Company
The BPO division of the Hinduja group is Hinduja Global Solutions (HGSL). The company started up by 2000 and went public by 2001 as HTMT. In 2006, HTMT divested its telecom and media stakes to become a pure play BPO player and named itself HGSL by December 2008.
Company Data
Share Data
| Market Cap (Rs) | 865.72 |
| Issued Shares (mn) | 20,589,223 |
| 52 wk High/Low | 603/354.7 |
Valuation Ratios
| To 31 Mar | FY09 | FY10 | FY11E |
| Revenues (Rs in million) | 7975 | 8923 | 10707 |
| EPS (Rs) | 45.5 | 63.2 | 72.68 |
| P/E (x) | 9.8 | 7.1 | 5.7 |
Shareholding Pattern (%) (Quarter ending Marh,2010)
| Promoters | 68.2 |
| FIIs | 16.57 |
| MFs | 3.33 |
| Public | 7.43 |
| Others | 4.47 |
Positives
- HGSL has a diversified business model, with the centers distributed over India, Philippines, , Mauritius, UK and USA.
- HGSL is a with a huge cash pile of more than Rs.6423 million and this translates into a per share price of Rs.312 by itself..
- HGSL is available at a P/BV of 1.41 and a PER of 10.27. Comparing it with PER of its peers that trade in the range of 20-23, HGSL is available very cheaply.
- HGSL has one of the best margins in the BPO business, but this may become shorter and realistic with the tax breaks getting over for the software parks.
- HGSL has plans to extend its capacity (measured in terms of number of seats added in BPO industry) by around 2500 seats, and would be able to cater to more clients and hence significant increase in the top line value.
- HGSL is also expanding in Tier-3 cities like Nagercoil and Guntur, to take advantage of lower employee wage rates.
- HGSL is scouting for acquisitions, which will immediately start contributing to its revenues and will push the share price higher.
- US senate rejection of the Ohio state’s policy to abolish outsourcing of BPO services abroad is a huge shot in the arm for the Indian BPO industries.
Concerns
- Inefficient use of cash reserves by HGSL is an irritant
- Tax breaks in software parks are getting over for HGSL and will increase to 19% from 9%, though there is a possibility of HGSL offices moving to SEZs or government extending tax breaks.
- Possibilities of conservative protective government policies in western world could be a dampener for the entire BPO industry and HGSL will definitely get affected.
- High employee attrition rate of almost 50% is an irritant.
Valuations
HGSL’s share holders are just waiting for a big acquisition to happen, so that the acquired company’s revenue will immediately start having a positive impact on HGSL’s revenues. HGSL has lost almost 17% in the last one year just because it was not able to deploy the excess cash sensibly. HGSL at CMP is trading at 5.7 times FY11E PE. Even if HGSL can achieve its current PER of 9, we get a target of Rs.654. Now if the management finds a good acquisition in the near future this could add directly to the revenue and would give a trigger for the target price to head northwards. HGSL is a must in your long term portfolio.
Disclaimer
I am a newbie into equity research. This blog is to start posting my research reports on various stocks. The information and views presented in this report are prepared by me. The information is based on my analysis and on sources available on the public domain. Investors are requested to use this report as guidance and the final decision to be made by the investors themselves. I will not be responsible for any loss incurred by the investor based on this report.
