November 2014 www.teamhgs.com Disclaimer Certain statements in - - PowerPoint PPT Presentation

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November 2014

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Certain statements in this presentation concerning our future growth prospects are forward- looking statements, which involve a number of risks, and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, our ability to manage growth, intense competition in the BPM industry including those factors which may affect our cost advantage, wage increases, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed- timeframe contracts, client concentration, restrictions on immigration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Hinduja Global has made strategic investments, withdrawal of governmental fiscal incentives, political instability, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Hinduja Global may, from time to time, make additional written and oral forward-looking statements, including our reports to shareholders. The company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the company.

Disclaimer

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HGS Overview

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• FY 14 Revenues - US $412 mn
• FY14 EBITDA - US $53 mn
• Presence in 10 countries
• 28,000 + employees
• 143 active clients for the BPM business (excluding payroll clients)

About us

• Part of the Hinduja Group, in BPM business since 2000
• Erstwhile HTMT, IT & BPM business demerged October 1, 2006
• Rebranded as HGS in 2008
• CAGR of greater than 25% over last 5 years, increasingly non-linear
• Improving margins y-o-y, with a TTM EBITDA growth rate of 32%
• Strong balance sheet with low Debt/Equity ratio of 0.42x
• Track record of consistent dividends

VALUE PROPOSITION HISTORY SNAPSHOT

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• Best Mid-Sized Contact Centre (Outsourced) by Contact Centre

World Awards – November 2013

• ‘Best Contact Center’ award in FY 14 (second consecutive year) at

Contact Center World EMEA finals

• Best Outsourced Provider Runner Up – Call Center Week – July

2013

• Global Services 100 Survey - Top 2 Call Center Companies

globally: Neo-IT & Global Services Magazine.

• Best Under A Billion – Forbes Asia
• Our best moment – London Olympics 2012

Who we are

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Healthcare / Insurance

• 58 Million transactions, 10 Million calls, 2.7 Million emails per annum with annual

claim payout of $11.5 billion USD & $1.3 billion USD recoveries initiated for 4 of the Top 10 healthcare payers and several large hospitals/health systems in the US

Financial Services

• Only card credit card issuer to win the J.D. Power Award for customer experience 6

consecutive years driven by HGS’s best in class NPS customer service - supporting all aspects of consumer financial transactions

Telecommunications

• Providing extensive consumer support for land lines, wireless, satellite, IPTV, hi-speed

internet – from supporting the consumer from the point of purchase to end of service

• HGS provides the best service across all partners and internal centres consistently;

while another clients operation recently won “best mid sized call center worldwide”

Consumer Products

• National technical support organization for industry leading tablets and smartphones
• Supporting many consumer electronics manufacturers and distributors from purchase

support to post warranty servicing

• Support over 3000 consumer branded products for 8 European countries for client

enquires include telephone, paper, email and social media

Almost all HGS day to day activities relate to consumer transactions and interactions

HGS Core Business and Focus What we do

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What We Do – Industry Sectors

7 Continued Growth in the Healthcare Sector

* Based on H1 FY15 Financials

Healthcare/Insurance

• 58 million transactions, 10 million calls, 2.7

million emails for 4 of the top 10 healthcare payers and several large hospitals and health systems

Financial Services

• Best in class NPS customer service -

supporting all aspects of consumer financial transactions

Telecommunications

• Provides consumer support for land lines,

wireless, satellite, IPTV, hi-speed internet – supporting the consumer from the point of purchase to end of service

• Won “best mid sized call center worldwide”

for one of the clients

Consumer products

• Tech-support for industry leading tablets and

smartphones and many consumer electronics manufacturers from purchase to post warranty servicing

Telecom & Technology, 29.2% Consumer Elec, Products, Svcs & Retail, 14.0% Health Insurance, Pharma & Healthcare, 32.8% BFS, 7.7% Chemicals & Biotech, 2.6% Media, 6.2% Others, 7.6%

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What we do – Our Service offering Mix and delivery model

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Pure play BPO companies have 30 -40 % offshore revenues IT services have around 70 % offshore revenues

Offshore, 37% Onshore, 63%

Transaction processing 21% CRM Non - Voice 4% CRM Voice 75%

* Based on H1 FY15 Financials

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What we handled in FY 2014

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2001 - 2005 2006 - 2010 2011 - 2014

• Acquisition of

Philippines center : C- Cubed / Source 1 Asia

• Acquisition of Source

One

• Acquisition of Affina in US
• Strategic foray into

National Markets

• UK entry
• Entry into Canada
• Entry into Healthcare

provider market space

• Entry into HRO space
• Expansion in Jamaica and

Middle East

• Launch of

HTMT brand

• First

International Insurance customer with 23 seats

2000

Enter New Geos Global Footprint / One HGS A Start Growth

Milestones in our growth story

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Our USP

Domain Expertise

• Technology / Media / Telecom
• Healthcare, Insurance, BFS
• Consumer Electronics &

Packaged Goods

• Other Verticals: Government,

Publishing, Energy & Utilities, Transportation & Logistics

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Success at HGS has four distinct cornerstones Globally Local

• Presence in India, USA, Canada, UK,

Europe, Philippines, and Jamaica

• Philosophy of “Right Sourcing”:

Getting the onshore-offshore mix right for round-the-clock productivity, shorter lead-times, faster response times and cost benefits to clients

Operational Excellence

• Only company in the world to have eSCM – SP 4

certification across 3 geo’s simultaneously

• Significant client tenure; with some clients of more

than 3 decades!

Easy to do Business

• The hallmark of our success has

always been the flexibility and agility with which we approach

• ur customer’s dynamic needs,

designing solutions to create long-term value

• Classified as a “major

contender” in the BPM space by Everest Group1

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1 As per Everest Group’s PEAK Matrix 2014 classification model

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Demand Environment

• Total market size is over $ 160

billion

• Next 5 year CAGR for BPM

expected to be 5.9% (Gartner Q1, 2013 forecast)

• Billion Dollar Plus players in

this are still only a handful, who grew between 5% to 20%

• Essentially a large, fragmented

but growing market, enough for everybody to play in

Source: Gartner

• Strong U.S recovery driving organic volume

growth, both onshore and offshore

• Canada is an under-penetrated market for

both outsourcing and offshoring

• UK and Europe subdued; first signs of

recovery visible, growth expected to pick up with a lag of 6-9 months

• Offshoring momentum strong
• India

domestic business environment continues to be challenging, wait and watch approach, portfolio rationalization complete

Marketplace Dynamics

The Marketplace and Demand Outlook

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Pillars of our Strategy

Investments in Growth M&A for new markets and competencies

• Revenue CAGR of over 25% in the last 5 years when the world went through

deep recession

• Significant Investments in sales and marketing
• Impressive track record of mining and growing tenured client relationships
• Entry into Philippines, US, UK and Canada through acquisitions to achieve

speed of market entry

• Entry in Healthcare Provider Market through EBOS and Payroll through HCCA
• Emerging interest in Latin America and Middle East.
• Developing offerings in New Age Customer Interaction Management Services

like self-service, web, social media and analytics

• In-house IT teams deliver proprietary workflow and process automation

platforms, interactive services, animation, learning and knowledge management systems

• Good mix of tenured leadership and new talent from the industry
• From the top management institutes in India and Abroad
• Strong career development and performance management processes
• Attractive career paths, job enhancements, ESOPs and profit share plans
• Track record of attracting and retaining high performers

Innovation and New Product Development Robust Talent Management

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c

HGS M&A STRATEGY

SCALE

ACCESS TO NEW CAPABILITIES & COMPETENCIES ACCESS TO NEW MARKETS ACCESS TO EMERGING TECHNOLOGIES

HGS M&A Strategy

• Right valuations and strict

Payback norms

• Avoid

auctions; private,

• ff-market deals
• Right size, business and

cultural fit

• Take time to integrate;

single brand in the market

• Retain leadership

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Onshore Acquisition Drives Offshore Growth

53.0 65.2 71.9 78.2 80.5 81.3 84.0 90.1 0.0 20.0 40.0 60.0 80.0 100.0

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14

US Onshore Revenue (USD mn)

*Annualized

53.0 65.2 71.9 78.2 80.5 81.3 84.0 90.1 47.8 67.7 70.6 82.7 101.3 111.4 128.5 130.1

• 50.0

100.0 150.0 200.0 250.0

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14

Rev in USDmn Offshore Onshore CAGR 15% CAGR 8%

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Financial Overview

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Tenured Client Relationships

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Client Concentration

Top 20 clients contribute 75%

• f the Total Revenue

Revenue by Tenure

HGS enjoys very strong and tenured relationship with clients

Top Client, 14% Clients 2-5, 35% Clients 6-10, 12% Clients 11-20, 14% Others, 25%

Client tenure - Over 20 Years, 6% Client tenure - 10 to 20 Years, 66% Client tenure - 5 to 10 Years, 22% Client Tenure - Below 5 Years, 6%

* Based on H1 FY15 Financials

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37% of revenues originated have offshore delivery

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USD 62% GBP 11% INR 8% CAD 19% Revenue by Billing Curr. :H1 FY 15

India 27%

Philippines 16%

USA 27% UK 11% Canada 19% Revenue distribution by Geo: H1 FY 15

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USD/INR and USD/Philipino Peso variations impact our financials

Over last 3 years : Rupee has depreciated around 25 % And Philippine Peso (PhP) has depreciated only about 4%. HGS hedges upto 75% of USD/Rs and USD/PhP revenues

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38 39 40 41 42 43 44 45 46 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14

USD vs PHP

40 45 50 55 60 65 70

USD vs INR

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Our Business is Seasonal - 52-54% of revenues come in H2

Healthcare and consumer verticals make the second half of the year busier than the first

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46% 41% 47% 48% 54% 59% 53% 52% 0% 25% 50% 75% 100% FY 11 FY 12 FY 13 FY 14 % of Annual Revenue H2 H1

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Revenue & Profitability Trend

• Growth of HGS in FY 14 (in Rupee terms) was 26.3%
• Of this organic (currency neutral) growth was 14.6%, growth due to exchange rate was 10.2%, and growth due to

full year impact of EBOS acquisition (in October, FY 13) was 1.5%. * Business ROCE is calculated as EBIT (excl. Treasury Income) / Capital Employed (excl. Treasury Surplus) 21

15,543 19,834 25,049 12.8% 12.1% 16.8% 11.8% 11.3% 12.9% 6.8% 4.6% 6.8%

• 5,000

10,000 15,000 20,000 25,000

0% 5% 10% 15% 20% FY 12 FY 13 FY14

Revenues in Rs mn Revenue Business ROCE% EBITDA % PBT% PAT%

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The turnaround story

• Vagaries of the Indian Telecom sector seriously

impacted profitability from 2010 onwards

• We built about 1000 seats in Philippines 2 years ahead
• f real demand materializing
• Rationalized the India business by exiting from

unprofitable clients

• New Capacity now only on a Just-in-Time basis,

with a lead time of 90-120 days only

Lessons Learnt Unforeseen business events

• Hired a leadership team and a high powered sales

team to deliver the exponential growth

• Invested in onshore markets, where margins are lower;
• ffshoring from those locations has just started
• Invested in Digital Innovation Lab, returns are coming

now in new digital capability

Investment for growth resulted in increase in SG&A costs, returns are coming now

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HGS Strategy – Focus on Healthcare Business

Healthcare business has grown at a CAGR of 22% over the last 5 years

* Based on H1 FY 15 (Annualized) 23

73.4 90.5 114.5 148.2 22.7% 24.8% 27.8% 32.8% 20.0% 22.0% 24.0% 26.0% 28.0% 30.0% 32.0% 34.0%

• 20.0

40.0 60.0 80.0 100.0 120.0 140.0 160.0 FY 12 FY 13 FY 14 FY 15* Healthcare Revenue in USD mn Healthcare Revenue As a % of Total Revenue

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HGS Strategy – Reduction of India Domestic CRM business

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1,675 1,588 1,570 1,680 227 389 553 587 10.8% 8.0% 6.3% 6.1% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

• 500

1,000 1,500 2,000 2,500 FY 12 FY 13 FY 14 FY 15* Revenue in Rs Million India Payroll Business India CRM Business India CRM as % of Total Revenue

* Based on H1 FY 15 (Annualized)

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Summary Financial Profile – As at 30th Sept

• Book Value taken is as reported on QE Sept 2014
• Stock prices and USD/INR exchange rate latest available prices
• Total Debt includes foreign currency debt taken at applicable exchange rates

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Particulars Rs. USD Net Worth (in millions) 15,221.5 245.7 Book value per share 739.3 12.0 Price per share 657.0 10.7 Dividend per share (FY 14) 20.0 0.3 EPS (TTM) 77.7 1.3 P/E Ratio (TTM) 8.46 8.4 Gross Debt (in millions) 6,457 104.2 Total Cash (in millions) 5,779 93.3 Net Debt (Net Cash) (in millions) 678 10.9 Net Debt/EBITDA 0.20x 0.20x Total Debt/Equity 0.42x 0.42x HGSL

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Leverage Profile

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Total Debt 6,457 6,342 Less: Cash and Treasury Surplus 5,779 5,618 Net Debt / Net Cash 678 724 Net Worth 15,221 14,521 Net Debt / EBITDA 0.20x 0.22x Total Debt / Equity 0.42x 0.44x

(Rs. Million)

30-Sep-14 31-Mar-14

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Quarterly Performance - Demonstrated a strong growth in H1 FY 15

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Half Yearly Performance - Consolidated Figures in Rs mn unless otherwise indicated Actual Actual H1 FY15 H1 FY14 Revenue 13,683 12,064 13% Operating Costs (excl Dep) 12,108 10,617

• 14%

EBITDA 1,575 1,448 9% EBITDA % 11.5% 12.0% 0% Depreciation 514 429

• 20%

Interest Expense 205 189

• 9%

Other income 122 286

• 57%

PBT 978 1,115

• 12%

PBT % 7% 9%

• 2%

Tax 268 310 13% PAT 710 806

• 12%

PAT % 5.2% 6.7%

• 1%

YoY Growth %

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Our share value has outperformed benchmark indices over the last year

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61.16% 39.3% 28.1%

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In Conclusion

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HGS elements of Differentiation

Big company capabilities with entrepreneur spirit– HGS (Revenue over $400 mn) is a part of the multi-billion dollar Hinduja Group with big company attributes. We are entrepreneurs at our core and are known to be nimble and responsive with innovative customer centric solutions. Unique Local UK, Canada and USA Operating Model – Our local CEO’s and leadership teams operate their business with complete P+L accountability and empowerment. These teams are from the local markets, providing extensive local client insight and intimate knowledge and a fabric within the local markets. Onshore Strategy and Investments – HGS’s industry leading 67% of revenue being delivered domestically enables empathy and consumer centricity to effectively support our clients and their customers. Financial Strength – Debt-free and with the backing of our multi-billion dollar parent company, allows us to invest in our people, process, technologies, and business models that create value for our clients including carve outs, asset monetization and transformational agreements with committed outputs. Operational Excellence – Our heritage and business excellence framework enhances our clients business often reducing HGS fees and dramatic business value through automation, elimination and self serve. Client specific and industry insight – Our long tenured relationships across the entire consumer channel suite, allow HGS to act on our clients behalf to resolve and support their clients with deep industry insight in all methods that the consumers desire – voice, web, email, paper, SMS, social Media, video, IVR and self service

Summing it up

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Profitability Drivers

• Healthcare reforms to drive increase in

Healthcare volumes

• Continued growth in North America and

Canada

• Improving demand in UK and Europe
• Increased outsourcing/offshoring from

SME sector

• Recent investment in sales and sales

support will show results in coming years

• Better Capacity utilization to drive

better profitability margins

• Strong Dollar and good forward

hedge rates

• Increased offshore revenue mix
• Better absorption of SG&A due to

higher revenue

• Reduction in domestic business

and increased healthcare business to improve margins

• Entire team is now focused on

improving ROCE

Growth Drivers

Going Forward – Growth and profitability Drivers

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Thank You

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Peer Comparison - Growth

16.1% 11.8% 9.4% 9.2% 6.6%

• 1.3%
• 2.0%

2.0% 6.0% 10.0% 14.0% 18.0% HGS* Sykes Genpact WNS EXL FSL* FY 14 USD Growth rate

* Currency Adjusted growth rate (in USD)

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Peer Comparison

• Market Cap for HGSL and FirstSource converted to Dollar equivalent amount at $/RE exchange rate used of INR 61.48 to the dollar
• Market Cap taken is as on closing rates on 14th Nov 2014
• Figures as per TTM QE Sep’14 earnings for all companies

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Particulars HGSL FirstSource Genpact WNS Sykes EXL TTM data in $ mn Net Sales 436.31 511.38 2,236.37 522.50 1,312.90 488.12 TTM Growth 18.3% 6.3% 7.5% 7.8% 6.5% 3.4% EBITDA 54.75 62.16 334.45 96.65 140.94 105.12 Growth 22.2% 16.1%

• 4%

26% 33.3% 18.3% EBITDA% 12.5% 12.2% 15.0% 18.5% 10.7% 21.5% PBT 35.54 38.14 254.19 72.01 64.04 51.40 Growth 9.3% 35.3%

• 21%

77% 32.6%

• 13.0%

PBT% 8.1% 7.5% 11.4% 13.8% 4.9% 10.5% PAT 26.17 36.28 195.29 52.93 46.29 40.84 Growth 13.7% 32.5%

• 18%

74% 17.1%

• 7.9%

PAT% 6.0% 7.1% 8.7% 10.1% 3.5% 8.4% Reported ROCE 11.6% 13.0% 12.6% 13.6% 8.2% 13.1% RONW 10.5% 9.7% 11.9% 15.0% 7.1% 10.0% Market Cap 220 428 4,085 1,055 1,051 944 P / E 8.46 11.87 20.92 19.93 22.70 23.11 P / BV 0.89 1.16 1.90 2.99 1.62 2.31 EV / EBITDA 4.21 8.14 10.04 6.98 8.73 11.80 EV / Sales 0.53 0.99 1.50 1.29 0.94 2.54