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Home > Equity Market > Hinduja Global Solutions Ltd.- Director's Reports >

Hinduja Global Solutions Ltd.- Director's Reports

Industry: Computers - Software
BSE Code :532859
NSE Code :HGS
Business Group:Hindujas Group
LTP (Rs.) :510.4  (0.38%) [NSE]
ISIN No :INE170I01016
Face Value/M Lot :10.00/1
P/E Ratio : 19.48
Market Cap : 1052.26 Cr
You can view full text of the latest Director's Report for the company.
Year End : 03 / 2013
To The Members,

The Directors are pleased to present their Report on the business and operations of your Company for the financial year ended March 31, 2013.

Financial Results

(Rs. in million except share data)

For the year ended March 31 Standalone Consolidated

2013 2012 2013 2012

Operating Income 7,034.1 6,313.5 19,834.3 15,543.1

Other Income 175.0 141.7 332.8 288.2

Total Income 7,209.1 6,455.2 20,167.1 15,831.3

Operating Expenses 5,874.8 5,261.5 17,650.0 13,702.0

Depreciation and Amortization 386.0 361.4 772.5 612.9

Financial Expenses 173.1 110.2 436.6 292.3

Profit Before Tax 775.2 722.1 1,308.0 1,224.1

Provision for tax (incl. deferred tax) 235.1 95.9 402.3 163.4

Profit After Tax 540.1 626.2 905.7 1,060.7

Add: Balance brought forward from Previous year 1,196.0 1,109.5 2,989.7 2,476.7

Profit Available for Appropriation 1,736.1 1,735.7 3,895.4 3,537.4

Dividend

- Final (Proposed) 411.8 411.8 411.8 411.8

- Dividend Tax 68.4 65.3 70.0 66.8

Transferred to General Reserve 54.0 62.6 75.2 69.1

Balance Carried Forward 1,201.9 1,196.0 3,338.4 2,989.7

Earnings per share (Rs.)

- Basic 26.23 30.41 43.99 51.52

- Diluted 26.23 30.41 43.99 51.52

Review of Financials

On a Consolidated basis (covering global operations in India, USA, Canada, Europe, Philippines, Jamaica and Mauritius), Operating Income for FY'13 was Rs. 19,834 million higher by 27.6% compared to the Operating Income of Rs. 15,543 million in FY'12. EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) was Rs. 2,237 million and it grew by 22% over the EBITDA of Rs. 1,841 million in FY'12.

On a Standalone basis (for India and overseas branch offices), Operating Income was Rs. 7,034 million in FY'13, an increase of 11.4% over the Operating Income of Rs. 6,314 million in FY'12. EBITDA increased by 15.2% from Rs. 1,052 million in FY'12 to Rs. 1,212 million in FY'13. PAT fell by 13.7% from Rs. 626 million in FY'12 to Rs. 540 million in FY'13.

Key highlights for the year were:

- Growth of consolidated revenues by 27.6%;

- Acquisition of healthcare revenue cycle management business by HGS Inc. from Deloitte;

- Opening of five new centers at - Belleville (Canada), Preston (UK), Jamaica, Hyderabad (SEZ) and Bangalore; Total number of centers now stand at 55;

- Employee headcount at 23,100 (Previous Year-end 23,899);

- Addition of 50 new customers during the year including addition of 11 customers from the acquisition of healthcare revenue cycle management business in the US. As of March 31, 2013, your Company has 535 active customers;

- As of March 31, 2013, your Company had a Net Worth of Rs. 12,355 million translating into a Book Value of Rs. 600.07 per share.

Dividend

Your Directors are pleased to recommend final dividend of Rs. 20 per equity share (200% on face value of Rs. 10/- each) for the year ended March 31, 2013. The total dividend for the financial year will absorb Rs. 481.8 million including dividend distribution tax of Rs. 70.0 million.

Business Review

Global ITES Industry Overview

In the context of volatile economic environment, the ITES sector has registered a steady growth rate of 4.8% compared to the previous year. Global IT spend was estimated to be $1.9 trillion in 2012, of which software products, IT and Business Process Management (BPM) services accounted for $1.1 trillion. The global outsourcing market was estimated to grow at 9% to reach $130 billion. The ongoing uncertainty in demand impacted the overall volumes which declined by around 13%.

The ongoing corporate IT spending budget constraints continued to put pressure on the IT/BPO industry margins. This has led to outsourcing service providers offer solutions that can leverage technology-enabled platforms and effective delivery models. The BPO industry today is focused on delivering innovative business models that offer specialized delivery services to their customers. These new solutions are designed to provide customized solutions and facilitate transformation. Access to specialized services, ability to concentrate on their core businesses, decreased time-to-market and increased customer centricity are some of the key drivers.

Increasing use of the mobile technologies is expected to result in significant growth in the pace of adoption of high-end mobile devices and mobile applications in the coming years. Delivery of complex services from India along with emerging technologies such as social media, analytics, cloud technology and platform-based solutions will offer new opportunities to the outsourcing service providers in the near future.

Indian ITES Industry Overview

The Indian IT services and BPO sectors are an integral part of the global sourcing strategy. These sectors have made increasing contributions to the domestic economy over the years. During FY'13, the IT industry in India is estimated to have generated revenues of $108 billion, with the IT software and services sector accounting for $95 billion of revenues. Export revenues are estimated to be at $76 billion in FY'13, up 10.2% compared to the previous year and have contributed 80% to the total IT-BPO revenues (Source: NASSCOM).

NASSCOM indicated that FY'14 total revenues from India (domestic and exports) are expected to grow by 13-15% to reach $106-111 billion and out of this, exports are likely to be in the range of $84-87 billion, indicating a growth of 12-14%.

Despite India being the global outsourcing leader, it accounts for only 10% of the global IT-BPM spend. This reflects significant untapped opportunities for Indian IT-BPM firms. They are well positioned to take advantage of these trends by developing new capabilities, servicing the entire IT services value chain and expanding their focus to new geographies and industry verticals.

Performance of Hinduja Global Solutions Ltd.

During FY '13, revenues of your Company grew by around 27.6%. Of the total growth, around 10.5% was due to the revenue cycle management business acquisition made during the year and full benefits of the Canada and payroll processing businesses acquired in August 2011. The balance of the growth was due to organic growth and variation in the exchange rate.

Nearly 31% of your Company's revenues are from the telecom sector. In the first half of FY '13, telecom volumes across all geographies remained subdued. This coupled with costs associated with opening of new centers at Belleville (Canada), and Preston (UK), adversely affected the financial performance of the Company during the first two quarters. Telecom volumes in Canada rebounded strongly in the second half of FY '13. This along with costs better matched with revenues led to a strong improvement in the financial performance of your Company in the second half of the year.

For a larger part of the year, the financial performance of your Company was also adversely affected by the excess capacity built in the Philippines. By the end of the year, volumes improved significantly which contributed to the improvement in the financial performance of your Company.

During the year, your Company performed a stringent review of its various accounts and has initiated necessary measures to improve the overall profitability of the Company.

Depreciation and amortization expenses for the year were higher on account of the new delivery centers opened during the year, impact of exchange rate and full year impact of the acquisition.

Interest costs were higher on account of full year impact of loans taken for the HGS Canada acquisition and growth in working capital requirements in line with growth in the business.

Tax was higher on account of end of tax holiday period for some of the units in the Philippines and absence of the tax reversals recorded in FY'12. Overall profitability was impacted by certain one-time costs related to the revenue cycle management business acquisition and exceptional costs on account of a settlement of a dispute with a bank.

Key Subsidiaries

HGS International, a wholly owned subsidiary of your Company, incorporated under the laws of Mauritius, is primarily engaged in investment business. HGS International owns 100% of the share capital of Hinduja Global Solutions Inc., USA, C-Cubed N.V., Curacao, Hinduja Global Solutions Europe Ltd., UK and HGS St. Lucia Ltd., Saint Lucia.

During the year under review, Total Income of HGS International was US$ 5.5 million as compared to US$ 5.6 million in the previous year.

Hinduja Global Solutions Inc., USA (HGS Inc.), a wholly owned subsidiary of HGS International, Mauritius, specializes in marketing and provision of both voice and non-voice related Customer Contact and Business Process Outsourcing services to its clientele. Its key subsidiaries are HGS (USA), LLC and HGS Canada Inc., Canada. During the year HGS EBOS, LLC was setup to acquire the healthcare revenue cycle management business from Deloitte.

For FY'13, HGS Inc. reported consolidated revenues of US$ 270.5 million as compared to US$ 230.7 million in FY'12.

HGS (USA), LLC, which was acquired in November 2006 by HGS Inc., USA, operates in five cities in USA and Canada. It partners with Fortune 1000 companies and Government agencies to provide comprehensive Customer Relationship Management programs. For FY'13, HGS (USA), LLC recorded total revenues of US$ 191.7 million. HGS (USA) LLC and its US subsidiaries have over 2,000 employees who are engaged in customer services, fulfillment services, sales, marketing and account management.

HGS Canada Inc., which was acquired in August 2011 by HGS Inc., USA is a leading Canadian contact center service provider servicing marquee customers across verticals such as media, telecom, technology and BFS. HGS Canada offers technical support, inbound and outbound sales, customer care and customer retention in English and French languages and has a team size of over 2,200 associates at 10 centers in Canada. For FY'13, HGS Canada recorded total revenues of CAD 72.8 million as compared CAD 48.6 million in FY'12.

Hinduja Global Solutions Europe Ltd. is the UK based subsidiary focusing on consulting services for BPO and call center services and markets offshoring services to UK based clients. It owns 100% stake in Hinduja Global Solutions UK Ltd. During FY'13, it acquired 100% stake in HGS France making it a wholly owned subsidiary. It also has a subsidiary in Italy called HGS Italy, SARL.

Hinduja Global Solutions UK Ltd. is a leading contact center company with over 850 employees in London, Preston and Selkirk (Scotland). Established in 1977, it offers a range of services for inbound and outbound interactions to over 20 marquee customers across verticals such as Government, FMCG, Financial Services, Automobiles and Retail. It has branches in Rotterdam (Netherlands) and Hamburg (Germany). For FY'13, Hinduja Global Solutions UKLtd. reported revenues of GBP 26.8 million as compared to GBP 25.0 million in FY '12. During the year, it was selected as one of the four service providers for the UK Government's outsourcing contracts.

HGS St. Lucia Ltd., Saint Lucia is the holding company of Team HGS Ltd., Jamaica.

Team HGS Ltd., Jamaica in FY'13, has opened a call center at Kingston, Jamaica. The center is currently servicing a Jamaican client. Jamaica has been eliciting strong interest as a near-shore destination among North American clients.

HGS International Services Pvt. Ltd. (HGSISPL)

HGSISPL has set up two Special Economic Zone (SEZ) units at i) Global Village, Bangalore; and ii) DLF Towers, Hyderabad. While the Global Village SEZ has completed two years of operations, the Hyderabad SEZ commenced operations in the last quarter of FY'13. HGSISPL has also received approvals for setting up its third SEZ at Pritech Park, Bangalore which is in the process of being built up and is expected to be completed in the first half of FY'14. In FY'13, it recorded revenues of r 673.6 million as compared to r 284.7 million in FY'12.

HGS Business Services Pvt. Ltd., which was acquired in August 2011, is a prominent player in Human Resource Outsourcing (HRO) domain. This acquisition also included a Payroll Processing activity in the Middle East. HGS Business Services offers payroll, statutory compliance and employee life cycle support to marquee customers in Banking, Financial Services, Insurance and other industry verticals. In FY'13, it recorded revenues of r 388.9 million as compared to r 227.2 million in FY'12.

HGS International Services Private Limited and HGS Business Services Private Limited have filed a Scheme of Amalgamation of HGS Business Services Private Limited into HGS International Services Private Limited with Hon'ble High Court of Judicature at Bombay on March 29, 2013.

Addressing Social Concerns

Your Company continues to be committed to community welfare initiatives and engages with the local community where HGS has work locations.

HGS employees participated in the Bangalore 10K Open as well as the Majja Run and the proceeds from this event were donated to Concern India Foundation - an NGO which supports the primary education of less privileged children, specifically children of migrant workers.

In addition, HGS is engaged with Magic Bus Foundation which supports the education of children and enables them develop skills in order to support themselves reducing their dependence on others. The Foundation has programmes running across the country and your Company supported a programme which trains their project leaders to manage their programmes in their local regions.

HGS also continues to support orphanages, old age homes and the cause of less privileged children through its offices at different locations including Durgapur and Siliguri in the East, Bangalore, Mysore and Guntur in the South.

HGS is also engaged with various NGOs for the collection of donations and subscriptions on their behalf.

In the Philippines, your Company has partnered with Dr. Jose Fabella Memorial Hospital and Quirino Memorial Medical Center for charitable purposes. Besides, the Philippines branch on a regular basis supports the children and public during the period of national disasters.

In the US, your Company supports two national charities each year and it supported St. Jude Children's Research Hospital and the American Cancer Society in the past year. The Peoria center supported the Children's Hospital of Illinois and the Peoria Humane Society. The Waterloo center supports the Cedar Bend Humane Society and Cedar Valley Hospice. Your Montreal center takes great pride in raising funds for the Cure Foundation.

On the whole, your Company actively meets its duties towards all stakeholders through a positive and a very active Corporate Social Responsibility programme.

Marketing / Communication and Public Relations

HGS continued to employ all the communications and marketing tools to constructively engage with all its stakeholders. FY'13 marked the completion of brand alignment of all its units. The year was especially fruitful in terms of generating brand awareness internally and externally using all possible media channels, including social media.

Brand transition activities were successfully carried out in HGS UK, HGS Canada and HGS Business Services India. Your Company hopes to reap benefits of brand integration, which will enable it to put together cross-geography teams to carry out complex global projects in quick time. 'One HGS' - the umbrella program for carrying out brand integration has now become bigger and better. 'One HGS' has two equally important objectives - Standardize the look and feel of all entities and substantially increase the brand awareness of your Company among the general public. It has used the print as well as the digital and electronic media to good effect in raising the brand awareness globally. Your Company received considerable media interest during the past year, and all its events and awards were covered by leading media houses. It got positive mentions in all media channels and its press releases were syndicated in good numbers.

HGS paid special attention to the social media, creating platforms for continuous outreach to the wider community on Facebook, LinkedIn, twitter and YouTube. The response has been encouraging. These platforms will be used for branding and recruitment activities. Your Company believes in pro-actively sharing information with all stakeholders and tapping the boundless opportunities to listen, understand and engage with its audiences.

All the Global Delivery Centers are now connected to the rest of the centers through the new intranet - Ozone. Ozone has developed into a powerful tool to engage the employees and facilitate two-way communication between the management and the employees. Through many creatively conceived online events and competitions, Ozone has helped augment the awareness level of all employees regarding the business and the brand of your Company. In the coming year, Ozone will become richer in terms of features and build on the good work done in the past year. This new avatar of the intranet will soon become your Company's internal wiki.

The CEO of your Company continued to communicate directly with the employees through his blog and Town Hall Meetings. The Town Hall Meetings now cover all the locations and get active participation from thousands of employees. 'Global Voice', the flagship internal digital quarterly newsletter, keeps employees informed on the latest happenings in your Company.

Continuing the trend of the previous years, HGS was recognized for its excellence during FY'13 too. It featured in the NASSCOM list of Top 10 BPO exporters in India and among the Top 10 in Dataquest India's list of Top BPO Companies. HGS featured among the Top 50 Business Process Management Service Providers in the annual International Association of Outsourcing Professionals' (IAOP) Global Outsourcing 100 List of 2012. It jumped 28 ranks within a span of just one year, reaffirming the belief of the stakeholders that your Company is making the right moves towards the top of the field.

Your Company's financial results, and updates on important developments and achievements are available on its website www.teamhgs.com.

Awards & Recognition

Your Company was conferred with awards and recognitions during the year, such as:

- HGS Canada Inc. was recognized as top 3rd party vendor by a Canadian telecom client across all its outsourced lines of business; and

- Charlottetown, Canada center earned recognition as the #1 site for warranty product sales across North America by a technology client in FY'13.

Chief Executive Officer (CEO) and Chief Financial Officer (CFO) Certification

The Chief Executive Officer and Chief Financial Officer Certification as required under Clause 49 of the Listing Agreements and Chief Executive Officer declaration about the Code of Conduct are furnished as Annexure 'A' and 'A-1' to this Report.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

The prescribed particulars as required under Section 217 (1)(e) of the Companies Act, 1956 relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo are furnished as Annexure 'B' to this Report.

Corporate Governance

As required under Clause 49 of the Listing Agreements, a detailed report on Corporate Governance forms Annexure 'C' to this Report.

The Statutory Auditors of the Company have examined the Company's compliance and have certified the same as required under the Listing Agreements. The certificate is reproduced as Annexure 'D' to this Report.

Management Discussion and Analysis Report

Further, a separate Management Discussion and Analysis Report covering a wide range of issues relating to industry trends, company performance, SWOT analysis, corporate process, business outlook among others is annexed as Annexure 'E' to this Report.

ESOP Disclosure

The disclosures required to be made under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are given in Annexures 'F1' and 'F2' to this Report.

Fixed Deposits

Your Company has not accepted any fixed deposits from the public and, as such, no amount of principal or interest was outstanding as on the Balance Sheet date.

Directors

Ms. Shanu S.P. Hinduja has been appointed as Director and designated as Co-Chairperson of the Company w.e.f. March 4, 2013, in the casual vacancy caused by resignation of Mr. Dheeraj G. Hinduja. The Board place on record their appreciation of the invaluable contribution provided by Mr. Dheeraj G. Hinduja during his tenure as a Director.

Mr. Rangan Mohan and Mr. Anil Harish, Directors of your Company, are liable to retire by rotation at the ensuing Annual General Meeting (AGM) and being eligible, offer themselves for re-appointment.

Directors' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956 your Directors, based on the information and documents made available to them, confirm that:

i) in the preparation of Annual Accounts for the year ending March 31, 2013, the applicable accounting standards have been followed. There are no material departures in the adoption and application of the accounting standards;

ii) they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company at the end of the financial year and of the profits of your Company for that period;

iii) they have taken proper and sufficient care to the best of their knowledge and ability for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities; and

iv) they have prepared the Annual Accounts on a going concern basis.

Auditors

M/s. Price Waterhouse, Chartered Accountants, the Statutory Auditors of your Company, retire at the conclusion of the forthcoming Annual General Meeting of your Company and being eligible, offer themselves for re-appointment. The Board recommends the re-appointment of the Auditors.

Exemption from attaching Accounts and other Documents of Subsidiaries

The Ministry of Corporate Affairs (MCA) vide Circular dated February 8, 2011 has granted exemption under Section 212(8) of the Companies Act, 1956 from annexing Balance Sheet and other documents of subsidiaries with the Annual Report of the holding company provided certain conditions are fulfilled. The Board of Directors of your Company at its meeting held on May 28, 2013 (in view of fulfilment of all conditions prescribed by the Ministry of Corporate Affairs under Circular No. 5 / 12 /2007 - CL - III dated February 8, 2011) resolved for not attaching the Balance Sheet and other documents of the subsidiaries, with the Balance Sheet of the holding Company, i.e. Hinduja Global Solutions Limited, for FY'13.

Accordingly, the Annual accounts and other documents for the year ended March 31, 2013 of the subsidiary companies are not attached to the Annual Report. The accounts of the subsidiaries will be made available for inspection by any member of the Company at its Registered Office and also at the Registered Office of the concerned subsidiary. The accounts of the subsidiary companies and detailed information will be made available to the members upon receipt of request from them. The summary of key financials of the Company's subsidiaries, as provided in the circular dated 8th February, 2011 is included in this Annual report. The accounts of individual subsidiary companies would be available on Company's website www.teamhgs.com.

Employees' Particulars

Particulars of employees as required under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, form part of this Directors' Report. However, in accordance with the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, this Report is being sent to all the shareholders of the Company excluding the aforesaid information. Members interested in obtaining the said information may write to the Company Secretary at the Registered Office of the Company.

Acknowledgements

Your Board takes this opportunity to thank the customers, vendors, business partners, shareholders and bankers for the faith reposed in the Company and also thank the Government of India, various regulatory authorities and agencies, State Governments, Government of various countries for their support and looks forward to their continued encouragement. Your Directors place on record their sincere appreciation of the contribution of the Company's most important asset, viz. the employees, who through their competence, hard work and co-operation have enabled the Company to achieve consistent growth.

For and on behalf of the Board of Directors

Place : Mumbai Ramkrishan P. Hinduja

Date : May 28, 2013 Chairman

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