Why Hinduja Global Solutions shares are buzzing this week

Profit continued to expand for the IT service management company as Q2 saw YoY growth of 67.9 percent. The performance was driven by robust growth in revenues and margins of the company’s UK business, digital business as well as healthcare business.

On August 9, 2021, HGS approved the sale of its healthcare division to Barings Private Equity for $1.2 billion (Rs 9,000 crore) as part of its strategic plan to unlock value. Healthcare services contributed to 55 percent of the company’s revenues.

“The strategic shift for the company would be towards technology-driven service and in this, it would be customer experience space and not traditional technology. We are going to lead with technology and that will need a sufficient amount of capital and that is where this raised capital would be invested in,” said DeSarkar.

Now the company was sitting on Rs 500 crore of cash as of H2FY22 & would receive $1.2 billion as consideration for its healthcare division. Assuming on the consideration received they pay 15 percent as tax they would get approx. Rs 7,600 crore. Effectively the total cash in books comes around to Rs 8,000 crore.

In FY21 they did an EBITDA of approx. Rs 783 crore. But since the business that was sold had higher margins, it is safe to assume that the residual EBITDA could be around Rs 300 crore odd which the street can assign a multiple of say 5x to 6x to arrive at a value of Rs 1,500 crore to Rs 1,800 crore.

The residual value of business and cash in books looks attractive at Rs 9,500 crore for a company with a market capitalization of Rs 6,900 crore.