Hinduja Global Solutions Limited — Q3 FY25 earnings call

So, it essentially speaks to the inherent value of the businesses we have built, which often don't get easily recognized by the stock market. Even now, if you look at our stock prices, they don't reflect the core value of the business. You have to understand where the business stands, right? Let me use an analogy if you don't mind one that's more day-to-day rather than business-related. If you're into gardening, you know that pruning a tree helps it grow back stronger. Now, once you've cut the leaves, that period of regrowth represents the healthcare business it takes time to flourish again.

Analyst attempted to draw a parallel between the successful valuation of the divested healthcare unit (Sagility) and HGS's current market perception, which management addressed with an analogy about business transformation taking time to reflect value.

Asked by Mithil Bhuva

These are primarily short-term. We have the ability to call back these funds as and when required. Let's say we were to make an acquisition then, and if we need the funds, these are available to be called back... Broadly speaking, for funds which are outside, we are in the range of around 6% plus in dollar terms.

Clarified the nature of the large cash balance as short-term and callable, indicating flexibility for future M&A, and provided an approximate yield on these funds.

Asked by Mithil Bhuva

Unfortunately, as of today, there's still some grey area around that aspect. The good news is that a couple of international players who were closely looking at India have complied with the necessary legal requirements to secure a license. From our perspective, we are already engaged in providing services, as I mentioned to you. So, for us, it's just a matter of waiting on the sidelines for this to take off. Will it take off? Absolutely. Let me be clear - the government is very focused on bridging the digital divide... But the key question we're all waiting on is timing.

Provided an update on a potential growth area, highlighting ongoing regulatory uncertainty but expressing optimism for future traction, with timing being the key unknown.

Asked by Mithil Bhuva

Nakul, as you say, we started operations in the beginning, I mean, somewhere around June or July, and already the demand is strong for us to take additional space and expand capacity. Being offshore, we believe it will have better margins than what we would see if we were generating the same revenue in the US or UK. So that's what I would like to say broadly in terms of where we expect the business to go.

Confirmed strong demand for the new South Africa center and highlighted its potential for better margins due to its offshore nature, reinforcing the company's expansion strategy.

Asked by Mithil Bhuva

Regarding brand marketing, our business is mainly B2B2C. So, if we had a brand ambassador, the challenge would be significant what we term as 'marketing wastage.' I'll give you an example - if I advertised digital television in Mumbai, there would likely be a significant wastage because the cable operator that connects your home might be aligned to either NXTDIGITAL or a competitor. Even if you wanted my service and you're in an area serviced by a competitor, switching may not necessarily be possible. That's where using a marketing icon becomes a challenge.

Analyst's question about strategic content curation using a celebrity was interpreted as a marketing query, and management explained the limitations of celebrity endorsements in their B2B2C model, potentially indicating a gap in content strategy discussion.

Asked by Mithil Bhuva

As you know, we already completed one buyback in June 2023, returning about Rs. 1,020 crore of cash to shareholders. Most of the funds we now have are abroad, and conducting another buyback would require bringing the money to India, making it tax inefficient. Additionally, with the changes made to that rule last year, buybacks are no longer as beneficial from a shareholder perspective. So, we're not sure that's the best way to utilize the funds. Instead, we would prefer to use them for growing the business organically or through acquisitions, as I mentioned in response to an earlier question.

Clearly articulated the company's capital allocation priorities, favoring organic growth and M&A over further buybacks due to tax inefficiencies associated with repatriating funds.

Asked by Amit Agicha

Yeah, so, you know, where possible, we will reduce cash, as we have demonstrated during the quarter and the year, as long as we don't run into prepayment penalties, etc.

Confirmed management's intent to reduce debt where feasible, aligning with prudent financial management and leveraging the company's strong cash position.

Asked by Amit Agicha

Secondly, on deferred tax, I think Q3 was extraordinarily high. Moving forward, we expect these amounts to be lower... If you look at the interest components, broadly speaking, there are 2-3 main components. One is the actual interest paid on borrowings, and as I mentioned, we are seeing a reduction in debt borrowings over the course of this year. The second component arises from accounting under IFRS 16 or IndAS 116.

Addressed concerns about specific financial line items, explaining the high deferred tax in Q3 as an anomaly expected to normalize, and clarifying finance costs as a mix of actual interest and IFRS 16 accounting impacts.

Asked by Ranga Prasad