Hinduja Global Solutions Ltd:Future growth prospects and outlook

Scripscan:Hinduja Global Solutions Ltd
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Code:532859

Story:Over the last few quarters Hinduja Global has proved the robustness of its business model in a very competitive and challenging environment. We expect the growth trend to continue for the next few years with sales expected togrow by at least 25% YoY, accompanied with improving margins on account ofproductivity gains and larger base.In FY10 HGSL is expected to grow its revenues at 30%, without taking into account any inorganic growth. The business is seeing growth on account oframp up in Manila and addition of few customers. On the margin front, therebe slight expansion to the range of 19%. We expect the company to clockrevenue of Rs1030cr and Net profit of Rs140cr. In FY11, we expect the growth momentum to continue.HTMT is on a steady growth track and we expect an inflexion in growth ratefrom here, if the international acquisitions are done as planned. Due to lack ofvisibility on acquisition front, we have only factored organic growth in ourestimates. We have arrived at a target price of Rs606 by averaging prices estimated using twomethods for valuation.We are valuing the company on SOTP basis- the business separately and thecash on slight discount.The business equity is conservatively valued atEV/EBITDA of 5x FY10 at Rs843cr, per share value of Rs411. While the cash onbooks (based on audited numbers) we are valuing at 25% discount at Rs505cr orper share value of Rs246.Thus the SOTP target price comes to Rs658On the other hand we have valued the consolidated entity on PE multiple of 8xFY10 earnings, given the low ROEs they earn. The target price in this case isRs555.So buy it for a target of over 550rs for a period of 4-6 months.