"Digital technologies are assuming centre-stage across all industry verticals"
Venkatraman Narayanan MD & CFO, Happiest Minds Technologies
What are your top three strategic priorities as CFO of Happi est Minds Technologies?
Well, if you ask me what keeps me on my toes, I would define it in the following three themes.
1. Build an operationally resilient organisation - On August 29 we completed a decade of existence as a company. As a young company we have had our share of ups and downs. Each trough or peak has helped each of us hone our skills to navigate both positives and adverse circumstances while providing a platform to build a happy, learning, sustainable and perpetual organization.All of this has been a team effort and we are now preparing ourselves for the next decade and further.
2. Enhance stakeholder engagement and returns - We are grateful to our stakeholders – my fellow Happiest Minds, customers, vendors, investors and society at large for their continued trust and support all these years. Their continued trust is critical to build an organization of strength. So it becomes important to continuously engage with all stakeholders, listen to them and align initiatives which maximize stakeholder value and returns.
3. Balancing returns, rewards while achieving and maintaining the high levels of corporate governance - Right from our inception, we always worked and aspired to build a company with prudent corporate governance practices. The Golden Peacock Award which we won recently is a validation of our efforts over the years to establish and run good corporate governance practices. As a listed company we have now set for ourselves higher goals for governance and disclosures. We are continuously looking to evolve and meet these exacting standards we have set for ourselves.
What is your outlook on the IT sector? On a global scale, what are the emerging trends and opportunities?
The most visible trend is that of digital technologies assuming centre-stage across all industry verticals with companies undergoing the fundamental shift of ‘going digital, digital adoption, digital transformation’. The future belongs to those who embrace digital technologies. Progress down the road of digital has shown that the benefits are not just incremental but substantial. Tangible gains are driving the need and digital technology is now a business enabler. Businesses are looking beyond just incremental efficiencies when planning for the course of their digital journey. Technologies such as automation, AI, IoT, ML, analytics, cloud, models such as SaaS, PaaS etc. have proved their need and mettle to businesses. Companies are weaving these into their plans and see them as fundamental to the way of doing business rather than nice to have solutions.
Happiest Minds’ revenue for the Q1FY22 grew by 38.2 per cent annually to Rs244.6 crore whereas net profit was down by 29 per cent on a YoY basis. In what way did the second wave of the corona virus impact your business?
On profits, I would like to draw your attention to our EBITDA numbers. As a percentage of total income this has remained at 26 per cent and thereabouts in the current and previous quarters. This profitability has been maintained in percentage terms and shows significant growth in absolute in line with our 40 per cent growth year over year. When you look at our PBT, after adjusting for an exceptional cost, yes, there is a drop on in terms of percentage to revenue and not in absolute numbers. The quarter has an exceptional cost of Rs6.1 crore on account of ‘fair valuing’ certain warrants in our subsidiary’s books. Happiest Minds Inc., our subsidiary, had issued warrants to the seller of PGS Inc., an asset we had purchased last year. The liability for these warrants was recorded as such in the balance-sheet basis as a fair valuation. Accounting expects us to evaluate the performance of the acquired asset and evaluate the initial fair value accounting done of the above warrants.
On the basis of the performance of the acquired asset, and a recent fair valuation exercise, we saw an increase in the fair value of the warrants. Interestingly, while the initial accounting of liability permitted us to take it to the balance-sheet, any subsequent changes must go through profit and loss as an exceptional item. Coming to PAT, in Q1FY21 we had a significant one-time credit of Rs18 crore arising on accounting for ‘deferred taxes’. However, in Q1FY22 we have a normal Income Tax expense of Rs15.46 crore. It’s thus the base effect which has caused a drop in PAT in percentage to revenues. Adjusted for the exceptional cost and taxes, our profits continue to be healthy both in percentage to revenue and absolute numbers, with the latter showing significant growth.
Could you shed some light on your recent project wins?
Our positioning as a digital born agile player coupled with a very strong demand environment led us to win deals which were broad-based across our chosen verticals. Enterprises are signing up with us to use technology to solve some of their most critical engineering challenges or to transform their digital technology landscape. For example, for a leading US electric vehicle infrastructure company, we were called to build a real-time scalable edge analytics solution for asset monitoring and monetization. Another example of a transformational initiative is that Happiest Minds was chosen as a partner to accelerate their digital roadmap. Such deals emphasize that we are chosen as a preferred partner in our customers’ strategic initiatives to stay relevant to their customers and to pivot themselves to a world of tomorrow.
What are your growth levers?
We are currently in the middle of very strong demand environment as enterprises continue to anchor themselves to a digital landscape. Our three business units – PES, DBS and IMSS – address the end-to-end digital journey of an enterprise which is to provide build-transform and maintain services to our clients. The business units are supported by three centres of excellence – AI and analytics, IoT and digital process automation which not only build solutions and capabilities to solve current business problems but also continuously look emerging technologies spaces to see how they can be integrated into business solutions. Our ahead of time investments in new technologies happen within these CoE’s. The three Business Units and the three CoEs weave into the Verticals of our choice. Technologies in the intersection are what we focus on. We believe this organization structure led by a strong sales and account management focus helps us deliver cutting edge solutions to our customers. Proof of customer happiness is our high repeat business and net promoter score. M&A is something we are actively pursuing and is a lever to growth, strengthen technology capabilities and new geo entry and presence. In short, our growth levers are vertical, business, tech, customers and people focus. Happiest People. Happiest Customers
What are, in your opinion, the most challenging aspects of being a CFO?
The charter of a CFO has transformed in line with the changes in the business environment. If you had asked me this question 20 years back when I was the CFO of another IT services company, I would have given a totally different answer – finance, accounting, and compliance would be my top priorities and being on top of these things would have been the challenging aspects of the job. Today the role of a CFO is very much intermingled with every aspect of running a business. So it’s important that the CFO is part of the business and take active role in every executive decision the Company takes.The role of CFO has become more that of a business partner. The challenge of being a CFO is to balance the needs and expectation of the business, people, corporate governance, stakeholder interest and compliance. Certain aspects like corporate governance are non-negotiable and one needs to be able to communicate this to multiple stakeholders effectively. The constant need to be ahead of the knowledge curve especially since we are a rapidly growing company, opening operations in multiple geographies, addressing varied customer needs in a space which is changing ever so often is a key challenge I face.
In your view what are the essential qualities of a successful CFO?
In my view, learning to be a business enabler, ability to accept and respond to change, learn and unlearn, strong communication skills, turn around speed and execution focus rather than behave like a deer caught in headlights are critical to being a successful manager and for sure a CFO in today’s world. I would also add critical thinking and clarity in thought and action to the above list. Further, as a rule, befriend tech and leverage it – always think tech! In parting, I personally believe long term planning, strategy etc. are a string of many small, quick actionable items – ‘do them to achieve’.