Hinduja Global Solutions (HGS), the business processing outsourcing (BPO) arm of the diversified conglomerate Hinduja Group, is planning to hive off its cash-rich healthcare vertical into a new entity as it reviews its existing businesses, sources have told Moneycontrol.
The move is part of a two-tiered value unlocking exercise, with the company looking to build momentum after clocking a record profit in the second quarter, sources said.
“HGS is planning to hive off or demerge its healthcare vertical, which has immense scope and is a cash cow, into a new entity. In the second leg, they are keen on a fresh infusion of funds by private equity (PE) funds into this new vertical,” one of the sources said.
The key trigger was to unlock value and the company would look to raise upwards of Rs 700-Rs 800 crore in the new demerged entity, the source added.
Investment bank Barclays had been mandated for the proposed transaction, a second source said. “If they get a punchy multiple, it could lead to a re-rating of the company,” the source added. Both persons spoke to Moneycontrol on the condition of anonymity.
"We would like to inform you that the Board of HGS, in view of changing market dynamics and opportunities to unlock, had asked for a review of the existing portfolio of business. At this stage, we have no further comments to offer,” HGS said in response to Moneycontrol’s queries. Barclays did not respond to an email seeking its comments.
On September 7, 2020, the firm sent a communication to the stock exchanges, making known its intent for a rejig. It said, “This is to inform you that keeping in view the changing market dynamics and the opportunities to unlock value in all the divisions, the Board of HGS has asked for a review of HGS’ existing portfolio of businesses (in consultation with external consultants, if required). The Board and management of HGS is very conscious of the need to enhance the profitability and value of all business divisions of the Company. Accordingly, HGS divested its India domestic business in January 2020.
This review could result in changes in HGS’ corporate structure and initiation of mergers, acquisitions and/or divestments where required. The outcome of the review exercise shall be placed before the Board to determine the next course of action best suited for the interest of the stakeholders.”
Betting big on healthcare
HGS reported a 65.6 percent year-on-year rise in consolidated net profit at Rs 81.3 crore, its highest ever, in the September 2020 quarter. The stock has risen 21 percent in the last month.
For the firm, healthcare is a major contributor to its overall revenues. Some of the other business verticals include insurance, technology, telecom, consumer and retail.
Its healthcare vertical grew 10.8 percent year-on-year to Rs 739.5 crore in the September quarter. The company registered a 9.4 percent overall growth in revenue in the quarter at Rs 1,332.6 crore.
“Healthcare has always been a strong performer. We are also seeing growth coming from technology clients and the UK public sector,” HGS CEO Partha DeSarkar told Moneycontrol in an interview on November 10.
He said the firm could be a beneficiary with affordable healthcare being one of the key focus areas of the Biden administration in the US. The company is also looking at acquisitions, primarily in the digital space, he said.
As of September 30, 2020, HGS had 235 core BPM (business process management) clients and 699 HRO ( human resources outsourcing/payroll processing) clients. Its headcount stood at 39,578 at the end of the second quarter
In November 2019, Hinduja Global Solutions announced the sale of its India customer relationship management business to BPO operator Altruist India.
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