“The outlook is stable,” the credit ratings agency said in a statement. India Ratings stated that the ratings upgrade reflects an improvement in HMTL's operational metrics in FY21, providing Ind-Ra comfort on scalability of revenue while maintaining EBITDA margins at a healthy level.

The company's active customer base increased to 180 in 1QFY22 (3QFY21: 155; FY20: 157) with exposure to customers with revenue base in excess of $1 billion at 53 (3QFY21: 38; FY20: 37).

HMTL's average revenue per active customer also rose to $751 in 1QFY22 (3QFY21: $683; FY20:$615), which has a potential to grow further given HMTL's rising penetration among large clients providing HMTL access to their large spending on information technology (IT) initiatives, and increasing focus of HMTL's management to leverage on the existing customer base.

Ind-Ra expects an improvement in employee utilisation levels, along with a stable attrition rate of 12%-15% and optimum mix of onsite/offshore employee at about 95% would more than offset the increase in travelling costs, thereby keeping HMTL's EBITDA margins at a healthy level.

However, the ratings are constrained by HMTL's relatively moderate revenue and EBITDA than other mid-sized domestic IT companies, which may expose HMTL to competitive pressures.

Also, notwithstanding HMTL's strong performance on financial parameters over FY20-FY21, Ind-Ra aims to monitor sustainability of such performance to establish track record that is commensurate with the next rating level.

The ratings agency further said that a steady increase in the scale and profitability while maintaining the credit metrics will be positive for the ratings.

Developments that could, individually or collectively, lead to a negative rating action include a decline in the scale and profitability or elongation of the net working capital cycle on a sustained basis and any significant debt-funded acquisition and/or higher-than-expected dividend payouts, leading to the consolidated net leverage exceeding 1.5x on a sustained basis.

Happiest Minds Technologies provides IT solutions by leveraging disruptive technologies: mobility, big data analytics, security, cloud computing, social computing, machine-to-machine internet of things, unified communications.

The IT company's consolidated net profit fell 28.8% to Rs 35.73 on a 38.2% rise in net sales to Rs 244.61 crore in Q1 FY22 over Q1 FY21.

The scrip shed 0.80% to end at Rs 1420.90 on the BSE today.