Please find our initiating coverage report on Hinduja Global Solutions Limited. We rate HGSL as 'Buy' with Price target of Rs. 593 (33% upside potential) based on P/E multiple of 8.5x on FY12E EPS of Rs. 69.8
Diversified business model
HGSL has a healthy mix of onsite, near shore and offshore centres to address the needs of its clients. The company was one of the first players to enter Philippines in 2003 via inorganic route. In 2004 it acquired Source1 and entered the USA markets. It further consolidated its position in the USA geography by acquiring Affina in 2006. It ventured into Mauritius in 2005 and started its UK operations in 2009. Going ahead the company is exploring other markets like China, Latin America and Middle East. Apart from this the company serves a range of industries. It derives less than 5% from the BFS sector, 15% from the domestic market and has a net exposure of 40% to forex volatility which provides some cushion against currency movements.
Strong revenue visibility
The company plans to add around 2000-2500 seats in FY11 which gives strong revenue visibility going ahead. We expect the company to add 2250 seats in FY11E and 2600 seats in FY12E. This would result in manpower addition of 3246 and 3800 employees in FY11E and FY12E respectively. We expect revenues to grow at a CAGR of 15.5% from FY10-12E. Net Profit, however is expected to grow at a lower CAGR of 4.8% due to increase in tax rate from current 9% (FY10) to 19% in FY11E and 20% in FY12E.
Acquisition to catapult the company to a new orbit
HGSL has a cash pile of Rs6423 million as on 31st March 2010. It intends to use this for inorganic growth. HGSL has a well laid out acquisition strategy where in it would look at only profitable acquisition and not look at only garnering top line. We have not included any inorganic growth in our projections. Inorganic growth would provide the necessary fillip to the company to reach its revenue target of $500 million by FY12.
Valuations & Recommendation
At current market price of Rs446 the company is trading at attractive valuations of 7.6x and 6.4x FY11E and FY12E EPS of Rs58.7 and Rs69.8 respectively. Cash per share of Rs312 (as on 31st March 2010) and dividend yield of 4.5% limits downside risk. We have done a peer comparison to value the stock at 8.5x FY12E EPS to arrive at a price target of Rs593 with a BUY rating.
Diversified business model
HGSL has a healthy mix of onsite, near shore and offshore centres to address the needs of its clients. The company was one of the first players to enter Philippines in 2003 via inorganic route. In 2004 it acquired Source1 and entered the USA markets. It further consolidated its position in the USA geography by acquiring Affina in 2006. It ventured into Mauritius in 2005 and started its UK operations in 2009. Going ahead the company is exploring other markets like China, Latin America and Middle East. Apart from this the company serves a range of industries. It derives less than 5% from the BFS sector, 15% from the domestic market and has a net exposure of 40% to forex volatility which provides some cushion against currency movements.
Strong revenue visibility
The company plans to add around 2000-2500 seats in FY11 which gives strong revenue visibility going ahead. We expect the company to add 2250 seats in FY11E and 2600 seats in FY12E. This would result in manpower addition of 3246 and 3800 employees in FY11E and FY12E respectively. We expect revenues to grow at a CAGR of 15.5% from FY10-12E. Net Profit, however is expected to grow at a lower CAGR of 4.8% due to increase in tax rate from current 9% (FY10) to 19% in FY11E and 20% in FY12E.
Acquisition to catapult the company to a new orbit
HGSL has a cash pile of Rs6423 million as on 31st March 2010. It intends to use this for inorganic growth. HGSL has a well laid out acquisition strategy where in it would look at only profitable acquisition and not look at only garnering top line. We have not included any inorganic growth in our projections. Inorganic growth would provide the necessary fillip to the company to reach its revenue target of $500 million by FY12.
Valuations & Recommendation
At current market price of Rs446 the company is trading at attractive valuations of 7.6x and 6.4x FY11E and FY12E EPS of Rs58.7 and Rs69.8 respectively. Cash per share of Rs312 (as on 31st March 2010) and dividend yield of 4.5% limits downside risk. We have done a peer comparison to value the stock at 8.5x FY12E EPS to arrive at a price target of Rs593 with a BUY rating.
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