In July 2021, when IT services company Happiest Minds Technologies traded at ₹1,494.15, we at bl.portfolio had recommended that investors ‘book profits’. The company was executing well, but the stock had run up more than eight times from its IPO price and was then valued at about 119 times FY22 earnings and 22 times FY22 enterprise value to revenue. At that time, we had mentioned that ‘such levels of valuation for Indian IT services companies were last witnessed only during the dotcom era and what followed then was not all that exciting.’ Our concern was simple. Happiest Minds despite being almost entirely focussed on digital services did not confer enough superiority over larger IT companies to justify such extraordinary valuations.And, again history repeated itself. As of September 4, 2026, Happiest Minds was at ₹354.35 apiece, down 76.3 per cent since our book profit call. From 119x one-year forward price to earnings (P/E) multiple in mid-2021, the stock now trades around 19x one-year forward P/E based on consensus estimates for FY2027. Among the 50+ IT stocks in BSE IT index analysed, the stock is the second-worst performer since July 2021 and the journey for shareholders of Happiest Minds has been anything but happy.The question for investors now is the opposite of the one five years ago. After such a steep fall and valuation reset, is this the time to jump back in, particularly after the proposed merger with ITC Infotech? The initial market reaction to the announcement has also been weak. From around ₹406 when the transaction was announced on August 31, the stock has fallen nearly 13 per cent in just a few days.Hence, we would still hold our horses. Yes, the valuation froth has been purged in the last five years and Happiest Minds is no longer outrageously valued, but it is not cheap enough to overlook the uncertainties around its proposed merger into ITC Infotech, the transition to an ITC-controlled combined company and the growth outlook given AI disruptions. Existing investors can hold and watch, while fresh investors need not rush in.VALUATION RESETBased on Bloomberg data, Happiest Minds trades at about 25 times current earnings (trailing 12 months) and nearly 19 times FY27 earnings. That is a world away from the three-digit P/E multiple of 2021. But cheaper does not automatically mean cheap.At about 25 times trailing earnings, Happiest Minds is valued close to Mphasis and above Hexaware, HCL Technologies, TCS, Infosys, Sonata Software and Mastek. Persistent Systems and Coforge command much higher multiples, but also have materially stronger growth expectations.Globally, like-sized IT services stocks are trading at a cheaper valuation than Happiest Minds. For instance, after Persistent Systems in June said it will acquire Nagarro, the latter’s trailing P/E multiple doubled to 20x in a short time, but Nagarro is till cheaper than Happiest Minds. Similarly, mid-tier IT services firm EPAM Systems trades at about 16x P/E.Consensus estimates peg Happiest Minds’ FY27 revenue growth at about 14.1 per cent. That is respectable, but not exceptional enough to make the stock an obvious buy through a major ownership and integration transition. Expected net-profit growth is stronger at 27.6 per cent, but that also assumes some recovery in profitability. History has shown why consensus numbers should be taken with a pinch of salt, especially when it comes to the IT sector in recent years.The longer-term numbers show why this matter. Happiest Minds delivered a 24.5 per cent revenue CAGR over the last five years, but adjusted net profit grew at only 5.8 per cent CAGR. Its five-year average EBITDA margin of 20.7 per cent slipped to 17.7 per cent in FY26, while net margin fell from a five-year average of 13 per cent to 9.3 per cent.So the correction since 2021 has not merely been a valuation de-rating. Profitability has also normalisedMERGER MATHThe proposed transaction announced on August 31 has two parts. First, 83-year-old promoter Ashok Soota and Ashok Soota Medical Research LLP will sell 22.106 per cent of Happiest Minds to ITC Infotech for ₹1,329.72 crore. The sale happens in two tranches, 11 per cent at ₹390 a share and 11.106 per cent at ₹400.Second, Happiest Minds will be absorbed into ITC Infotech. Happiest Minds shareholders will receive 25 ITC Infotech shares for every 81 Happiest Minds shares held. The joint valuation places Happiest Minds at ₹405 a share and an equity value of ₹6,167 crore, against ₹11,920 crore for ITC Infotech. The implied FY26 EV/EBITDA multiples are 15.1 times and 13.6 times, respectively.However, all this must not be seen as validation that Happiest Minds is worth ₹405 a share. ITC Infotech is for most parts paying for it with its own shares and not cash. The shares of both companies are likely being valued based on a similar methodology. This way it is a safer transaction for ITC Infotech rather paying cash in full.Post merger, ITC Limited, the parent of ITC Infotech, will own about 73.4 per cent of the listed combined company. The remaining Happiest Minds promoter group will own about 7.6 per cent and be reclassified as public shareholders, while current Happiest Minds public shareholders will own about 19 per centThe combined entity will have more scale. FY26 pro-forma revenue is about ₹7,033 crore, adjusted EBITDA margin about 18.1 per cent, with over 19,000 employees, more than 800 clients and operations across 30-plus countries. Management calls it India’s 11th-largest listed IT services company by revenue.WAIT FOR PROOFThe strategic logic for the merger is perhaps easier to see. Happiest Minds brings AI, digital and product engineering, data, cloud and cybersecurity. ITC Infotech has deeper capabilities in SAP, product lifecycle management, Industry 4.0, enterprise transformation and sectors such as CPG, manufacturing and hospitality.The geographical fit is also useful. Happiest Minds gets 59 per cent of revenue from the Americas and only 8 per cent from Europe. The combined company is expected to have a mix of around 38 per cent Americas, 31 per cent Europe and 31 per cent elsewhere. Cross-selling into more than 800 clients and bidding for larger integrated programmes are credible opportunities.But these are opportunities, not earnings already in hand.There is also a long transition ahead. The companies have indicated an overall timeline of up to about 15 months, subject to various approvals, and will operate independently until completion.Further integration risks in IT services are not merely theoretical. LTIMindtree, formed through the 2022 merger of L&T Infotech and Mindtree, saw integration costs and significant senior-management churn in the period after the merger, although management disputed attributing the exits to the combination. This does not mean the Happiest Minds-ITC Infotech merger will face similar problems, but it underlines why investors should wait for evidence on leadership continuity, employee retention and client relationships rather than price in the proposed synergies upfront.AI OVERHANGFinally, one of the most key factors for an investor to consider before buying a stock apart from valuation is some clarity on the medium-term revenue growth rate and profit margin. With relentless AI-related disruptions and uncertainty, neither managements nor analysts can estimate with high degree of confidence on these two important variables over the next 3-4 years. Given this, investors must seek higher margins of safety in terms of valuation before buying IT stocks.The combined entity’s management target of $1 billion revenue by FY28 also needs perspective. Combined FY26 revenue is already around ₹7,033 crore, or roughly $745 million. Getting to $1 billion therefore requires a healthy but not extraordinary growth rate.Existing investors can hold and watch. Fresh investors need not rush. Better visibility on how AI is going to impact the current business models, the combined management team, client retention, synergy delivery and earnings profile of the eventual listed ITC Infotech would make the risk-reward easier to judge. For now, patience is the better trade.Published on September 5, 2026