distinguish between them.
• The opportunity for differentiation through niche-specialization arises in the context of non-conventional services, i.e. those focused on
emerging technologies and trends such as Analytics, Cloud computing, Social Media, Enterprise Mobility, Internet of Things, and so
on.
5. PESTLE ANALYSIS FOR IT SECTOR
1. Political factor
• Any country's political condition can have an impact on the IT industry's business. The government creates rules and regulations for
the IT industry, as well as policies to integrate the IT industry with various government departments. It may also contribute to the
expansion of the IT sector in the private sector.
• The government must also establish laws for the use of software and social media in order to keep it on track. The government can
make it flawless and valuable for the public while preventing it from being used for inappropriate or criminal purposes. The
government creates taxes policies for this industry, and it can generate a lot of cash from it.
2. Economic factor
• The IT industry has had a significant impact on the economics of many countries. People can now understand and detect the economic
downturn, contract availability, competition, and fee deposit.
• Countries now construct their budgets by using the internet to acquire data from many departments and to assess the economic
situation. They can also assess each department's revenue and expenses, as well as their working output, in order to assess the
departments' suitability. They can compare their budget to prior budgets to see how much money was spent on each department and
what they got in return.
3. Social factors
• People can learn about their rights at work or as citizens by using the internet, and they can express their views with others. They can
use social media sites to voice various issues and receive solutions to their problems. They also use several websites to learn about job
openings and places where they can apply.
• People have skills and they can use it for most suited employment according to their degree and skills. They can communicate in
English with people from many countries and are most comfortable sharing their feelings with them openly and boldly. People may
now learn about the current fashion trends, city events, and any items and services available, and they can use it for online shopping
and any other online work.
6. 4. Technology factor
• The information technology industry has had a significant impact on people's lives and the country's economy. The number of IT users
is steadily expanding, and they utilize smartphones for a variety of functions.
• IT tools and equipment are employed in a variety of industries, and they have made work easier and more efficient. Computer-aided
architectural design is critical for creating designs for both residential and commercial buildings. Software innovations have
revolutionized all aspects of life, and a plenty of new software is now accessible on the market, allowing users to do their tasks without
stress or trouble.
5. Legal factors
• India has come up with great Acts that have made it easy for the IT sector to develop on. It has become easy for IT companies to carry
out electronic using legal infrastructure made possible by the Legal Aspects and Policies IT Act 2000. Government can easily issue
notification in the web signaling e-governance.
6. Environmental factors
• Various environmental and environmental protection issues have gained significance. The increased use of IT equipment and gadgets
has put the environment in jeopardy, posing a serious threat to life and nature's sustainability.
• Mobile phones are essentially cordless phones that receive phone calls and SMS via waves, which are both heavy and hazardous to
people's health. Signal towers have been constructed by mobile phone operators to receive and transmit waves when calls are made.
7. KEY CHALLENGES FOR IT INDUSTRY
1. Cybersecurity Threats
• In recent years, cybersecurity has become increasingly important for multiple reasons. Data has become many businesses’most
valuable commodity and we are seeing nefarious activity, such as malware, rise.
• Data breaches and incidents are becoming more prevalent as attackers seek to exploit vulnerabilities. Technology companies are
ramping up their cybersecurity initiatives to ensure business continuity and supply chain safety.
2. Talent Shortage
• Retention of employees is one of the biggest challenges for the IT industry. Software companies recruit people, train them but in the
end, they witness their resignation once they are enough experienced in the job. Organizations investment into employees to integrate
them into the workflow.
• There is a huge gap in the skills the work demand and the skills job applicants have. Our education system still needs to be revamped.
And that affects the industries that seek highly skilled employees. Unemployment is high in our country, but the fact is that many
companies are not able to find talent to fill the positions.
3. Data Protection and Privacy
• Consumer trust is difficult to come by and a precious asset when it is achieved. According to a study by Edelman, 81% of customers
reported that they need to trust the brand to buy from them.
• Implementing data protection and information security policies and procedures to ensure that customer data remains private is essential
to gain and keep the trust of consumers. As we come out of the pandemic, protecting data is becoming even more important.
4. Remote Workplace
• Due to the lack of a manager or teammates to consult or provide fast responses or sources, working remotely can create special
obstacles. Infrastructure is the most important requirement for completing such operations, yet obtaining assets that can sustain,
govern, and handle enormous data loads requires a significant investment. These solutions, however, are vulnerable to hacking and
data theft, which necessitates the use of robust firewalls and software. This is a cost that the IT industry has to bear.
8. Happiest mind technology introduction and fundamental analysis
• Established in 2011, happiest minds is an IT company that specializes in digital transformation, infrastructure, security, and product
engineering solutions. So basically, when we say digital transformation, it includes services like IoT, that is Internet of Things, cloud
computing, big data analytics, process automation, artificial intelligence, blockchain, etc.
• If you look at the tagline of happiest mind, it says Born Digital, Born Agile. when it says born-digital, Happiest Minds is focused on digital
business. That is the disruptive technology of the world that is in high demand with a bright future. In fact, 97% of the business of happiness
minds is from district services.
• When it says Bond Agile, it means quick to adapt. So Agile is a methodology in IT that essentially means being active and doing things in
pieces .It is very important for a business to be Agile because in technology you need to unlearn and we-learn and adapt to changes quickly.
• The industries which are concentrated by the company are
1. Edutech
2. Hitech
3. Banking and financial services
4. Travel media and entertainment
5. Retail
6. Industrial
7. Manufacturing
• 41% business is from digital infrastructure and cloud services, 21.6% of revenue is from SAAS that is a software as a service, 8.7% is from
Security, 14.4% is from analytics and AI, 11% is from IoT and 3.4% is from others
9. FINANCIAL ANALYSIS FOR
2021
HAPPIEST MIND
TECHNOLOGY
PERSISTANT
SYSTEM
TATA ELXSI BIRLASOFT
ROCE 36.51% 21.2% 40% 22.84%
ROE 42.18% 16.1% 29.19% 14.86%
PE 92.7 53.1 87.85 45.90
PB 23.74 10.31 30.76 8.23
EPS 11.03 82.62 81.06 9.87
DIVIDEND YIELD 0.29% 0.46% 0.34 0.77%
EV/EBITA 57.96 35.07 58.23 26.39
10. 1. Revenue growth
• The net sales for the FY 2020 is698.91cr and it has increases by 9 percent for the FY 2021 to 760.96cr so the company revenue is
increasing every year which signifies growth in business and the net profit for FY 2020 is 73.43 and it has increase by 110% to
161.93cr which is consider as high growth with in the industry compared to its peers
• Cash From Operation - YoY Growth in year ended Mar 2021 is 28.01% vs 94.76% in Mar 2020 so the company is actually making
profit from business rather than doing credit business
2. ROCE and ROE
• The company has been able to generate a Return on Capital Employed (avg) of 36.00% signifying high profitability per unit of total
capital (equity and debt),so we can say that management efficiency is high and the company is growing at a fast pace than its
competitors and ROE of 42.08 % signifying high profitability per unit of equity capital and the returns are greater than its peers
3. Valuation
• Considering the value of pb, pe and EV/EBITA the stock is overvalued than its peers but Happiest minds is a growing company, it
would continue to demand higher valuation and it would be difficult to find it at PE of 20 to 30. Although at current levels, it is looking
overvalued.
11. SWOT ANALYSIS FOR HAPPIEST MIND TECHNOLOGY
1. Strength
• Strong brand in digital it services
• Happiest Minds utilization percentage is very good. In q3 of FY 21, onset utilization is about 75% and the latest onsite utilization is at
1.6% which is great. Offshore utilization is consistently about 95%
• Attrition rate of happiest minds, it is consistently reducing. It is reduced from 25.2% in FY 19 to currently at 13.1% in q3 of FY 21 and
relatively fewer people are quitting the job from Happiest Minds, and it is able to retain the talent which is the biggest asset in an IT
company.
2. Weakness
• Mr. Ashok Soota is 78 years old and it's very important for a leader to find the right successor who can take the charge in the future ,
so there is a succession risk.
• Revenue from operation highly dependent on us market
• As the majority of technologies are relatively new, it is not easy to find the right talent with required capability.
3. Opportunities
• Edutech , hitech and healthcare verticals which have grown during the pandemic and most of the clients for happiest mind are from
this sector which leads to high revenue generation and growth opportunities.
4. Threats
• Big competitors are trying to increase their digital business which leads to heavy competition and in the future it might lose the
differentiation and market share for the product.
12. Competition analysis advantage
• Leadership with a lot of experience Needless to say, Ashok Soota brings a wealth of knowledge to the table with his 30+ years in the IT
industry. He has a proven track record of successfully reforming Wipro and Mindtree, which he started in 1999. He recognizes the relevance
of excellent governance and future technology in the development of a successful business.
• Happiest mind have strong client network it has around 150+ active clients and 39 of them are billion-dollar companies. So Happiest
minds works with the top-notch companies of the world which boost their revenue and profits in the long term over their competitors
• Technology is at the heart of the IT industry, and you must stay current to be relevant in this highly competitive field. You can't work with
outdated technology. The only way to advance is to develop sophisticated technology capabilities, which the Happiest minds are doing with
technologies such as IoT, Cloud computing, Big data analytics, Automation, Artificial intelligence, and so on, that digital firm with the latest
technology that gives a distinct edge over competitors generates more than 96 percent of the revenue of the happiest brains. Furthermore, the
most recent technology offers a significantly better margin, resulting in increased profitability for the organization.
• They have a scalable business model ,they have diversified revenue across verticals ,technology ,customers
13. BCG matrix of Happiest mind technology
• The main products of happiest mind technology
1. Digital Business Unit
2. Product Engineering Services
3. Infrastructure Management And Security Services
• So the type of products which have been given by happiest mind technology falls under the category of STARS because these products has
higher margin and higher growth rate in the next decade so all the products which are offered by the happiest mind will be placed in the star
region in the BCG Matrix
14. Conclusion
• If you look in the future, it is all about digital. Today, everything is transforming into digital. Your education has
transformed to Edu tech, Retail has transformed to e-commerce, Finance has transformed to FinTech, and so on.
Technology has become an integral part of our life.
• We probably can't imagine a world without technology now and it is just the beginning. The future is all about digital. On
top of this COVID has confirmed that the future is certainly digital. Technologies like cloud computing, Internet of Things,
Automation, Advanced analytics, Artificial intelligence has already become a part of our daily life and would continue to
grow
• The Cloud computing market is expected to grow from $224 billion in FY 19 to $719 billion by 2025 at a CAGR of
21.45%. IoT technology business is expected to grow at a CAGR of 14.2%. By 2025. Technologies such as artificial
intelligence and machine learning are expected to grow by 55% by 2025.
• Blockchain solutions are expected to grow by 80% by 2025. India is already a global leader in IT services and has the right
ecosystem to cater to this ever-growing demand for technology. Even the government is pushing towards a digital economy
with campaigns like Digital India.
• While other IT companies are still trying to increase the business from the latest technology happiest minds are already
drawing a revenue of 97% from the digital business. In one of the interviews last year, Ashok Soota mentioned that he
expects Happiest minds to grow at a CAGR of 20%. That's a fantastic growth rate.
