CRISIL IER Independent Equity Research

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1 CRISIL IER Independent Equity Research Enhancing investment decisions Hinduja Global Solutions Ltd Q3FY17 Results Update

2 Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (1-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-1% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 1-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) Research Analysts Bhaskar Bukrediwala bhaskar.bukrediwala@crisil.com Sayan Das Sharma sayan.sharma@crisil.com Client servicing desk clientservicing@crisil.com

3 Strong Downside Strong Upside Fundamental Grade Hinduja Global Solutions Ltd Healthcare segment continues to drive revenue growth Fundamental Grade: 3/5 (Good fundamentals) Valuation Grade: 4/5 (CMP has upside) April 1, 217 Industry: IT services Fair Value: 76 CMP: 58 Hinduja Global Solutions Ltd s (HGSL s) Q3FY17 consolidated earnings were above CRISIL Research s expectations. Revenue, in rupee terms, increased 8.3% y-o-y to 9,563 mn. Growth was entirely organic as there was no foreign exchange-related gains during the quarter. EBITDA margin expanded 33 bps y-o-y to 12% on account of higher utilisation. Consequently, PAT increased 176% y-o-y to 472 mn. Going forward, client additions and foray into upcoming service segments in the digital and automation space are expected to drive revenue growth. However, US policy stance with respect to the affordable Healthcare Act (key driver for the healthcare business) and outsourcing are key monitorables. We maintain our fundamental grade of 3/5. Revenue driven by healthcare segment and Indian client wins The healthcare segment (47.3% of total sales) continued to post healthy growth, with revenue up 25.4% y-o-y. This was mainly led by increased business from existing clients aided by open enrolment season in the US. Telecom revenue (22.4% of total sales) declined 16.6% y-o-y owing to growth challenges in the UK and Canada. Consumer electronics, media and financial services segments posted growth of 12.7%, 26% and 12.4%, respectively. The company added six new clients across verticals during the quarter. In the long-run impact of Brexit on the UK and European operations, ability to ramp up the Canadian operations and key policy announcements by the US administration are key monitorables. Ramp-up in utilisation and higher offshore revenue to boost margins Operating margin expanded 33 bps y-o-y to a two-year high of 12%, aided by increased utilisation across geographies coupled with rise in share of revenue from offshore operations, which fetches higher margins. New value-added offerings in healthcare, digital and automation segments are likely to drive margin expansion in the long run. We expect operating margin to expand 16 bps over FY However, optimal utilisation of onshore facilities in Canada, the US and Europe/UK is a monitorable. Fair value increased to 76 We have raised our FY17 and FY18 earnings estimates and rolled forward projections by one year. As a result, our discounted cash flow (DCF)-based fair value is increased to 76 from 675 per share. At the current market price of 58, our valuation grade is 4/5. KEY FORECAST (CONSOLIDATED) ( mn) FY15 FY16 FY17E FY18E FY19E Operating income 28,79 33,282 37,854 42,928 46,363 EBITDA 3,116 3,177 4,331 4,741 5,166 Adj net income 1,611 1,5 1,85 1,997 2,159 Adj EPS ( ) EPS growth (%) (3.4) (37.6) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) CMP: Current market price; estimates CFV MATRIX KEY STOCK STATISTICS NIFTY/SENSEX 9181/29576 NSE/BSE ticker HGS Face value ( per share) 1 Shares outstanding (mn) 2.7 Market cap ( mn)/(us$ mn) 12,19/187 Enterprise value ( mn)/(us$ mn) 15,921/ week range ( )/(H/L) 637/376 Beta 1. Free float (%) 32.4% Avg daily volumes (3-days) 2,42 Avg daily value (3-days) ( mn) 12. SHAREHOLDING PATTERN 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Excellent Fundamentals Poor Fundamentals Valuation Grade 32.3% 32.3% 32.3% 32.4% 67.7% 67.7% 67.7% 67.6% Mar-16 Jun-16 Sep-16 Dec-16 Promoter Public PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m HGSL -5% 9% 4% 46% Nifty 5 4% 13% 7% 27% For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

4 Q3FY17 Results Summary (Consolidated) ( mn) Q3FY17 Q2FY17 Q3FY16 q-o-q (%) y-o-y (%) 9MFY17 9MFY16 y-o-y (%) Net sales 9,563 9,52 8, ,71 24, Employee cost 6,352 6,67 5, ,456 16, Employee cost (% of net sales) 66.4% 67.% 67.8% -6 bps -142 bps 66.6% 68.2% -156bps Other expenses 2,66 2,21 2, (.4) 6,78 5, EBITDA 1, ,175 2, EBITDA margin 12.% 1.7% 8.7% 132 bps 33 bps 11.5% 9.% 248bps Depreciation (5.) (6.1) 1,63 1, 6.2 EBIT ,113 1, Interest and finance charges (6.6) Operating PBT , Other Income (21) NM PBT ,966 1, Tax PAT , PAT margin 4.9% 4.1% 1.9% 8 bps 3 bps 4.9% 2.7% 224bps No of equity shares (mn) EPS ( ) Note: The above quarterly numbers as reported by the company under IND-AS. However, projections are as per IGAAP Media and healthcare verticals grew the fastest during the quarter ( mn) Q3FY17 Q2FY17 Q3FY16 q-o-q (%) y-o-y (%) 9MFY17 9MFY16 y-o-y (%) Telecom & technology 2,143 2,165 2,569 (1.) (16.6) 6,545 6, Health insurance 4,521 4,33 3, ,497 9, Consumer electronics 1,283 1,236 1, ,832 3, BFS ,22 1, Media (7.4) Chemicals & biotech (.6) (3.1) Others (7.8) (3.6) 1,62 1,68.7 Business from Indian clients registered strong growth ( mn) Q3FY17 Q2FY17 Q3FY16 q-o-q (%) y-o-y (%) 9MFY17 9MFY16 y-o-y (%) The US originated business 6,545 5,93 5, ,345 15, Canada originated business ,2 (.6) (6.7) 2,991 3, The UK originated business ,11 (18.2) (3.) 2,513 2, India originated business 1,359 1,3 1, ,863 2, Revenue by delivery centres ( mn) Q3FY17 Q2FY17 Q3FY16 q-o-q (%) y-o-y (%) 9MFY17 9MFY16 y-o-y (%) The US 2,83 2,526 2, ,876 7, India 3,333 3,73 2, ,337 6, Canada (2.3) (6.3) 2,915 3, The Philippines 1,789 1,642 1, ,42 4, Europe ,11 (18.2) (3.) 2,513 2, The Middle-East

5 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 7,325 7,68 7,388 7,89 8,829 9,139 9,95 9,52 9,563 Revenue and margin up y-o-y and q-o-q ( mn) 12, 1, 8, 6, 4, 2, 12.3% 1.8% 1.7% 11.7% 12.% 1.7% 9.8% 8.7% 7.4% Net Sales EBITDA margin (RHS) PAT up on higher operating margin ( mn) % 5.8% 5.7% 4.9% 4.% 4.5% 4.1% 1.9% 2.2% Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 PAT PAT margin (RHS) 14% 12% 1% 8% 6% 4% 2% % 8% 7% 6% 5% 4% 3% 2% 1% % Healthcare remains largest vertical for HGSL 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 2% 2% 2% 2% 2% 2% 2% 2% 3% 3% 3% 2% 7% 7% 7% 7% 7% 7% 7% 6% 7% 5% 6% 6% 15% 13% 12% 14% 14% 13% 25% 29% 26% 25% 24% 22% 42% 41% 43% 43% 45% 47% Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Healthcare Telecom & Technology Consumer Electronics Others BFS Media Chemicals & Biotech Client concentration high - top 5 constitute 5% of sales 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 73% 72% 74% 72% 73% 72% 6% 6% 61% 6% 61% 61% 45% 45% 45% 47% 49% 5% 17% 16% 16% 17% 18% 18% Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Top Client (%) Top 5 Clients (%) Top 1 Clients (%) Top 2 Clients (%) Share price Fair value since initiation 16 ( ) (') ,2 1, Jan-8 Aug-8 Mar-9 Oct-9 -Indexed to 1 May-1 Nov-1 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 HGSL NIFTY 5 Sep Jan-14 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 May-15 Aug-15 Nov-15 Apr-16 Jul-16 Oct-16 Jan Total Traded Quantity (RHS) CRISIL Fair Value HGSL Source: NSE, CRISIL Research Source: NSE, BSE, CRISIL Research 3

6 Valuation Grade: 4/5 We have raised our FY17 and FY18 earnings estimates and rolled forward projections by one year. As a result, our DCF-based fair value is increased to 715 from 684 per share. From the DCF value we deducted 9, which represents contingent liability risk, to arrive at a fair value of 76. The fair value implies P/E multiples of 7.6x FY18E and 7.1x FY19E earnings. At the current market price of 58, our valuation grade is 4/5. One-year forward P/E band ( ) 1,2 1, Apr-8 Oct-8 May-9 Dec-9 Jul-1 Jan-11 Aug-11 Mar-12 Oct-12 Apr-13 Nov-13 Jun-14 Jan-15 Aug-15 Sep-16 HGSL 2x 4x 6x 8x 1x Source: NSE, CRISIL Research P/E premium / discount to Nifty 5 One-year forward EV/EBITDA band ( mn) 25, 2, 15, 1, 5, -5, Apr-8 Oct-8 May-9 Dec-9 Jul-1 Jan-11 Aug-11 Mar-12 Oct-12 Apr-13 Nov-13 Jun-14 Jan-15 Aug-15 Sep-16 EV 1x 2x 3x 4x Source: NSE, CRISIL Research P/E movement % -1% (Times) 14-2% -3% -4% -5% -6% -7% -8% -9% Apr-8 Oct-8 May-9 Dec-9 Jul-1 Jan-11 Aug-11 Mar-12 Oct-12 Apr-13 Nov-13 Jun-14 Jan-15 Aug-15 Premium/Discount to Nifty 5 Median premium/discount to Nifty 5 Sep Apr-8 Oct-8 May-9 Dec-9 Jul-1 Jan-11 Aug-11 Mar-12 1yr Fwd PE (x) Oct-12 Apr-13 Nov-13 Jun std dev -1 std dev Jan-15 Aug-15 Sep-16 Median PE Source: NSE, CRISIL Research Source: NSE, CRISIL Research 4

7 CRISIL IER reports released on Hinduja Global Solutions Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 28-Feb-14 Initiating coverage 3/ / May-14 Q4FY14 result update 3/5 64 5/ Aug-14 Q1FY15 result update 3/5 64 3/ Dec-14 Q2FY15 result update 3/5 64 3/ Feb-15 Q3FY15 result update 3/ / Apr-16 Detailed report 3/ / Jun-16 Q4FY16 result update 3/ / Aug-16 Q1FY17 result update 3/ / Jan-17 Q2FY17 result update 3/ / Q3FY17 result update 3/5 76 4/5 58 5

8 Annexure: Financials (Consolidated) Income statement Balance Sheet ( mn) FY15 FY16 FY17E FY18E FY19E ( mn) FY15 FY16 FY17E FY18E FY19E Operating income 28,79 33,282 37,854 42,928 46,363 Liabilities EBITDA 3,116 3,177 4,331 4,741 5,166 Equity share capital EBITDA margin 11.1% 9.5% 11.4% 11.% 11.1% Reserves 1,535 11,576 12,926 14,125 15,42 Depreciation and amortisation 1,52 1,364 1,399 1,642 1,892 Minorities EBIT 2,64 1,813 2,933 3,99 3,274 Net worth 1,742 11,783 13,134 14,332 15,628 Interest Convertible debt Operating PBT 1,678 1,412 2,475 2,688 2,928 Other debt 6,41 8,399 6,614 6,14 5,514 Other income Total debt 6,41 8,399 6,614 6,14 5,514 Exceptional inc/(exp) (123) Deferred tax liability (net) (32) PBT 1,736 1,559 2,623 2,87 3,13 Total liabilities 17,12 2,196 19,761 2,359 21,155 Tax provision Assets Minority interest Net fixed assets 4,264 5,159 5,81 6,168 6,776 PAT (Reported) 1,488 1,1 1,85 1,997 2,159 Capital WIP Less: Exceptionals (123) Total fixed assets 4,368 5,479 5,831 6,189 6,797 Adjusted PAT 1,611 1,5 1,85 1,997 2,159 Investments Current assets Ratios Inventory FY15 FY16 FY17E FY18E FY19E Sundry debtors 5,657 5,143 5,845 6,827 7,373 Grow th Loans and advances 3,498 5,76 3,785 4,293 4,636 Operating income (%) Cash & bank balance 3,51 3,715 4,543 4,16 3,78 EBITDA (%) (7.) Marketable securities Adj PAT (%) (2.9) (37.6) Total current assets 12,753 14,72 14,275 15,328 15,82 Adj EPS (%) (3.4) (37.6) Total current liabilities 3,578 4,35 4,377 5,189 5,493 Net current assets 9,175 1,685 9,899 1,139 1,327 Profitability Intangibles/Misc. expenditure 3,461 3,893 3,893 3,893 3,893 EBITDA margin (%) Total assets 17,12 2,196 19,761 2,359 21,155 Adj PAT Margin (%) RoE (%) Cash flow RoCE (%) ( mn) FY15 FY16 FY17E FY18E FY19E RoIC (%) Pre-tax profit 1,859 1,555 2,623 2,87 3,13 Total tax paid (577) (55) (774) (872) (943) Valuations Depreciation 1,52 1,364 1,399 1,642 1,892 Price-earnings (x) Working capital changes (24) (1,291) 1,614 (677) (585) Price-book (x) Net cash from operations 2,311 1,123 4,862 2,962 3,466 EV/EBITDA (x) Cash from investments EV/Sales (x) Capital expenditure 2,25 (2,97) (1,75) (2,) (2,5) Dividend payout ratio (%) Investments and others (2) (37) Dividend yield (%) Net cash from investments 2,5 (2,944) (1,75) (2,) (2,5) Cash from financing B/S ratios Equity raised/(repaid) Inventory days Debt raised/(repaid) 67 1,99 (1,785) (6) (5) Creditors days Dividend (incl. tax) (494) (374) (499) (799) (864) Debtor days Others (incl extraordinaries) (4,929) 47 () - Working capital days Net cash from financing (5,32) 2,26 (2,284) (1,399) (1,364) Gross asset turnover (x) Change in cash position (1,4) (437) (398) Net asset turnover (x) Closing cash 3,51 3,715 4,543 4,16 3,78 Sales/operating assets (x) Current ratio (x) Debt-equity (x) Net debt/equity (x) Quarterly financials Interest coverage ( mn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 EBIT/Interest (x) Net Sales 8,829 9,139 9,95 9,52 9,563 EBITDA/Interest (x) Change (q-o-q) 12% 4% % % 6% EBITDA , ,145 Per share Change (q-o-q) -1% 28% 9% -1% 19% FY15 FY16 FY17E FY18E FY19E EBITDA margin 8.7% 1.7% 11.7% 1.7% 12.% Adj EPS ( ) PAT CEPS Adj PAT Book value Change (q-o-q) -45% 138% 27% -28% 26% Dividend ( ) Adj PAT margin 2% 4% 6% 4% 5% Actual o/s shares (mn) Adj EPS Source: CRISIL Research 6

9 CRISIL Research Team Senior Director Nagarajan Narasimhan CRISIL Research Analytical Contacts Prasad Koparkar Senior Director, Industry & Customised Research Binaifer Jehani Director, Customised Research Manoj Damle Director, Customised Research Jiju Vidyadharan Director, Funds & Fixed Income Research Ajay Srinivasan Director, Industry Research Rahul Prithiani Director, Industry Research Bhaskar S. Bukrediwala Director Miren Lodha Director Business Development Prosenjit Ghosh Director, Industry & Customised Research Megha Agrawal Associate Director Dharmendra Sharma Associate Director (North) Ankesh Baghel Regional Manager (West) Sonal Srivastava Regional Manager (West) Sarrthak Sayal Regional Manager (North) Priyanka Murarka Regional Manager (East) Sanjay Krishnaa Regional Manager (Tamil Nadu & AP)

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