Happiest Minds shares dive 11% to near listing price; ITC Infotech merger plan in focus: Buy, sell or hold?

Shares of Happiest Minds Technologies Ltd remain under pressure on Tuesday, falling 10.92 per cent to settle at Rs 362.70. At this closing level, the stock has declined 35.97 per cent over the past year and is trading close to its listing price of Rs 350.

Happiest Minds debuted on the stock exchanges at Rs 350 on September 17, 2020, marking a premium of around 110 per cent over its initial public offering (IPO) price of Rs 166.

The latest decline comes as the company announced a proposed merger with ITC Infotech Ltd. The transaction involves two steps: ITC Infotech will first acquire a 22.1 per cent stake in Happiest Minds from Ashok Soota-led promoter group for Rs 1,330 crore in cash, followed by the amalgamation of Happiest Minds into ITC Infotech through a share swap.

Under the proposed arrangement, Happiest Minds shareholders receive 25 shares of ITC Infotech for every 81 shares held. The transaction values Happiest Minds at Rs 405 per share. Post the merger, ITC Ltd is expected to own around 73.4 per cent of the combined listed entity, while existing Happiest Minds shareholders collectively hold around 26.6 per cent.

The transaction remains subject to regulatory and shareholder approvals and could take around 15 months, according to Choice Institutional Equities.

Choice Institutional Equities: 'Buy'

Choice maintained its 'BUY' rating on Happiest Minds with a 12-month target price of Rs 440.

The brokerage said the proposed combination provides Happiest Minds greater scale and a broader range of capabilities while retaining its focus on AI and digital engineering.

"Following today's correction, Happiest Minds trades at ~18.8x FY28E EPS, which in our view offers a favourable entry point given the potential benefits from the combination," Choice stated.

The brokerage retains its forward P/E multiple at 22 times and says it expects the transaction to be value-accretive for Happiest Minds shareholders over the medium to long term. It also highlights execution, revenue growth, cross-selling, margins and differentiation as key areas to monitor.

Separately, a few market experts have differing views on Happiest Minds following the proposed merger.

Kranthi Bathini, Equity Strategist at WealthMills Securities, advised existing investors to hold the stock from a long-term perspective.

"Fresh buying can be considered after positive quarterly results and signs of earnings recovery. The earnings overhang is likely to remain a factor for the stock in the short to medium term," he added.

Ravi Singh, Chief Research Officer at Master Capital Services, said the stock remains under pressure following the proposed merger and the transaction structure.

He noted that the combined entity is expected to have revenue of around Rs 7,033 crore and more than 19,000 employees, with operations spanning AI, digital engineering, cloud, cybersecurity and enterprise technology.

"While the merger offers greater scale and access to ITC Infotech's resources, the initial market reaction has been negative, with investors focusing on the transaction structure and valuation," Singh also said.

From a technical perspective, Singh stated the stock remains weak and could face further selling pressure towards Rs 330.