Hin­duja Global So­lu­tions Ltd: Un­der­val­ued IT stock

Money Times - - News - By Vi­hari

(BSE Code: 532859) (CMP: Rs.663.20) (FV: Rs.10)

Hin­duja Global So­lu­tions Ltd (HGS), a part of the $25 bn Hin­duja Group, pro­vides a full suite of busi­ness process man­age­ment (BPM) ser­vices from tra­di­tional voice con­tact cen­tre ser­vices and trans­for­ma­tional DigiCX ser­vices to plat­form-based back-of­fice ser­vices and dig­i­tal mar­ket­ing so­lu­tions by ap­ply­ing an­a­lyt­ics, au­to­ma­tion and in­ter­ac­tion ex­per­tise to de­liver in­no­va­tion and thought lead­er­ship. It com­menced op­er­a­tions in Bengaluru as Hin­duja TMT (HTMT) in 2000. Its first client was a For­tune 100 US based Health In­surer, who con­tin­ues to be a client. To­day, it has 39,834 em­ploy­ees across 67 lo­ca­tions world­wide de­liv­er­ing lo­cal­ized so­lu­tions in 37 lan­guages. It de­rives 67% of its rev­enue from do­mes­tic op­er­a­tions. Its ex­per­tise spans the health­care, telecom­mu­ni­ca­tions and me­dia, in­sur­ance, bank­ing, con­sumer elec­tron­ics and pack­aged goods in­dus­tries, re­tail, tech­nol­ogy as well as the pub­lic sec­tor. HGS has a strong pres­ence in USA, Canada, France, Ger­many, In­dia, Italy, Ja­maica, Philip­pines, the Nether­lands, UAE and UK. Col­lec­tively, these cen­tres of­fer the ad­van­tages of lower risks, round-the-clock pro­duc­tiv­ity, shorter lead-time, en­hanced cost ben­e­fits and faster re­sponse due to zero com­mu­ni­ca­tion gaps.

HGS de­rives 78% of its rev­enues from Cus­tomer Care/Man­age­ment ser­vices, which in­clude voice as well as non-voice sup­port like email, chat, etc. The bal­ance 23% comes from trans­ac­tion pro­cess­ing ser­vices like claims man­age­ment in­clud­ing claim ad­ju­di­ca­tion, pay­ment and set­tle­ment for in­sur­ance com­pa­nies, pay­roll pro­cess­ing ser­vices, etc.

HGS serves 5 of the top 10 US Health­care Pay­ers and Providers Groups. It pro­vides cus­tomer ser­vice so­lu­tion to top Tele­com giants in Canada, In­dia, UK, USA and man­ages cus­tomer in­ter­ac­tions for Global Bank­ing and Fi­nan­cial clients across In­dia, Philip­pines and USA. It pro­vides con­sumer so­lu­tions to 30+ lead­ing con­sumer brands and cus­tomer sup­port to large Pub­lic Sec­tor clients in UK and Canada.

HGS re­cently launched HGS DigiCX, a suite of dig­i­tal cus­tomer ex­pe­ri­ence ser­vices fo­cused on trans­form­ing tra­di­tional call cen­tre cus­tomer ex­pe­ri­ences. Un­der this um­brella, it in­tro­duced in­no­va­tive of­fer­ings such as DigiWEB, DigiCHAT, DigiTEXT, DigiSo­cial and DigiINSIGHT, which are ex­pected to help cap­ture new rev­enue streams. Its RPA (ro­botic process au­to­ma­tion) so­lu­tion is a non-in­va­sive tech­nol­ogy so­lu­tion that au­to­mates process steps and thus im­proves ef­fi­ciency and ef­fec­tive­ness of a process. This is a big op­por­tu­nity for HGS since it is al­ready work­ing with more than 5 clients and the man­age­ment hopes to gain big from its early mover ad­van­tage in this space. For FY18, HGS re­ported 7% higher PAT of Rs.192.07 crore on 4% higher sales of Rs.3849.37 crore and an EPS of Rs.92. Dur­ing Q1FY19, it re­ported 3% lower PAT of Rs.40.31 crore on 19% higher sales of Rs.1100.83 crore and an EPS of Rs.19.26.

With an eq­uity cap­i­tal of Rs.20.8 crore and re­serves of Rs.1462.21 crore, HGS’ share book value works out to Rs.712.98. The pro­mot­ers hold 67.3% of the eq­uity cap­i­tal, for­eign en­ti­ties hold 8.6%, DIs hold 2.3% and PCBs hold 3.9%, which leaves 17.9% stake with the in­vest­ing pub­lic. In­dia’s IT-BPM sec­tor has grown at ~8% CAGR to $167 bn in FY18. It had grown at 11.14% CAGR to $155 bn in FY17 from $74 bn in FY10, which is 3–4 times higher than the global IT-BPM growth. The sec­tor is fore­cast to grow to $350 bn by 2025. Notwith­stand­ing global head­winds and un­cer­tain­ties, the

Na­tional As­so­ci­a­tion of Soft­ware

& So­lu­tion Com­pa­nies (NASSCOM) has pro­jected a growth rate of 7-9% for the In­dian IT-BPO in­dus­try in 201819 v/s 7.8% in 2017-18. Ex­ports are pro­jected to grow to $137 bn in 2018-19 from $126 bn in 2017-18. The over­all IT-BPO in­dus­try is pro­jected to add $1416 bn and add 1,00,000 jobs in 2018-19.

Dig­i­tal Trans­for­ma­tion is pro­jected to cre­ate $1 tril­lion in value and sus­tain 55-60 mil­lion jobs by 2025. While dig­i­tal sec­tors such as IT-BPM, tele­com, elec­tron­ics man­u­fac­tur­ing, ecom­merce and dig­i­tal pay­ments are ex­pected to grow 2-3x in terms of eco­nomic value by 2025, it is the dig­i­tal eco-sys­tems in other ver­ti­cals such as fi­nan­cial ser­vices, ed­u­ca­tion, health, agri­cul­ture, man­u­fac­tur­ing, trans­porta­tion and lo­gis­tics, etc. that are ex­pected to help In­dia reach the am­bi­tious $1 tril­lion mark.

Ro­bust growth of the In­dian BPM In­dus­try, grow­ing pref­er­ence for BPM ser­vices, op­por­tu­nity through US health­care re­forms, larger deals with ex­ist­ing cus­tomers, pen­e­tra­tion and growth in the pub­lic sec­tor mar­ket­place in Euro­pean and Cana­dian mar­kets, ex­pand­ing ge­ogra­phies with po­ten­tial as fu­ture BPM des­ti­na­tions, estab­lished po­si­tion in the dig­i­tal, so­cial me­dia, an­a­lyt­ics and au­to­ma­tion seg­ments all give solid rev­enue vis­i­bil­ity go­ing for­ward. HGS is ex­pected to re­port a con­sol­i­dated EPS of Rs.100 in FY19 and Rs.107 in FY20. At the CMP of Rs.663.20, the stock trades at a for­ward P/E of 6.63x on FY19E and 6.19x on FY20E earn­ings. A rea­son­able P/E of 12.5x will take its share price to Rs.1250 in the medium-term and Rs.1338 there­after.

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