We discussed Hinduja Global Solutions Ltd (HGSL) here before the Annual Results for FY 2011 were declared. This is a follow-up post to update on the results for last 2 quarters and capture the business developments in the interregnum.
Consolidated Fin. | FY2010 | FY2011 | Q1-FY12 | FY2012E |
Revenue (Rs crore) | 892.34 | 1073.24 | 278.40 | 1266.42 |
EBIDTA (Rs crore) | 162.80 | 155.33 | 29.73 | 170.97 |
PAT (Rs crore) | 130.11 | 107.32 | 20.29 | 113.97 |
EPS (Rs) | 63.20 | 52.09 | 9.86 | 55.36 |
NPM (%) | 14.58 | 9.99 | 7.28 | 9.00 |
ROE (%) | 14.00 | 10.50 | 11.50 | |
ROCE (%) | 11.50 | 9.10 | 11.00 |
It is always a learning exercise to review what we had projected for full year FY11 and what the actual achievement is. Well, revenue is almost on the dot, Rs 1,073 crore against 1,076 crore projected by us for FY 2011. But, both EBIDTA and PAT have slipped due to higher staff costs and higher operating costs (on heads like rents, maintenance expenses, power, connectivity cost).
Unlike Balance sheets of many other companies that I see, finance costs in HGSL have in fact reduced from Rs 9.92 crore in FY10 to Rs 8.95 crore in FY11.
Revenue Mix
1. By Geography – North America (38.22%), India Intl (19.59%), Manila (19.11%).
2. By Client Concentration –Top 10 customer concentration has come down from 75% in FY 2010 to 62% in FY2011.
3. By Business Verticals – Telecom & Technology (25.77%), Health Insurance & healthcare (25.73%), Consumer electronics, products & services (22.74%).
Highlights from Q1 FY2012 results:
1. Implementation of wage hikes is the major reason for drop in EBIDTA margins.
2. Cash per share Rs 239.22;
3. EPS of Rs 9.86 (non-annualised);
4. Consolidated EV/EBIDTA 0.9 times.
Recent Acquisitions:
HGSL has announced the following 2 acquisitions in the last 2 months:
1. On-Line Support Inc (OLS), Canada at an enterprise value of C$74.85 million. OLS services customers across verticals such as media, telecom, technology and BFSI. It has over 1650 seats at 10 sites in Canada. In FY 2011, it had a turnover of C$63.4 million and currently has close to 1800 employees.
2. HCCA Business Services (HCCA), service provider in Human Resource outsourcing, acquired from 3i Infotech Ltd. HCCA offers payroll, statutory compliance and employee lifecycle support to over 350 clients in India.
These 2 acquisitions are estimated to add annual revenues of USD 68 mn to HGSL, taking it to USD 320 mn as per company sources. Well, we have not factored the incremental revenues from these acquisitions in our estimates, so there can be some positive surprises.
Valuations:
Based on the review of results and looking at the pressure on margins that are visible clearly, we have scaled down the estimates for FY 2012E, without factoring the effect of acquisitions made by HGSL in recent past. But this company’s valuations offer so much margin of safety that it does not hurt to have underperformance from this stock in the short term. In the meantime, the dividend yield is a protective shield for the investors since dividend was maintained at Rs 20 for last year despite lower profitability.
At 8x FY12E earnings, we arrive at a price target of Rs 470 in next 12 months. From CMP of Rs 316, this means a healthy upside potential of 48%.
