HGS - Hinduja Global Solutions Limited Share Price

Management's outlook for Hinduja Global Solutions (HGS) emphasizes its transformation into a tech-driven, AI-focused business with improved margins and growth prospects. Key highlights include:

1. Strategic Shift: Transition from traditional BPM to a tech-enabled model integrating AI, cloud, cybersecurity, and digital operations. Focus on vertical-specific Platform-as-a-Service (PaaS) solutions (e.g., anti-money laundering for BFSI, hyper-personalization for telecom).

2. Growth Drivers:

• Expansion: New delivery centers in South Africa (360 seats) and Waterloo, Canada (public sector client).
• Deal Wins: Multi-million-dollar IT services contract with a banking client in the Americas (revenue impact from Q1 FY2026) and a 6-year Canadian public sector deal for cloud/AI services.
• Margins: Shift from onshore to offshore operations (Philippines, India, South Africa) to improve margins despite short-term revenue dip.

3. AI & Automation:

• Deployment of HGS Agent X (AI-driven customer service, QA automation, multi-language support) across new contracts.
• R&D investment ($2M/year) in AI Labs (India, Philippines, NY) for industry-specific solutions.

4. Financials:

• Q3 FY2025: Revenue Rs.1,064 Cr, EBITDA Rs.234 Cr (19% margin).
• 9M FY2025: Revenue Rs.3,243 Cr, EBITDA Rs.532 Cr (14.5% margin).
• Cash Position: Rs.5,152 Cr net cash; debt reduced to Rs.1,212 Cr (Dec 2024).

5. Media Business:

• Broadband: ARPU up 18% YoY (Rs.199); enterprise focus (10% revenue) and tier-2/3 expansion.
• DTV: Subscriber base stable at 4.16M; ARPU Rs.122. Targeting B2B2C bundling for sustainability.

6. Structural Efficiency: Merged 5 US subsidiaries to cut compliance costs.

Outlook: Management expects FY2026 revenue acceleration from deferred deals, margin improvement via automation/offshoring, and sustainable media profitability. Caution on near-term margin pressure due to startup costs for new contracts.

Question 1:
"The media business continues to pose a significant challenge in the company's turnaround efforts. Could you provide insights into the strategic initiatives aimed at enhancing its profitability? Specifically, what key measures is the company implementing to drive improvement and long-term sustainability in this segment?"
Answer:
The media business focuses on broadband growth (18% YoY ARPU increase) and enterprise segment expansion (long-term contracts, higher ARPUs). Cost rationalization (transponder/bandwidth renegotiation) and upselling lower-tier broadband customers are key. Profitability is expected within 24"“28 months as depreciation from past CAPEX normalizes.

Question 2:
"Can you provide an update on [internet via satellite] development over the past quarter and what is its growth outlook in the coming quarters?"
Answer:
Licensing delays persist, but international players comply with regulations. Government focus on rural digital inclusion ensures eventual traction. Timing remains uncertain, but HGS is positioned to leverage opportunities once regulatory clarity emerges.

Question 3:
"How much further could we scale in South Africa and how further do you think we can improve our revenues and profitability in the best-case scenario?"
Answer:
South Africa's offshore center demand exceeds expectations, prompting capacity expansion (360 seats). Margins are better than onshore locations (US/UK). Revenue will reflect in FY2026 as operations scale.

Question 4:
"Regarding the Rs.5,000 crore cash on the balance sheet"”this has been deployed in group companies... Could you highlight whether this is long-term financing or short-term?"
Answer:
Funds lent to group companies (IndusInd, Machen Dev) are short-term inter-corporate deposits, recallable for acquisitions or business needs. Current yield is ~6% in dollar terms.

Question 5:
"Are you planning to collaborate with a big celebrity... for content strategy?"
Answer:
No immediate plans for celebrity endorsements. B2B2C model prioritizes family-centric branding over high-waste marketing. Enterprise/broadband growth and upselling existing customers remain focal points.

Question 6:
"Does the company have plans for dividends, buybacks, or investments?"
Answer:
Post-2023 buyback (Rs.1,020 crore), further buybacks are tax-inefficient. Cash reserves target organic growth or acquisitions in AI/digital spaces. Debt reduction continues to lower interest costs.

Question 7:
"Can we expect a reduction in interest costs given the strong cash position?"
Answer:
Yes. Borrowings reduced by Rs.93 crore YTD; further cuts are planned to avoid prepayment penalties. Lease accounting (IFRS 16) impacts interest, but operational debt repayment will ease costs.

Question 8:
"Can we expect high deferred taxes to continue?"
Answer:
Q3's Rs.31 crore deferred tax was atypically high due to timing differences. Future quarters will see lower deferred tax impacts as treasury income stabilizes.

Question 9:
"Why did media division profitability swing from loss to profit?"
Answer:
Profitability improved via cost rationalization (broadcaster/bandwidth renegotiations) and monetizing idle assets (Rs.20 crore other income). Sustainable cost-control measures and enterprise growth drove the turnaround.