Whalesbook
📉 The Financial Deep Dive
The Numbers:
Happiest Minds Technologies announced its Q3 FY26 financial results, showcasing a 10.7% year-on-year revenue growth, reaching ₹587.6 crore. In constant currency terms, revenue grew by 7.1%. Operating Revenues in USD were $65.7 million, marking a 4.8% YoY increase. Total Income for the quarter stood at ₹603.7 crore, up 8.9% YoY.
Profitability metrics present a mixed picture. EBITDA rose by 5.1% YoY to ₹122.8 crore, but the EBITDA margin contracted to 20.4% from 21.1% in Q3 FY25. Similarly, the operating margin slightly declined to 17.4% from 17.5% YoY. Reported Profit After Tax (PAT) saw a significant decline of 19.6% YoY to ₹40.3 crore. This was largely attributed to an exceptional item of ₹22.03 crore recognised for the new wage code.
However, focusing on adjusted profitability, the company reported a healthy 13.0% YoY increase in Adjusted PAT to ₹69.9 crore. The Adjusted PAT margin improved to 11.6% (up from 11.0% QoQ and 11.2% YoY). Consequently, Adjusted EPS rose by 13.0% YoY to ₹4.64.
For the nine months ended December 31, 2025 (9M FY26), revenue grew 12.8% YoY to ₹1,711 crore (10.2% in constant currency). EBITDA for 9M FY26 increased 4.2% YoY to ₹367 crore, with an EBITDA margin of 20.6% (down from 22.1% YoY). Adjusted PAT grew 6.0% YoY to ₹207 crore, and Adjusted EPS was ₹13.77 (up 6.0% YoY).
The Quality:
While headline PAT was impacted by a one-off exceptional item, the underlying adjusted profitability shows resilience and growth. The key concern for investors lies in the margin compression, particularly the EBITDA margin falling below the 21% mark. The increase in Days Sales Outstanding (DSO) to 92 days, though management is focused on collections, warrants close monitoring as it can strain working capital.
The Grill:
Management reiterated its guidance for sustaining double-digit constant-currency revenue growth and maintaining EBITDA margins in the 20-22% range. The company is significantly increasing its investment in AI/GenAI, with plans to build a dedicated team of over 1,000 professionals by the end of FY27. This AI First strategy is positioned as a major opportunity to help clients navigate an AI-driven world. Operationally, employee utilization reached an impressive 82.0%, the highest in recent times. The focus is now on improving collections to manage the rising DSO.
🚩 Risks & Outlook
The outlook remains positive, driven by the company's strategic focus on AI and GenAI solutions, which are translating into key project wins across various sectors. However, the pressure on margins and the increase in DSO are immediate risks that need to be managed effectively. Investors will be watching for the company's ability to translate AI investments into profitable growth and improve working capital efficiency in the coming quarters.