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

www.teamhgs.com

September 2014

www.teamhgs.com

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
• 26,000 + employees
• 141 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 38%
• Strong balance sheet with low Debt/Equity ratio of 0.39x
• 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 manufactures 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

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What we do

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What We Do – Industry Sectors

7 Continued Growth in the Healthcare Sector

Telecom & Technology, 29% Consumer Elec, Products, Svcs & Retail, 15% Health Insurance, Pharma & Healthcare, 32% BFS, 8%

Chemicals & Biotech, 3%

Media, 7% Others, 7%

Healthcare/Insurance

• 55 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

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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%

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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 90.7 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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Our Top 5 customers account for 46 % of revenues

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Client Concentration

Top 20 clients contribute 77%

• f the Total Revenue

Revenue by Tenure

HGS enjoys very strong and tenured relationship with clients

Top Client, 13% Clients 2-5, 33% Clients 6-10, 16% Clients 11-20, 15% Others, 23% Over 10 years, 72% 5 to 10 years, 22% Below 5 years, 6%

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37% of revenues originated have offshore delivery

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USD 59% GBP 10% INR 9% CAD 22%

Revenue by Billing Currency : FY 14

India 25% Philippines 16% USA 27% UK 10% Canada 22%

Revenue distribution by Geo: FY 14

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

Over last 3 years : Rupee has depreciated around 32 % And Philippine Peso (PhP) has depreciated only about 3%. HGS hedges upto 75% of USD/Rs and USD/PhP revenues

60.49

40.00 45.00 50.00 55.00 60.00 65.00 70.00

Aug 2011 Dec 2011 Apr 2012 Aug 2012 Dec 2012 Apr 2013 Aug 2013 Dec 2013 Apr 2014 Aug 2014

USD vs INR

42.38 43.40

39.00 41.00 43.00 45.00 47.00

Aug 2011 Dec 2011 Apr 2012 Aug 2012 Dec 2012 Apr 2013 Aug 2013 Dec 2013 Apr 2014 Aug 2014

USD vs Peso 19

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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

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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Summary Financials

* Business ROCE is calculated as EBIT (excl. Treasury Income) / Capital Employed (excl. Treasury Surplus) 236 324 364 412 20.8% 12.8% 12.1% 16.8% 14.5% 11.8% 11.3% 12.9%

• 50

100 150 200 250 300 350

0% 5% 10% 15% 20% FY 11 FY 12 FY 13 FY14

Revenues in USD 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

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73.4 90.5 114.5 22.7% 24.8% 27.8% 20.0% 22.0% 24.0% 26.0% 28.0% 30.0%

• 20.0

40.0 60.0 80.0 100.0 120.0 140.0 FY 12 FY 13 FY 14 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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34.9 29.2 25.8 4.7 7.1 9.1 10.8% 8.0% 6.3% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

• 5.0

10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 FY 12 FY 13 FY 14 Revenue in USD Million India Payroll Business India CRM Business India CRM as % of Total Revenue

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Summary Financial Profile

• Book Value taken is as reported on QE June 2014
• Stock prices and USD/INR exchange rate latest available prices on 1st Sep 2014 (USD/INR rate used - 60.49 Rs/$)
• TTM average exchange rate used – 61.58 Rs/$
• Total Debt includes foreign currency debt taken at applicable exchange rates

25 Particulars USD Net Worth (in millions) 249.5 Book value per share 12.0 Price per share 10.0 Dividend per share (FY 14) 0.3 EPS (TTM) 1.4 P/E Ratio (TTM) 7.2 Gross Debt (in millions) 96.9 Total Cash (in millions) 92.8 Net Debt (Net Cash) (in millions) 4.1 Net Debt/EBITDA 0.07x Total Debt/Equity 0.39x HGSL

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Leverage Profile

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Total Debt 96.9 103.1 Less: Cash and Treasury Surplus 92.8 91.3 Net Debt / Net Cash 4.1 11.8 Net Worth 249.5 236.0 Net Debt / EBITDA 0.07x 0.22x Total Debt / Equity 0.39x 0.44x

(USD Million)

30-Jun-14 31-Mar-14

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Quarterly Performance - Demonstrated a strong growth in Q1 FY 15

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Quarterly Performance - Consolidated Figures in USD mn unless otherwise indicated Actual Actual QE June '14 QE June'13 Revenue 111.3 98.9 13% Operating Costs (excl Dep) 98.5 87.6

• 12%

EBITDA 12.8 11.2 14% EBITDA % 11.5% 11.3% 0% Depreciation 3.7 3.4

• 10%

Depreciation (Companies Act Impact) 0.9

• Interest Expense

1.8 1.6

• 12%

Other income 1.3 3.2

• 59%

PBT 7.7 9.4

• 19%

PBT % 7% 10%

• 3%

Tax 2.9 2.8

• 6%

Deferred Tax (0.7) PAT 5.4 6.6

• 18%

PAT % 4.9% 6.7%

• 2%

YoY Growth %

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Our share value has outperformed benchmark indices over the last year…

• 50.00

100.00 150.00 200.00 250.00 300.00 350.00

Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 HGS NIFTY CNX IT

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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 with in 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 60.49 to the dollar
• Market Cap taken is as on latest available share prices on 1st September 2014
• Figures as per TTM QE June’14 earnings for all companies

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Particulars HGSL FirstSource Genpact WNS Sykes EXL TTM data in $ mn Net Sales 424.15 510.29 2,183.15 511.48 1,302.37 487.97 TTM Growth 26.0% 9.6% 7.1% 7.8% 9.4% 5.6% EBITDA 54.41 60.83 353.16 92.50 136.83 91.50 Growth 38% 22.5% 8% 26% 47.4% 5.7% EBITDA% 12.8% 11.9% 16.2% 18.1% 10.5% 18.8% PBT 36.30 35.13 285.72 62.48 61.29 61.80 Growth 41% 30.0% 5% 76% 50.7% 7.2% PBT% 8.6% 6.9% 13.1% 12.2% 4.7% 12.7% PAT 28.36 33.32 218.64 46.97 43.80 48.01 Growth 60% 29.3% 12% 86% 39.6% 12.1% PAT% 6.7% 6.5% 10.0% 9.2% 3.4% 9.8% Effective Tax % 21.9% 5.2% 23.5% 24.8% 28.5% 22.3% Reported ROCE 12.7% 10.3% 12.8% 12.0% 8.0% 16.3% RONW 11.7% 9.5% 13.8% 10.3% 6.7% 12.2% Market Cap 205 407 4,002 1,056 921 897 P / E 7.01 14.13 18.30 22.49 21.04 18.69 P / BV 0.83 1.14 1.90 3.10 1.41 2.27 EV / EBITDA 3.99 7.99 11.41 7.95 7.07 11.80 EV / Sales 0.51 0.95 1.85 1.44 0.74 2.21