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Edited Transcript of HGS.NSE earnings conference call or presentation 13-Nov-19 10:30am GMT

Q2 2020 Hinduja Global Solutions Ltd Earnings Call

Dec 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Hinduja Global Solutions Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Partha DeSarkar

Hinduja Global Solutions Limited - CEO & Executive Director

* Ramalingam Ravi

Hinduja Global Solutions Limited - Head of IR

* Srinivas Palakodeti

Hinduja Global Solutions Limited - Global CFO

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Conference Call Participants

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* Mohit Jain

Anand Rathi Financial Services Limited, Research Division - Analyst, Technology

* Subhankar Ojha

SKS Capital & Research Private Limited - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Hinduja Global Solutions Q2 FY '20 Post-Results Conference Call. (Operator Instruction] Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. R. Ravi, Vice President, Head of Investor Relations. Thank you, and over to you, sir.

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Ramalingam Ravi, Hinduja Global Solutions Limited - Head of IR [2]

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Thank you, Melissa. Ladies and gentlemen, I, R. Ravi, Head of Investor Relations at Hinduja, wishing all a very good evening and a warm welcome to the second quarter and first half of FY 2020 post-results conference call. To discuss the quarter 2 and first half results, I am joined by Mr. Partha DeSarkar, Executive Director and Chief Executive Officer; and Mr. Srinivas Palakodeti, the Global CFO.

Before we begin the conference call, I would like to mention that some of the statements made and during the course of today's conference call might be forward-looking in nature, including those related to the future financial and operating performance, benefits and synergies of the company's strategy, future opportunities and the growth of market of the company's service and solutions.

Further, I would like to mention that some of the statements made in today's conference call may be forward-looking in nature and may involve risks and uncertainties.

Before I hand over the call to Partha DeSarkar, I would like to inform you all that we are hosting our Annual Investor Day on 21st November at Sofitel BKC Mumbai. The invitation is already uploaded in the BSE and NSE.

Now I would like to invite Mr. Partha DeSarkar to provide you prospect on the performance on this -- for this quarter. Thank you, and over to Mr. Partha.

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Partha DeSarkar, Hinduja Global Solutions Limited - CEO & Executive Director [3]

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Thank you, Ravi. A very good afternoon, and thank you all for joining us on the call today to discuss our second quarter and first half FY 2020 financials and business performance. I hope that you have had an opportunity to review our earnings press release and the attendant fact sheets of the reported financials, which are available under the Investors section on our website, www.teamhgs.com, as well as uploaded in BSE and NSE.

I would like to begin the call with a brief overview of our financials for the first half and for the quarter under review, followed by strategic initiatives and operational outcomes. After that, like always, I will hand over the call to our CFO, Mr. Srinivas Palakodeti, to discuss the financial performance in greater detail. We will then open the conference call for the Q&A session.

First, some headline numbers for the H1 FY 2020, accounted as per post Ind AS 116. The net sales increased to INR 25,811 million, year-on-year revenue growth of 14.2%, having constant currency growth of 13.3% on a year-on-year basis. This growth was led by robust demand for both our health care and CES verticals, especially with existing clients. Revenues from the top customer was up by 18% year-on-year in the first half of FY 2020, while revenue growth from the top 20 customers was up by 14% year-on-year in the same period. The EBITDA stood at INR 3,207 million, a year-on-year growth of 108.7%. I'm glad to show -- share that the EBITDA margins stood at 12.4%, up by 560 basis points over H2 FY '19. Even with the elimination of the positive impact of Ind AS 116, EBITDA margins in FY 2020 was at 9.3%, up by 250 basis points over the 6.8% number for H1 FY '19.

The net profit was at INR 896 million, a year-on-year increase of 5.3%. Net margins stood at 3.5%. Growth in net profit was modest due to the sharp drop in other income and sharp hike in the provisions for taxation over H1 of last year. In addition, the overall impact of the adoption of Ind AS 116 had a negative impact of INR 187 million on the H1 FY 2020 pretax profits.

Coming specifically to the second quarter of FY 2020. We reported a year-on-year revenue growth of 11.4% to INR 12,906 million. The revenue growth in constant currency terms was 11.5%. The 11.4% growth included an organic growth of 13.5%, a ForEx impact of minus 0.1% and 2% due to drop in revenues from the sale of GuidePoint contracts. The growth was led by health care and some new client ramp-ups. EBITDA was INR 1,711 million, up by 120.5% on a year-on-year basis.

On the EBITDA margin front, HGS continued to expand through a combination of cost rationalization, rebalancing of the revenue mix towards more profitable revenue, signing of new customers and contracts that are higher than the blended average rate and improving the utilization rate across the delivery centers. For quarter 2, the reported EBITDA margins improved by 170 basis points from 11.6% in FY '20 to 13.3% at 650 basis points over Q2 of last year. If you were to exclude the positive impact of Ind AS 116 on the EBITDA, then the adjusted EBITDA margin would be at 10%, a year-on-year expansion of 330 basis points.

EBITDA margin expansion has been driven by strong performance of the India international business, significant improvement in the performance of the India domestic CRM business, enhanced profits from Element Solution and reduction in losses of AxisPoint.

Compared to Q2 FY '19, there has been a drop in other income by INR 200 million, and there has been a negative impact of INR 93 million due to Ind AS 116. Despite this, the profit before tax for Q2 FY '20 is up 60% sequentially and 39% on a year-on-year basis. Due to some one-off tax items, the PAT for Q2 FY '20 stood at INR 491 million, an increase of 9.7% on a year-on-year basis and 21.5% on a sequential basis. The PAT margin for the quarter was at 3.8%.

To share some color on the business highlights in Q2 FY 2020, the demand of our service offerings from our clients continued to grow at a fast pace. During the quarter, we added 8 new clients across health care, retail, consumer electronics and public sector for core BPM services and 6 for HRO and payroll processing. As of 30 September, 2019, HGS had 245 core BPM clients and 674 HRO payroll processing clients.

We also expanded in engagement with 9 existing clients. Our U.K. business signed up with Disclosure and Barring Services U.K., which is likely to start in late Q4 or early Q1. This will involve taking over an existing site in Liverpool, U.K., which will be our 5th site in the U.K. We've also started doing some new onshore work for a large credit card issuer from our El Paso site in Texas, U.S. This client has been with us for now more than 15 years, but this is the first time that we are going to do onshore work for them. We are very encouraged by this opportunity.

In Q2 FY '20, we launched HGS Digital, an exciting new practice focused on providing high-end digital strategy and transformative digital-first solutions to clients. With HGS Digital, we advance our capabilities well beyond traditional care to e-care transformation that will benefit stakeholders, such as the CIO, CTO, CFO and the CMO losses.

Our solutions across DigiCX, analytics, cloud, intelligent automation, machine learning and artificial intelligence will help us provide more holistic digital experience solutions along the entire 6 stages of the consumer journey. To give you a couple of examples. HGS works with a lot of provider companies as a part of its EBOS business, and there is a lot of data available. We have a team trying to collect claims that have not been paid by insurance companies. With the use of analytics, we have been able to identify which claims are likely to be paid early, when they are likely to be collected, and what is the big strategy to be able to collect and clean up the books. We call it the propensity-to-pay model that can have a big impact on the finance function for our clients. For the marketing team of our clients -- for a client we've built a few bots that go to multiple e-commerce portals and look for details of various products, including the (inaudible). It then provides daily pricing insights to the team even before their work begins, which helps them make faster and better sales-related decisions.

In the last couple of years, we've been making good progress in getting clients onto this transformation journey, especially with the existing customers. We believe the launch of HGS Digital will help us position ourselves better in the market, both with existing and new clients and provide bigger opportunities for us.

In Q2 FY 2020, we won contracts from 7 new clients, new and existing, for RPA, digital, analytics and Social Care services. This includes a new service line that we started for the world's largest retailer from our U.S. geography.

The pipeline looks strong, and we continue to make significant technology-led investments, including platforms and partnerships. We already have over 900 digital specialists supporting several clients globally and are hiring more to meet the demand. In quarter 2, we expanded in U.K. with a new center in Caerphilly, Wales, to support a public sector client. In fact, we've seen good traction in this vertical and expect to expand further in this geo by end of this fiscal.

HGS now has 71 global delivery centers across 7 countries as on 30th of September 2019. During the quarter, our head count also increased by 1,840 people on a net basis to 42,218 from quarter 1. We added people across our geos, except the India domestic CRM business. I would like to call out that our Philippines operations have crossed the 9,000 mark in quarter 2.

The total number of seats across delivery centers is 43,815, with OpEx fees accounting for 23.4% in quarter 2 FY '20.

To sum it all, overall, the state of our core business continues to be strong. We have reported reasonably strong revenue growth, especially in the past 6 quarters. Most of our businesses are doing much better than how we started at the beginning of the fiscal.

Looking ahead, the sales pipeline for the second half of the year looks encouraging. And with open enrollment and the holiday season coming up in Q3, HGS is well positioned to deliver a better second half. We expect the next 2 quarters to be key for health care. We are ramping up across many accounts for the open enrollment season, especially for voice support in the Philippines, Jamaica and in the U.S. Apart of driving top line growth, we will focus on further improving EBITDA margin, both for legacy business as well as the entities acquired in early FY '19.

With that, I will now hand over the call to Pala to walk us through Q2 FY 2020 and H1 FY 2020 financials in greater detail. Thank you once again for being with us on the call today.

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [4]

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Thank you, Partha. A very good afternoon to all the participants on this call, and thank you once again for joining us for our Q2 and H1 FY '20 results earnings discussion. As in the past, we would like to start by repeating that for the purpose of this discussion, EBITDA and EBITDA margins have been computed excluding ForEx losses and gains, which have been taken as part of other income.

Now we turn to the financials of Q2 FY '20. On a year-on-year basis, revenues for the quarter increased by 11.4%. You may recall, towards the end of December '18, some contracts of the GuidePoint business of AxisPoint were sold off. These identified GuidePoint contracts have generated revenues of INR 230 million in the quarter ended 30th September 2018.

Obviously, with the sale of the contracts in December '18, those revenues are no longer here for the quarter ended September 2019. If the revenues for INR 230 million of quarter ended September '18 are backed off, the year-on-year growth is 13.5% after factoring a marginal negative impact of 0.1% due to foreign exchange variations.

Revenue growth on a sequential basis appears flat. In the earlier call, we had mentioned the launch of a new vertical of logistics support, and this contract came with some pass-through revenues. For Q1 FY '20, we had INR 815 million of pass-through revenues. We've had a change in the contractual terms and the pass-through revenues ended in July '19. So we had only 1 month of pass-through revenues of about INR 268 million in Q2 FY '20. Ignoring the impact of pass-through revenues, sequential growth is around 4.5%.

Coming to some of the factors which drove the growth of revenues in second quarter, performance of India international, our offshore business, was very strong, with year-on-year revenue growth from this segment increasing nearly 19%. Performance of the India domestic business, which includes India CRM revenues improved from over the past period as our strategy of rebalancing towards non-telecom is paying off.

In Q2 FY '19, telecom clients used to account 66.7% of total domestic revenues, now the same is at about 46.1%. In terms of revenue growth, we have seen revenue growth across almost all businesses. Revenues of the health care vertical grew 12.9% over Q1 FY '19. We have seen strong growth in the BFS as well as the logistics support vertical, which is included under the others in the fact sheets circulated. Drop in telecom vertical in absolute terms is primarily on account of the drop of telecom revenues in India domestic business.

In quarter 2 of FY '20, revenues originating in USD currency continue to perform well and grew 18.1% in rupee terms over -- on top of 25.5% year-on-year growth in Q1 of FY '20. The revenues originating from U.S. continue to be in excess of 70%. And for Q2 FY '20, it was at 73%, around 400 basis points higher than Q2 of FY '19.

The Element acquisition that we made in early FY 2019 continues to perform well and leads our cloud, digital and consulting offerings. In Q2 FY '20, its revenues were $4.6 million, up 35% from $3.4 million of revenues in Q2 FY '19. EBITDA has increased from USD 0.12 million in Q2 FY '19 to around USD 0.85 million in Q2 FY '20.

Coming to AxisPoint. In Q2 of FY '19, AxisPoint had revenues of USD 6.5 million, of which, around USD 3.3 million came from CarePoint business and around $3.2 million came from the GuidePoint business. With the sale of GuidePoint contracts, the revenues of AxisPoint felt in Q2 FY '20 have come down to around USD 3.4 million, but EBITDA losses have been substantially reduced from $4.7 million in Q2 of FY '19 to around $1.9 million in Q2 of FY '20. The steep improvement in performance reflects the cost rationalization and synergy measures which have been put in place over the last 12 months.

Turning to overall profitability. For the quarter ended September 2018, HGS had reported EBITDA of INR 776 million. For Q2 FY '20, excluding the impact of Ind AS 116, EBITDA was INR 1,286 million, an increase of 66%, reflecting an overall improvement in the performance of business. EBITDA margins have improved from 6.7% in Q2 of FY '19 to around 10% pre-Ind AS for Q2 FY '20 and 140 basis points improvement over EBITDA margin of 8.6% in Q1 FY '20.

Factoring the impact of Ind AS, EBITDA for Q2 FY '20 has improved 120% over Q2 FY '19 and 14% over Q1 FY '20. The reported EBITDA margin for Q2 FY '20 is 13.3% as compared to 11.6% in Q1 FY '20.

As I mentioned earlier, there has been a reduction in pass-through revenues from Q1 to Q2. Consequently, there's been a reduction in other expenses between Q1 and Q2.

Depreciation for Q2 FY '20, excluding the impact of Ind AS 116, is INR 437.4 million, which is lower than INR 465.7 million in Q2 of FY '19. However, due to impact of Ind AS 116, the reported depreciation for Q2 FY '20 is INR 780.4 million. Similarly, interest cost for Q2 FY '20, excluding the impact of Ind AS, is INR 81.8 million, which is lower than INR 90.9 million reported in Q2 FY '19. However, due to the impact of Ind AS 116, the reported interest for Q2 FY '20 is INR 255.9 million. At an overall level, impact of Ind AS 116 has lowered the PBT and profit after tax by about INR 92.7 million as compared to around INR 94 million in Q1 of FY '20.

Other income for Q2 FY '20 was INR 233.1 million, substantially lower than INR 431.6 million for Q2 FY '19. This drop is primarily in account of exchange rate variations. Despite dropping in other income by around INR 199 million, an adverse impact of INR 92.97 million due to Ind AS 116, profit after tax has increased 9.2% over Q2 FY '19 and stood at INR 491.3 million. PAT increase on a sequential basis is 21%.

Our gross debt at the end of 30th June, 2019, stood at INR 5,076 million, a reduction of INR 270 million over March '19.

I'm glad to share that we have turned net cash this quarter with a net cash of INR 298 million at the end of 30th September, 2019.

At the end of last financial year, debtor days were around 83, which has dropped to 71 days as at 30th September 2019. After successfully renegotiating the commercials with clients and collecting the overdues, the EBITDA-to-free cash flow conversion at the end of Q2 was 179%. CapEx for the quarter was INR 310 million, and for the -- and the total capital expenditure in first half of FY '20 is INR 439 million.

Coming to return on capital employed, it was 13.8% for first quarter, excluding the impact of Ind AS 116 and 13% post the impact of Ind AS 116.

In Q2 of FY '20, ROCE stood at 19.6%, excluding the impact of Ind AS; and post the impact of Ind AS 116, ROCE came in at 15.9%.

Our endeavor to take more seats on OpEx continues. At the end of Q2 FY '20, OpEx seats accounted for 23.4% of total seats, up from 21.2% of Q2 FY '19.

Our efforts to increase revenue productivity continue, and at the end of Q2 FY '20, our average revenue per employee stood at INR 99,366 per month, up from INR 86,146 for the quarter ended September 2018. This has been a consistent improvement in the average revenue per employee per month over the last few quarters.

At the end of Q2 FY '20, total head count stood at 44,218 as compared to 42,371 in Q1 FY '20.

Our endeavors to improve margins and return ratios across different geographies, operations, and businesses continue.

I would like to throw the floor open for question-and-answer session. But before that, I just wanted to remind and invite you all to attend the Investor Day that is scheduled for November 21 at Sofitel Hotel in BKC in Bombay. Look forward to having -- meeting you all again and having increased interactions.

Thank you. And with this, I throw the floor open for Q&A.

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Questions and Answers

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Operator [1]

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[Operator Instruction] We have the first question from the line of Mohit Jain from Anand Rathi.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [2]

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Good quarter from all perspective. Just 1 or 2 things. One is on the tax rate. Our tax rate has shot up in this particular quarter. So what is your outlook for the full year and, obviously, for like next year? Are we going to see reduction in overall tax rate? Or do we intend to continue with the current rates?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [3]

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Mohit, Pala here. Thank you. There were certain one-off items, both on current tax and deferred tax. That impact is roughly about INR 1.1 million. So if you back that off and going forward, we expect the tax rates to see what you have seen in Q1 and earlier.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [4]

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So is it onetime impact, I mean, you will get a reversal in the next 2 quarters or incremental because...

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [5]

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It's just a onetime -- there is a onetime tax entry. So those tax cost lines won't be there going forward.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [6]

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Okay. But there's no reversal in the second half of...

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [7]

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Those items will -- I mean that extra expense will not be there.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [8]

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Okay. And sir, second is on AxisPoint. Like when do you guys expect it to breakeven and then eventually become profitable now?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [9]

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So as I said earlier, there is already an improvement in the performance. A lot of cash -- sorry, cost rationalization has already happened. It's -- now it's a factor of bringing in extra revenues. And there are a number of pursuits which are being followed. Sometimes the sales cycle takes longer. But the revenue pipeline -- the sales pipeline looks pretty strong.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [10]

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So your losses, meaning, is it like you need to sort of double your revenue to cover for the losses given that cost specialization is complete? Because we are running at USD 2 million loss quarterly on a revenue rate of $3.4 million.

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [11]

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Correct. But it's -- there's a high fixed cost. So any revenue comes in, will come in at a high gross margin, which will absorb the overhead and our efforts to continue -- to reduce cost will continue.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [12]

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Okay. Third is on your CapEx plan for the year. 2Q -- we saw an increase in the first half was broadly in line. What is the plan for second half now?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [13]

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As I said, it's a function of where the growth is happening. And as we have demonstrated, there is a lot of focus on taking OpEx seats so that, that CapEx is reduced. Also on some of the technology items, the traditional system was to invest in CapEx. We are also now looking at opportunities to move into some of that CapEx into the cloud and you pay on a pay-per-use or whatever is the model being worked out. So we do expect CapEx for the full year to be lower than what it was in FY '19.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [14]

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And you said in your opening remarks, you are also looking to open a new center. So that is included in this [OpEx] that will be on top of what will be different?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [15]

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That will come, but as -- yes, the cost there should not be significant because it's taking over from an existing site. So there should not be significant CapEx spend.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [16]

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So that is also an OpEx model, right?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [17]

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Yes.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [18]

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Okay. And receivables sir, like what should we expect? Is this sustainable? Or do you think Q2 was especially good in terms of cash flow generation and then we should see some normalization of receivables? Or do you think this was a number to neglect?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [19]

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If you recall, we had a challenge in Q4 of FY '19, and that has pulled down because there were some contracts which had gone live in Q4. There were some commercial negotiations going on for rate increases, which had been agreed, but it took time to sign the contract. Obviously, in the last 6 months, all that is behind us, and we have seen significant reduction in our receivables position. This is at a level which is, I think, is more normative, of course, there is always scope for some improvement, but it won't be the type of reduction which we have seen between March and September.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [20]

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So in terms of receivable days, we can broadly assume that you will remain at the normal level.

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [21]

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In that -- yes. In that 65...

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [22]

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Also what is your plan for loan repayment, now that on a net basis, we have turned net cash, we're still generating cash and picking up outlook is also better. What is your view there on a gross loan repayment?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [23]

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See, wherever possible, we will reduce debt. But debt, as you know, comes with 2 forms. It's either working capital or term loan. We have flexibility on the working capital to utilize less credit facilities, but term loans typically come with some penalties for prepayment unless you are able to negotiate something differently. So we will see how it goes and see whatever makes sense to do from a prepayment of debt.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [24]

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So is there a view like you want to be like 0 debt or something in 2 years or 1 year? Like, are you actively looking at the penalty and interest expense or interest rate?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [25]

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There are some, for instance, there is an ECB which we have, which comes with certain constraints in terms of being able to prepay because RBI guidelines do not allow for that immediately. But wherever we can, we will pay down debt wherever possible. And when I'm talking of consolidated numbers, obviously, it's in different businesses and different geographies. So we don't have a specific target number, but the focus is really to reduce debt through improvement in operations, collections and reduce the CapEx intensity.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [26]

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And the last for Partha sir. Any plan for capital allocation in the next 12 months? Like is there a possibility of increasing dividend? Are you looking to acquire some capability? Or is there a possibility of repayment? What is your thought from a next 12-month perspective?

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Partha DeSarkar, Hinduja Global Solutions Limited - CEO & Executive Director [27]

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See, acquiring new capabilities is an ongoing search for improving our position as a technology-enabled BPM player. As you well know, we've gone past the stage of being -- playing in the labor arbitrage field only. We are now in the knowledge arbitration and technology arbitration and working with technology partners to implement technology in the customer experience transformation space. So in that space, if you find somebody who has capabilities that fits in well with our strategy to differentiate ourselves, we will continue to look for that. That's the string of pearls approach that we've taken with recent acquisitions that we've done. So that's what I can comment on.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [28]

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So is it like fair to assume we will not wait for AxisPoint to become profitable before we look for another acquisition?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [29]

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AxisPoint -- I think there is a -- the right way to look at AxisPoint is an investment for the future of health care, okay? If you were to organically grow this business, the spend numbers could have been much, much higher. And it would probably have been taken us 5 years to build that capability. I don't want investors to get unduly anxious about investment in new capability building that is happening with AxisPoint right now. It is extremely important for the future of health care that we have capabilities like AxisPoint. But no, I mean, we are not looking at earnings-dilutive kind of acquisitions going forward. But we are definitely looking at new capability building.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [30]

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Because from IRO perspective, it actually pulls down our ROE unnecessarily.

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [31]

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Look, I mean, this is what I keep saying that while I understand what you're saying on a short-term pain, yes, it is painful. But if you don't invest in building future capabilities then very soon, we are going to chopping wood with a blunt axe. We are right now trying to sharpen that to chop wood going forward. And there is some pain of that.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [32]

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Okay. So that is your priority. Second is, once this is like wherever -- whatever targets you're looking at from an M&A perspective. Second, you would like to allocate something for repayment or you would go for a -- or do you see some CapEx requirement or there's a possibility that dividend can be increased in FY '21?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [33]

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So the dividend idea has been discussed with the Board in the past. As you know, there is a new Board. And I need to have the discussion with the Board and take their thoughts. So your suggestion is welcome. It's not something that I can comment on at this -- on this call, but what I can definitely tell you is that it's a discussion that we will have with the new Board that has come in place as of September 30.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [34]

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Okay. And repayment would be probably the last option, right? I'm just trying to clarify...

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [35]

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I can't comment. I have already clarified to you on the repayment, right?

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [36]

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Sir, from a priority perspective, like if I generate this kind of cash and return net cash. From an allocation -- capital allocation perspective, your priority would be M&A followed by a dividend followed by debt repayment? Is that a fair order?

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [37]

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Yes. I mean debt repayment has a schedule. So we'll have to follow that schedule unless we want to incur the penalties of premature payment, which I don't think is a great idea, and frankly, our debt levels are so low, it doesn't concern me at all. As a -- in a ratio of EBITDA, if you look at our debt, it's negligible. So the debt doesn't concern me. Whenever we need to pay we will pay.

M&A, I think the sense that you are getting is, we are only looking at acquisitive growth, that is not the only thing that we are looking at M&A. We have also said in the past that we have businesses that do not generate the kind of returns that we want. And therefore, we are also open at -- we are also open to looking at letting go some of the businesses that do not generate the kind of levels of return that we're looking forward. So it's not just an acquisition strategy. You could also see divestments going forward for that part of the portfolio, which doesn't generate the returns that we are looking for.

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Operator [38]

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[Operator Instruction] We have the next question from the line of Subhankar Ojha from SKS Capital.

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Subhankar Ojha, SKS Capital & Research Private Limited - Senior Analyst [39]

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I do not -- most of the questions have been answered already, and I have an exactly same query, if you guys can consider increasing the payout.

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [40]

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Subhankar, as I answered, we've got a new Board. We had discussed dividends with the earlier Board, but with the change in Board, that's a fresh discussion that I need to have with the new Board. Your suggestion is welcome. I'm not in a position to commit myself to anything right now on this call, but I will take that -- those suggestions coming from investors and analysts to the Board, and we'll see where that discussion goes.

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Subhankar Ojha, SKS Capital & Research Private Limited - Senior Analyst [41]

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Sure. And I hope you guys continue to improve the performance like you have been doing.

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Srinivas Palakodeti, Hinduja Global Solutions Limited - Global CFO [42]

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Thank you, sir. That's the hope.

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Operator [43]

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[Operator Instruction] As we have no further questions, this was the last question, and I would like to hand the conference over to Mr. R. Ravi for closing comments. Please go ahead, sir.

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Ramalingam Ravi, Hinduja Global Solutions Limited - Head of IR [44]

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Hello, this is Ravi here. Thank you to all the participants for joining us in the post-results conference call. If there are any further questions or clarifications about the Q2 FY '20 and first half FY 2020 financials, please e-mail it to me or to Pala, and we're more than happy to get back to you. This is Ravi signing off on behalf of the HGS management. Thank you to all. Thank you.

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Partha DeSarkar, Hinduja Global Solutions Limited - CEO & Executive Director [45]

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Thank you. Buh-bye all.

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Operator [46]

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Thank you, gentlemen. Ladies and gentlemen, on behalf of Hinduja Global Solutions, we conclude today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.