In a conversation with Moneycontrol, CEO Partha DeSarkar spoke about HGS' business performance and the reasons that dragged down some numbers.
Business process management firm Hinduja Global Solutions's (HGS) second quarter numbers, declared on November 5, showed an 11.10 percent sequential rise in net profit to Rs 44.8 crore and a 5.2 percent sequential rise in revenues to Rs 1158.6 crore.
The company's numbers, helped by demand in two of its verticals, show its EBITDA margin at 6.70 percent. In a conversation with Moneycontrol, CEO Partha DeSarkar spoke about HGS' business performance and the reasons that dragged down some numbers.
Q: How do you feel about the results and what stands out for you during the quarter?
A: I would say this quarter has been a mixed bag. Our organic business has done very well. The rupee has also helped. The foreign exchange impact on our growth is about 7.9 percent on a year-on-year basis.
Our organic growth numbers would be at about 10.2 percent
What is diluting the earnings are two factors— one being the India domestic business and telecom pressures, which are causing volumes to dramatically reduce. Also, utilisation is very poor.
On top of that, in some states, the government has abruptly raised the minimum wage without any consultation with the industry, or any time to adjust our pricing with our clients. The matter is sub-judice so I won't comment on it more.
The other dilution is coming from our AxisPoint acquisition (a health management company bought in March). While we did factor in that it would be earnings dilutive in the first one year, but losses are higher than we had thought.
We are working on some solutions and the picture should be clearer by the third quarter. The second half will be better than the first half, and there has been a substantial dilution in our earnings for the first half.
Q: The issue of lower volumes in telecom — is it due to greater automation or lesser human intervention on the interactive voice response (IVR) side?
A: I think that is only a part of it. The larger part of it is coming from the fact that because of a new entrant coming in (in India’s telecom sphere), most of the incumbents have reviewed their products.
Where earlier companies had hundreds of such plans, they've now reduced the price plans to a few. A large chunk of these volumes was from customers looking to understand what these various price plans are. A reduction in the number of plans could have correlated to a reduction in volumes.
Q: I understand healthcare is your biggest vertical (51 percent this quarter). Are you concerned about the overdependence on healthcare?
A: It is a strategic intent to do the most business in healthcare because it is a large portion of the US economy running into several trillions of dollars. So it just makes good business sense.
The downside is the risk of regulation, which could be anti-offshoring, which has been popular these days. We have a good onshore practice so that's one of the things we have done — to de-risk our healthcare concentration.
The onshore component was pretty small about three years back, but it has grown pretty handsomely and is about $20-25 million now.
While it is small compared to our offshore businesses, but its a start. I think if we were are able to grow our onshore footprint, any risk that may come because of regulation, impacting offshoring of those businesses will actually go away.
Q: What is the kind of skill profile you are looking at?
A: We have actually upped the talent profile. Today we are hiring nurses to be able to help us in new age areas where we are trying to build in the clinical space and in the population health management space. We have medical directors, we are bringing in PhDs and medical analytics professionals.
You don't need these skill sets in large numbers because these are very high-end. That is exactly what AxisPoint does. It gives us this high-end capability.
Q: Are you comfortable with margins at the current levels?
A: It will improve. I think you see the margin being at this level because of what you're seeing in the India domestic space. Obviously we are not happy with the margins levels that we are at.
As we work through AxisPoint and figure out what to do with India domestic bsuiness, I would say that this is the lowest point at which our margins ever could be. Obviously we don't like to work with these kinds of margins.
Once these few headwinds work themselves out, I think we'll be in a better position.
Q: On the hiring side, are you looking to hire more less in the coming quarter or the second half?A: It is very mixed. We are hiring onshore because we are growing there. But because of the telecom pressures, we are having to downsize some of our teams because utilisation is so poor in telecom. The net addition to headcount will be almost negligible.