Hinduja Global Solutions CAPEX surged on 55.5% and Revenue jumped on 18.5%

25-05-2016 • About Hinduja Global Solutions ($HGS) • By InTwits

Hinduja Global Solutions reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Hinduja Global Solutions is a fast growth stock: FY2016 revenue growth was 18.5%, 5 year revenue CAGR was 25.4% at FY2016 ROIC 9.7%
Hinduja Global Solutions has high CAPEX intensity: 5 year average CAPEX/Revenue was 11.6%. At the same time it's a lot of higher than industry average of 3.7%.
CAPEX is quite volatile: ₹2,538m in FY2016, ₹1,632m in FY2015, ₹1,537m in FY2014, ₹1,421m in FY2013, ₹4,891m in FY2012
The company has business model with low profitability: ROIC is 9.7%
It operates with medium-size leverage: Net Debt/EBITDA is 1.2x while industry average is -0.2x

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue surged on 18.5%. Revenue decline was accelerating on average at -6.8 pp per annum in FY2012-FY2016. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased slightly on 1.9 pp from 11.3% to 9.4% in FY2016.

Net Income margin decreased on 2.8 pp from 5.9% to 3.0% in FY2016.

Investments (CAPEX, working capital and M&A)

In FY2016 Hinduja Global Solutions had CAPEX/Revenue of 7.6%. The company showed almost no change in CAPEX/Revenue from FY2013 to FY2016. It's average CAPEX/Revenue for the last three years was 6.5%. The company invested a big chunk of EBITDA (80.9%) to CAPEX to fuel its growth. During the last 5 years CAPEX as a % of Revenue bottomed in FY2015 at 5.8%.

Return on investment

The company operates at low ROIC (9.7%) and ROE (9.0%). ROIC decreased slightly on 1.4 pp from 11.0% to 9.7% in FY2016. ROE decreased on 4.1 pp from 13.1% to 9.0% in FY2016. During FY2012-FY2016 ROIC topped in FY2014 at 12.4% and was declining since that time.

Leverage (Debt)

Debt level is 1.2x Net Debt / EBITDA and 2.4x Debt / EBITDA. Net Debt / EBITDA dropped on 0.2x from 1.4x to 1.2x in FY2016. Debt jumped on 18.5% while cash jumped on 90.3%. During FY2012-FY2016 Net Debt/EBITDA topped in FY2013 at 1.7x and was declining since that time.

Hinduja Global Solutions has no short term refinancing risk: cash is higher than short term debt (167.7%).

Valuation and dividends

Hinduja Global Solutions's trades at EV/EBITDA 3.7x and P/E 7.8x while industy averages are 17.8x and 21.9x. Hinduja Global Solutions's EV/(EBITDA-CAPEX) is 19.6x with the industry average at 22.8x.

Management team

Partha De Sarkar is a Hinduja Global Solutions's CEO. Partha De Sarkar has spent 13 years with the company.

Financial and operational results

Hinduja Global Solutions ($HGS) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	15,543	19,834	25,049	28,076	33,282	18.5%
SG&A					166
EBITDA	1,845	2,248	3,245	3,176	3,136	-1.2%
Net Income	1,061	906	1,696	1,650	1,010	-38.8%
Balance Sheet
Cash	5,823	641	1,575	1,969	3,748	90.3%
Short Term Debt	3,590	918	1,857	781	2,235	186.2%
Long Term Debt	3,737	3,583	4,485	5,673	5,415	-4.6%
Cash flow
Capex	4,891	1,421	1,537	1,632	2,538	55.5%
Ratios
Revenue growth	44.8%	27.6%	26.3%	12.1%	18.5%
EBITDA growth	17.6%	21.9%	44.3%	-2.1%	-1.2%

EBITDA Margin	11.9%	11.3%	13.0%	11.3%	9.4%	-1.9%
SG&A, % of revenue					0.5%
Net Income Margin	6.8%	4.6%	6.8%	5.9%	3.0%	-2.8%
CAPEX, % of revenue	31.5%	7.2%	6.1%	5.8%	7.6%	1.8%

ROIC	8.1%	8.2%	12.4%	11.0%	9.7%	-1.4%
ROE	10.0%	7.7%	12.6%	13.1%	9.0%	-4.1%
Net Debt/EBITDA	0.8x	1.7x	1.5x	1.4x	1.2x	-0.2x

Peers in BPO/KPO

Below you can find Hinduja Global Solutions benchmarking vs. other companies in BPO/KPO industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Allsec Technologies ($ALLSEC)	-	74.8%	-37.6%	-24.4%	54.7%
Eclerx Services ($ECLERX)	-	39.7%	27.3%	12.0%	39.5%
Vakrangee ($VAKRANGEE)	-	14.3%	26.2%	42.4%	14.8%
Firstsource Solutions ($FSL)	-	25.0%	10.2%	-2.3%	6.4%
Median (4 companies)	-62.2%	25.0%	18.0%	-2.3%	27.1%
Hinduja Global Solutions ($HGS)	-	27.6%	26.3%	12.1%	18.5%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Eclerx Services ($ECLERX)	40.4%	38.7%	42.0%	33.5%	37.0%
Vakrangee ($VAKRANGEE)	17.8%	24.7%	27.4%	26.0%	25.8%
Firstsource Solutions ($FSL)	8.7%	9.9%	11.7%	12.5%	12.5%
Xchanging Solutions ($XCHANGING)	13.1%	10.1%	4.1%	10.0%	-
Tricom India ($TRICOM)	-	-	-	5.8%	-
Median (6 companies)	13.1%	11.4%	11.7%	11.2%	20.1%
Hinduja Global Solutions ($HGS)	11.9%	11.3%	13.0%	11.3%	9.4%

Top companies by CAPEX/Revenue, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Eclerx Services ($ECLERX)	5.3%	4.0%	2.5%	6.5%	4.0%
Firstsource Solutions ($FSL)	2.3%	1.4%	1.2%	1.5%	2.7%
Vakrangee ($VAKRANGEE)	27.7%	6.0%	11.7%	0.2%	0.4%
Median (3 companies)	5.3%	4.0%	2.5%	1.5%	2.7%
Hinduja Global Solutions ($HGS)	31.5%	7.2%	6.1%	5.8%	7.6%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Eclerx Services ($ECLERX)	61.1%	58.7%	62.4%	41.0%	48.4%
Vakrangee ($VAKRANGEE)	20.2%	21.3%	28.3%	36.4%	36.8%
Firstsource Solutions ($FSL)	4.0%	7.0%	9.0%	9.5%	10.3%
Xchanging Solutions ($XCHANGING)	8.3%	6.6%	2.2%	7.2%	-
Allsec Technologies ($ALLSEC)	-13.0%	19.9%	-40.1%	-26.5%	31.8%
Median (7 companies)	8.3%	7.0%	9.0%	9.5%	34.3%
Hinduja Global Solutions ($HGS)	8.1%	8.2%	12.4%	11.0%	9.7%

Top companies by Net Debt / EBITDA


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Firstsource Solutions ($FSL)	4.2x	4.2x	2.8x	2.5x	2.1x
Vakrangee ($VAKRANGEE)	1.9x	1.4x	0.9x	0.6x	0.2x
Allsec Technologies ($ALLSEC)	-	-0.2x	-	-	-0.4x
Eclerx Services ($ECLERX)	-0.7x	-0.5x	-0.7x	-0.6x	-0.7x
Median (4 companies)	0.8x	1.3x	0.1x	0.0x	-0.1x
Hinduja Global Solutions ($HGS)	0.8x	1.7x	1.5x	1.4x	1.2x

Hinduja Global Solutions stock price chart

Hinduja Global Solutions financials

mln.	FY2010	FY2011	FY2012

Revenue	32,129	10,732	15,543
EBITDA	1,677	1,569	1,845
Net income	1,301	1,073	1,061
CAPEX	417.9	649.0	4,891
Debt	1,148	1,511	7,327
Cash	812.0	6,183	5,823

About Hinduja Global Solutions

Hinduja Global Solutions Limited operates as a customer relationship and business process management company. It offers voice and non-voice based services, such as contact centre, back office transaction processing, and customized information technology solutions in North America, Europe, and Asia. The company provides customer acquisition services, such as lead generation, sales, and after sales services; customer retention services, including on boarding, dispute resolution, and loyalty programs; customer support services, such as help desk support, welcome calls, and billing support; back office support services, including data entry, claims processing, and fulfillment; and analytics and market research services, including satisfaction and loyalty surveys, data analytics, and real time trend and crisis alerts. It also offers interactive services, such as Web/enterprise portals, digital marketing, social CRM, and mobile applications; and HR outsourcing solutions, including payroll processing, HR analytics, global HR management information systems, outsourced recruitment, and learning solutions. Hinduja Global Solutions Limited serves companies in automotive, consumer electronics, consumer packaged goods, consumer products, energy and utilities, banking and financial services, government and public sector, health care, logistics, pharmaceuticals and health services, retail, publishing, technology, media and entertainment, telecommunications, e-commerce, and hospitality industries worldwide. The company was formerly known as HTMT Global Solutions Limited and changed its name to Hinduaja Global Solutions Limited in December 2008. Hinduja Global Solutions Limited was founded in 1973 and is headquartered in Bangalore, India.