Rating Rationale
November 09, 2017 | Mumbai
Hinduja Global Solutions Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.363 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.125 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper programme of Hinduja Global Solutions Limited (HGSL).
 
The ratings continue to reflect the company's healthy business risk profile, supported by presence in diverse verticals and geographies, and sound financial risk profile driven by comfortable debt protection metrics and adequate liquidity. These strengths are partially offset by geographical and customer concentration in revenue, susceptibility to volatility in foreign exchange (forex) rates, and exposure to intense competition in the business process management (BPM) industry.
 
Revenue grew 11.5% in fiscal 2017 over the previous fiscal led by growth in the healthcare vertical (accounted for 46% of revenue), stabilisation of operations in Canada, and integration of acquired entities, which grew 7% between fiscals 2014 and 2017. Over the medium term, growth is expected at 8-10% driven by increased focus on emerging sectors and stabilisation of acquired entities after integration of operations.
 
Operating profitability improved to 11.4% in fiscal 2017 from 9.4% in the previous fiscal due to stability in Canadian operations and disengagement from non-profitable centres, and is expected at a similar level over the medium term. Financial risk profile should remain healthy in the absence of any large debt-funded capital expenditure (capex) or acquisition.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of HGSL and all its subsidiaries, held directly or indirectly, as the entities share a common management and are in the same business. CRISIL has amortised the goodwill arising from acquisitions over 10 years.

Key Rating Drivers & Detailed Description
Strengths
* Diversified business risk profile: Business risk profile is supported by diversified clientele across geographies, and presence of delivery centres in 7 countries and in multiple verticals such as healthcare, telecom, consumer products, and banking & financial services, to cater to flexible client requirements. On boarding of new clients in e-commerce and media segments should bolster revenue. CRISIL believes HGSL will maintain healthy revenue growth of 8-10% over the medium term, backed by its strong position as a diversified market player.
 
* Healthy financial risk profile: Debt repayment and absence of large, debt-funded capex has helped HGSL sustain healthy capital structure, indicated by gearing of below 1.0 time over the past 5 fiscals (0.49 time as on March 31, 2017). Debt protection metrics are also strong, with healthy net cash accrual to total debt ratio of 0.46 time and interest coverage ratio of 10.27 times during fiscal 2017. Liquidity is likely to remain healthy over the medium term because of net cash accrual of above Rs 300 crore and prudent capex funding.
 
Weaknesses
* High geographical and customer concentration in revenue: HGSL derived 78% of its revenue from the US and Canada in fiscal 2017, and the rest from India and the UK. The geographical concentration in revenue, especially from the US which accounts for 67%, exposes HGSL to risks relating to economic slowdown in the region and to volatility in the value of the Indian rupee against the US dollar. Also, customer concentration risks persist, despite a customer base of 183 (excluding the payroll business). During fiscal 2017, the top client contributed 18% to revenue while the top five contributed 52%. CRISIL believes HGSL's revenue will remain concentrated in the US and Canada over the medium term, driven by the healthcare and telecom segments.
 
* Intensifying competition impacts price flexibility and cost management: The information technology enabled services industry is highly competitive. Service quality, price, reliability, breadth of services, and data security technology determine margins. Competition comes from other established players such as Genpact, WNS (Holding) Ltd, and Firstsource Solutions Ltd ('CRISIL A-/Stable/CRISIL A2+'). Also, increasing wages and costs associated with hiring, training, and retaining talent pose challenges for adequate staffing and seat utilisation. HGSL's profitability will remain susceptible to intensifying competition and rising cost.
Outlook: Stable

CRISIL believes HGSL's business risk profile will be supported by its established client relationships over the medium term, while its financial risk profile will remain strong supported by increasing cash accrual and healthy cash reserve.
 
Upside scenario:
* Significant improvement in operating performance, supported by sustained revenue growth and profitability.
* Continued healthy financial risk profile, backed by improved liquidity.
 
Downside scenario:
* Sustained decline in profitability.
* Larger-than-expected, debt-funded acquisition or investments in group companies, weakening capital structure or debt protection metrics.

About the Company

HGSL is a part of the Hinduja group, which includes Ashok Leyland Ltd, IndusInd Media and Communications Ltd, and IndusInd Bank Ltd ('CRISIL AA+/Stable/CRISIL AA/Stable/CRISIL A1+'). HGSL provides business process outsourcing (BPO) services, primarily back-office processing and contact centre services, to domestic and international clients. As on March 31, 2017, it had 68 delivery centres in 7 countries, and 44,237 employees.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs Crore 3711 3321
Profit after tax (PAT) Rs Crore 179 100
PAT margin % 4.8 3.0
Adjusted debt/adjusted networth Times 0.49 0.67
Interest coverage Times 10.27 8.30

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs cr) Rating assigned with outlook
NA Term loan NA NA Aug-18 25.00 CRISIL A+/Stable
NA Cash credit* NA NA NA 100.00 CRISIL A+/Stable
NA Cash credit* NA NA NA 100.00 CRISIL A+/Stable
NA Proposed working capital facility NA NA NA 50.00 CRISIL A+/Stable
NA Proposed long-term bank loan facility NA NA NA 13.00 CRISIL A+/Stable
NA Packing credit NA NA NA 75.00 CRISIL A1+
NA Commercial paper NA NA 7-365 Days 125.00 CRISIL A1+
*Interchangeable with post-shipment credit and other WC financing instruments
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  125  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  363  CRISIL A+/Stable/ CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A+/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST    --    --    --    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit* 200 CRISIL A+/Stable Cash Credit# 100 CRISIL A+/Stable
Packing Credit 75 CRISIL A1+ Packing Credit^ 95.5 CRISIL A+/Stable
Proposed Long Term Bank Loan Facility 13 CRISIL A+/Stable Packing Credit 75 CRISIL A1+
Proposed Working Capital Facility 50 CRISIL A+/Stable Term Loan 92.5 CRISIL A+/Stable
Term Loan 25 CRISIL A+/Stable -- 0 --
Total 363 -- Total 363 --
*Interchangeable with post-shipment credit and other WC financing instruments 
#Interchangeable with post-shipment credit of Rs 45 crore and LC limit of Rs 10 crore
^Interchangeable with CC limits of Rs 25 crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Software Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000
 jyoti.parmar@crisil.com

Anuj Sethi
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 44 6656 3100
anuj.sethi@crisil.com


Akshay Chitgopekar
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8309
akshay.chitgopekar@crisil.com


Yatinder Prasad
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8221
Yatinder.Prasad@crisil.com
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com


 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is an agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers.

We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com 


Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL PRIVACY NOTICE

CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view the Company’s Customer Privacy at https://www.spglobal.com/privacy

Last updated: April 2016


DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL