Hinduja Global Solutions Limited (HGS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Hinduja Global Solutions Q4 FY '20 and FY 2020 Post-Results Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. R. Ravi, Vice President, Head of Investor Relations. Thank you, and over to you, sir.

Thank you, Faizan. Thank you, ladies and gentlemen. I, R. Ravi, Head of Investor Relations at HGS, wishing all a very good evening and a warm welcome to the fourth quarter and the financial Year 2020 post-results conference call. We discuss the quarter 4 and the full year results, I'm joined by Mr. Partha DeSarkar, Executive Director and Chief Financial Officer; and Mr. Srinivas Palakodeti, the Global CFO. Before we begin the conference call, I would like to mention that some of the statements made and during the course of today's conference call may be forward-looking in nature, including those related to the future financial and operating performances, benefits and synergies of the company's strategies, future opportunities and the growth of market of the company's service and solutions. Further, I would like to mention that some of the statements made in today's conference call may be forward-looking in nature and may involve risks and uncertainties. Before I hand over the call to Mr. Partha DeSarkar, HGS will be declaring its quarter 1 FY 2021 results. So requesting the participants to ask questions pertaining to Q4 2020 and full FY '20 financials and business performance. Now I would like to invite Mr. Partha DeSarkar to provide perspective on the performance for the fourth quarter and for the full year FY 2020. Over to you, Mr. Partha.

Thank you, Ravi. Before I go deeper in the results, if you guys can hear me early?

Yes. Hear you very clear.

Okay. A very good afternoon to all of you, and thank you for joining us on the call today to discuss our fourth quarter and full year FY 2020 financials and business performance. I hope you have had an opportunity to review our earnings press release and the attendant fact sheets of the reported financials, which are available under the Investors section on our website, www.teamhgs.com as well as on other BSE and NSE websites. I would like to begin the call with a brief overview of the financials of quarter 4 FY 2020 and full year fiscal year 2020 followed by strategic initiatives and operational performance. After that, I'll hand over the call to our CFO, Mr. Srinivas Palakodeti, to discuss the financial performance in greater detail. We will then open the conference call for the Q&A session. You may have been wondering why there has been a delay in HGS' announcing its results for quarter 4 FY 2020. We are faced with severe disruptions in our operations due to COVID-19 pandemic towards the end of quarter 4 2020. But we're able to restore our operations fairly quickly by shifting a majority of our workforce to work from home. The imposition of the lockdown from March onwards also saw disruptions in our administrative functions as well. As a result of the consolidation of account closing, our books and subsequent processes have taken much longer than usual. But going forward, we expect to declare results broadly as per the schedule that we have followed in our earlier years. I want to talk to you a little bit about the COVID-19, our response to this pandemic. Let me give you a brief overview of how we have dealt with the COVID pandemic and the disruption. Most of our offices are closed. And we are taking this call from our respective homes. So please pardon us if the audio quality of this call is not up to the market. In order to ensure continuity of our services to our clients, HGS setup a quick response team with representatives from key functions and leadership in March 2020 to respond to the ever-changing situation across the various countries where we operate. On a priority basis, the quick response team interacted with our clients for getting all necessary approvals, consents and simultaneously organized computers and connectivity to enable agents to work from home. As our onshore and offshore centers had to operate at reduced capacity on account of lockdowns and social distancing guidelines, our first focus and emphasis was to deploy work from home across all our geographies. Currently, a significant part of our workforce is working from home and the rest are working from our delivery centers and client location, while following applicable social distancing norms. We have set up working groups and sub work teams to seamlessly integrate and frequently fine-tune the newly devised distributed operating model or work from home and the in-office model. Some of the details of what our teams are working on. The client services teams are constantly in touch with our clients to address their concern with our delivery capabilities in the new virtual model. The operations team are ably managing operations through a combination of remote and office-based delivery. There is significant focus on aspects such as productivity, quality, confidentiality and network security. At the same time, our agents' health is, of course, the first priority for all of us. You are aware that HGS was offering work-from-home solution with around 1,000 employees in North America for a few clients much before the pandemic. The expertise and the best practices developed over the last couple of years has helped us significantly today. Recently, we set up a center of excellence for enhancing work-from-home capabilities at a global level as we foresee that work from home will play a bigger role in the post-COVID era, too. I want to confirm that I'm still audible.

Yes, yes.

Okay. There's been a big shift in how we engage with our employees right from virtual hiring across geographies and remote training, be it onboarding training or functional skills. Or driving employee engagement, motivation and well-being through multiple touch points and communication. Despite the disruption caused due to the lockdowns and the social distancing norm, I'm very proud of how our employees across geographical locations are showcasing their commitment to deliver quality services to clients from their respective homes. They have often gone beyond the contracted SLAs to help our clients manage their customers' expectations in a dynamic situation. In the initial period of the pandemic, some even stayed back in office for extended periods of time to ensure that the services to our clients remained uninterrupted. We have received very good feedback from our clients about the team's resilience and attitude while attending customer queries. I believe that HGS has done an outstanding job during this period, and our performance will help us expanding our engagement with our existing and new clients. However, a word of caution. The situation is still fluid. The virus is far from being under control and has continued to impact lives and economies all over the world. While people have learned to adapt to this situation, there are still significant uncertainties ahead. We will have to remain very vigilant and fleet suited that we safeguard our employees, our clients and our business in this rapidly evolving times. Now coming to the specifics of our quarter 4 FY 2020 financial performance. Despite COVID-19-related disruption, and in March, we posted a good performance in the quarter. The revenues for quarter 4 FY 2020 were INR 13,186 million, a year-on-year growth of 2.6%. The reported revenue growth was 2.6% despite exchange rate variation of about 3.8% due to businesses that we have exited. You may recall that HGS exited the India domestic CRM business in end January 2020. Further, during the period of February '19 and July '19, HGS had some revenues, which were passed through in nature. On a like-to-like basis, excluding the impact of the businesses that we have exited, quarter 4 FY 2020 saw a constant currency revenue growth of 11%, comprising 6.9% of organic growth and 4.1% on account of exchange fluctuation. EBITDA for quarter 4 2020 grew by 26.4% over quarter 3 FY 2020 to INR 1,881 million. The EBITDA margin stood at 14.3% compared to 11.6% in quarter 4 FY 2020. Profit after tax for quarter 4 FY 2020 was INR 448 million, 17.8% lower than quarter 4 FY 2019. The drop in PAT was due to impact of Ind AS 116, some onetime exceptional items and some changes in deferred tax. Excluding this one-off tax, the profit after tax would have been INR 660 million. Mr. Palakodeti will go over this detail in his section. Talking about the full year FY 2020 showed a strong revenue growth led by a traction across both health care and consumer engagement services. During FY '19, we sold some contracts of the GuidePoint business of HGS AxisPoint. And in FY 2020... [Technical Difficulty]

Sorry to interrupt you. Sir, this is the operator. The audio is not clear from your line, sir.

Is this any better?

Yes, sir. Thank you.

Yes.

Okay. So do you want to go over something that I've heard in past... [Technical Difficulty]

Hello?

Ravi, do you want me to repeat anything that I said earlier? Or shall I continue from where I am now?

I think the last paragraph can be repeated, if you don't mind.

The profit after tax paragraph?

Yes, yes, yes.

Okay. So let me repeat. Profit after tax for quarter 4 FY 2020 was INR 448 million, 17.8% lower than quarter 4 FY 2019. The drop in profit after tax was due to impact of Ind AS 116, sequential impact on exceptional items and certain in deferred tax. Excluding this one-off items, the profit after tax would have been INR 660 million. Mr. Palakodeti will go over this in detail in his section. Now coming to the financial highlights of FY 2020. We showed a strong revenue growth led by traction across both health care and consumer engagement services. During FY '19, we saw different contracts of the GuidePoint business of HGS AxisPoint. And in FY 2020, we told the India domestic CRM business. On a like-to-like basis, excluding the impact of pass-through revenues and organic growth of 9.8%. Due to the business exits during the course of the year, the reported revenue growth was 8.7% after factoring favorable exchange variation of 1.9%. The FY 2020, EBITDA grew by 62.4% year-on-year to INR 7,165 million. Revenue in segments were driven by improved performance of our businesses in India, Jamaica, the U.S., Canada... [Technical Difficulty] AxisPoint Health, also reported significantly lower losses in FY 2020 as compared to FY 2019 the introduction of Ind AS 116, also led to the improvement of EBITDA in FY... [Technical Difficulty]

Sorry to interrupt. Sir, this is the operator. Sir, again, the audio is not clear from your line. So I would request you please repeat the last part.

In FY 2020, the EBITDA grew by 62.4% year-on-year to touch INR 7,165 million. The EBITDA improvement was driven by improved performance in our businesses in India, Jamaica, the U.S., Canada and Element Solutions LLC, which is now known as HGS Digital LLC. AxisPoint Health also reported significantly lower losses in FY 2020 compared to FY 2019. The introduction of Ind AS 116 also led to improvement of EBITDA in FY 2020. Overall EBITDA margins stood at 13.7% for the year as compared to 9.2% in FY '19. Confirming, am I clear now?

Yes, yes. You're clear, Partha.

Okay. PAT for FY 2020 was INR 2,056 million, the growth of 16.6% year-on-year. Do note that the PAT of INR 2,056 million has been achieved after exceptional onetime items of INR 211 million and an adverse impact of Ind AS 116. The EPS growth for the year was also 16.6%. The sale of the India domestic CRM business was completed before the... [Technical Difficulty] During the quarter 3, HGS signed a business transfer agreement on November 28, 2019, that's [Technical Difficulty] the India Domestic CRM business for a consideration of INR 400 million. In addition, the outstanding receivables, rental deposits of facilities in India and other eligible accruals to HGS would be recovered through working capital liquidation. Just to reiterate, as a part of the transaction, HGS transferred 32 client contracts, about 7,000 employees and assets at 9 delivery centers across India. Coming to HGS Digital. Our digital business has performed extremely well, growing around 20.7% to around [Technical Difficulty] HGS revenues in FY 2020. Our digital offerings include analytics, business transformation, robotic process automation, social and digital care. We are seeing increased demand for digital services in the current business environment. Element Solutions LLC, now renamed HGS Digital LLC, is a core part of our digital business and has performed extremely well during FY 2020. Its revenues grew over 18% to reach USD 18.4 million, while EBITDA more than doubled to INR 3.3 million. In April 2018, HGS had acquired [Technical Difficulty] HGS Digital LLC, this out stake subsequently. In November '19, we hiked our stake to 71.33%. AxisPoint Health. During FY 2020, AxisPoint Health recorded revenues of USD 14.14 million, EBITDA loss of USD 10.3 million in FY '19. [Technical Difficulty]

Sir, this is the operator. Sir, there was some audio loss from your line, sir. I would request you to repeat the last part, sir.

Okay. Coming to AxisPoint Health. During FY 2020, AxisPoint Health recorded revenues of $14.4 million, EBITDA loss by USD [Technical Difficulty] million compared with losses of USD 10.3 million in FY '19. The reduction in losses is due to sale of some unprofitable contracts in FY '19 and rationalization of costs. While [Technical Difficulty] the focus on growing revenues and rationalizing costs. The larger health care business continued to perform extremely well during FY 2020. [Technical Difficulty] we continue to service several health care payer and provider clients from onshore delivery locations in the U.S. as well as nearshore offshore delivery centers in Jamaica, India and the Philippines. HGS has developed deep domain expertise in the U.S. health care sector, and we expect to leverage this expertise in other markets, such as U.K. and Europe. Coming to the CES business. Our customer engagement services [Technical Difficulty] telecom, consumer and retail, banking and financial services. The CES business [Technical Difficulty], the U.S., U.K. and Canada. As well as offshore presence in India, Philippines and Jamaica. The performance of our Canadian business continues to improve. After EBITDA losses during FY '16 and FY '17, near breakeven in FY '18, it has turned EBITDA positive in [Technical Difficulty] increased by around 60% to touch CAD 5.6 million. Our Canadian business has been a leader in work from home, and we continue to leverage on this [Technical Difficulty] work-from-home capabilities. The U.S. onshore business did see some profitability challenges in the first half of 2020. The exit [Technical Difficulty] improved the profitability of the U.S. business in the second half of FY 2020. Our U.K. business continues to win public sector business, recent one include supporting a public health care initiative of the U.K. government to combat COVID-19 pandemic. The performance of our top 20 clients was satisfactory, a strong growth in profitable revenues in FY 2020 was led by demand in health care and customer engagement services verticals across geography. While CES has ramped up from recent client wins of previous quarters, the health care business saw a healthy growth driven by strong open enrollment season across U.S., Jamaica, Philippines and India. The revenue from the top client for the financial year FY 2020 was up by [Technical Difficulty] Similarly, revenues from the top 5 clients for FY 2020 was up 11.3% year-on-year. And from the top 10 clients, for the year FY 2020, was up by 8.2% year-on-year. If you include the residual 10, it takes up the top 20 clients wins growth for 2020 to 9.9% year-on-year. Client wins in quarter 4, HGS had 5 new clients across verticals for core BPM services and 7 new clients for HRO payroll processing is mostly in India-centric. During quarter 4, [Technical Difficulty] digital and business transformation deal. Many of our recent contract wins over the last 12 months, especially with existing clients are components of transformation services embedded. We have deployed robotic process automation as a service for some of our clients in the Middle East to be supported from Bangalore and if required from other delivery centers. Taking into account the 32 clients transferred as a result of the sale of the India domestic CRM business, HGS has ended FY 2020 with 221 core BPM clients and 686 HRO payroll clients. It is worth mention out here that we do not have too many clients [Technical Difficulty] these are the 3 sectors that have been impact the maximum in the pandemic. Since our exposure to this sector is very low, we expect the impact of this to be low too. [Technical Difficulty] competitive and profitable. We continue to invest in building new solutions and capabilities in our chosen verticals and markets, technology partnerships with our new value proposition. We have tied up with platform providers in the customer experience transformation space with companies like Twilio, Sprinkler, et cetera. HGS has also strengthened its client-facing teams by bringing in senior leaders to lead business development in various geographies and help build a healthy and sustainable pipeline for non-health care businesses. Nevertheless, health care would continue to be a primary driver of revenue growth. Management deals in the BPM space came with automation and [Technical Difficulty] as an embedded component. It is a trend we are seeing as clients look for partners who can enable them to win in an ever-changing marketplace. The clients want HGS to combine new age technologies with strong domain expertise to deliver enhanced customer experience. Our transformation offerings, our existing clients to fix the snags spaced between front office, mid-office and back office by rendering intelligent automation, machine learning and digital solutions. With work-from-home options being provided currently, this interface will assist clients in executing the B2B and B2C fulfillment of orders. HGS has made progress in getting clients onto the transformation journey, especially with existing clients. This penetration gives us an opportunity in the addressable market as well as work on newer commercial gains at Mongoose. The investments in Element Solutions was to strengthen our capability in the digital domain, and I'm glad to share that Element acquisition has met with a desired objective. We expect the business submission and opportunities would drive higher value-added growth in the coming future. As we see it, HGS is leveraging its capital and technology innovation to India CRM they would deliver backfills and looking at difference to millions of lives every day. We are focused and engaged as this strategic partner in the growth story, we have multiple [Technical Difficulty] confident of the future growth path. To sum it up, the overall state of our core business continued to be strong and has been further strengthened with the divestment of the lower profitable business. On a like-to-like basis, we have been able to report strong revenue growth for the past few quarters. During FY 2020, we have been able to achieve higher EBITDA margins and higher profit after tax. We will continue to review our business portfolio and take appropriate actions to improve the overall profitability of the business. Looking ahead, the uncertainties related to COVID-19 will continue for the better part of FY 2021, and we believe that work-from-home model will continue in the foreseeable future. We are making investments for our work from home and it's achievability. We are looking to increasing leverage technology-led by COVID-19 needs. HGS has realigned its strategy to support this demand. Our service offerings include nurse trial services, work at home and digital services such as social care and DigiBOT to engage with client employees are opening up big opportunities for us. We expect this trend to grow further. The COVID-19 pandemic and our work-from-home capabilities have helped us achieve several wins in both health care and CES verticals, while some of the wins may be of short duration project type in nature. We do expect several of them to convert into long-term contracts. Demand for our services from health care vertical remains strong, and we see strong demand for the open enrollment session in quarter 3 FY 2021. With that, I will now hand over the call to Pala to walk us through our quarter 4 FY 2020 and FY 2020 financials in greater detail. Thank you all once again for being with us on the call today. Over to you, Pala.

Before I start, I want to do a volume check, am I clear and audible?

Yes. Sir, you are audible.

So a very good afternoon to all the participants in the call, and thank you for joining us on our Q4 FY '20 and the full financial year FY 2020 post results earnings discussion. As in the past, we would like to start by stating that further the discussion, EBITDA and EBITDA margins have been computed excluding ForEx losses and gains, which are being considered as part of our other income. As required by auditing standards, we have published our financial results as continuing operations and discontinued operations. The discontinued operations refer to the India domestic CRM business, which we exited in end January 2020. However, for the purpose of this discussion, in terms of revenues, profits, margins, et cetera, we are going to cover them for the company as a whole, are we aggregating continuing operations and discontinued operations. In the past, we have received inquiries about the financials of the standard and operations. So I will give you a quick overview on the quarter which ended just now. The stand-alone operations, some priced operations in India and the HGS brands in Philippines. On a stand-alone basis, for Q4, HGS reported total revenues of INR 5,995 million, including INR 97 million of other operating income, which essentially came from the sale of the India domestic CRM business. Revenue growth over Q4 FY 2019 was up 2%. This growth needs to be seen in the backdrop of the domestic CRM business, with revenues which were available only for 1 month of Q4 as we exited the business in Jan 2020. EBITDA margins of the stand-alone business were 22.1% in Q4 FY 2020 at 22.4% in Q4 FY 2019. For Q4 FY 2019, we had reversed excess provisions of INR 390 million under the -- made under the Karnataka Minimum Wage Act. For Q4 FY 2020, HGS supported 11% growth in pretax profits. However, the overall increase was lower due to increase in taxes as well as the negative impact of Ind AS, which had an impact of $168 million for the quarter Q4 of FY 2020. For the full year FY 2020, a stand-alone basis, HGS reported revenue growth of 8.9% to 2,000 -- to INR 23,911 billion. The growth needs to be seen in the context that HGS did not have revenues of the domestic CRM business for the last 2 months of the financial year. On a stand-alone basis, EBITDA margins for FY 2020 were at 21.2%, a significant expansion Of 470 basis points over FY 2019. Despite the negative impact of INR 421 billion on FY 2023 tax profits on adoption of Ind AS 116. The pretax profits were up by 14.6%. And at the post-tax level, it was up by 9.2%. Now coming to the consolidated financials for the quarter. HGS continued its growth momentum of the previous quarters into the last quarter as well. The COVID-led lock down created disruptions to our operations towards the end of March. Our revenues for Q4 FY 2020 were up by 2.6% on a year-on-year basis. The reported growth of 2.6% in Q4 of FY 2020 with after factoring exchange rate variations of 3.8% due to -- and due to businesses exited. As you are aware, HGS exited India CRM business at the end of Jan 2020. And hence, only two months... [Technical Difficulty]

Sir, this is the operator. Sorry to interrupt you. Sir, the audio is breaking from your line. Sir, I would request you to please repeat the last part.

Okay. The reported revenue growth of 2.6% in Q4 is after factoring exchange rate variations of 3.8% and due to businesses exited. As you are aware, HGS exited the India domestic CRM business at the end of January 2020. And hence, 2 months of the Domestic CRM business were not available for the quarter. Further, during the period Feb '19 to July '19, HGS had revenues, which were passed through in nature. On a like-to-like basis, after excluding the impact of businesses exited, HGS reported constant currency growth of 11%, comprising 6.9% of organic growth and 4.1% on account of exchange variation. The EBITDA for Q4 FY 2020 grew by 26.4% over Q3 FY 2020 to INR 1,881 million. And EBITDA margin stood at 14.3% as compared to 11.6%. Net profit for Q4 FY 2020 was INR 448 million, down by about 17.8% over Q4 FY 2019. The drop can be attributed to the impact of Ind AS, which had a negative impact of INR 166 million at a pretax level, some exceptional items of INR 31 million and changes in deferred tax of INR 204 million. In the last 4 quarters, on a pre-Ind AS basis, the business ROC of the company has increased significantly from 14% to 20%. Similarly, the measured business ROC improved from 13% in Q1 FY 2020 to 16% to Q4 FY 2020 on a post-Ind AS adoption basis. Now coming to financials of FY 2020. For FY 2020, HGS reported strong revenue growth of 11.8% in constant currency terms, and the reported revenue growth was 8.7%. During FY 2019, HGS sold off few loss making contracts or low profitable contracts of GuidePoint business in HGS AxisPoint. And in FY 2020, we sold off the India domestic business. If we do a comparison on a like-to-like basis and after excluding the impact of pass-through revenues mentioned earlier. Revenue growth in FY 2020 in constant currency terms was 11.8% -- sorry, was 9.8% and exchange rate variations adding to 2%. And hence, the total growth of 11.8%. Due to the business exits, and termination during the course of the year, the reported revenue growth is 8.7% after factoring exchange rate variations of 1.9%. In FY 2020, EBITDA grew by 20 -- 62.4% to touch INR 7,156 million. The performance improvement was seen across all geographies especially India, Jamaica, U.S.A., Canada and Element Solutions. On an operational performance basis, EBITDA improved by 21.9% over FY '19. And EBITDA margins expanded from 9.2% to 10.3% before the adoption of Ind AS. The adoption of Ind AS is subject to further improvement in EBITDA margins. And as a result, the final reported EBITDA margin stood at 13.7% as compared to 9.2% in FY 2019, an expansion of 450 basis points. For FY 2020, HGS reported a net profit of INR 2,056 million, a growth of 16.6%. It may be listed with a net profit of INR 2,056 million in FY 2020, was a seed after onetime exceptional item of goodwill and intangible impairment of INR 211 million and deferred tax reversal of INR 204 million. In addition, the adoption of Ind AS 116 had a negative impact of INR 421 million at the PBT and PAT level. Coming to some key ratios. For -- another financial information. For FY 2020, we incurred a total capital expenditure of INR 1,176 million, which is lower by INR 764 billion compared to the CapEx over the previous year. Our receivable days, which were around 83 days as of March 2019 has reduced sharply to 69 days as of March 2020. The twin impact of reduction in capital expenditures and reduction in DSO days has had a significant impact on the free cash flow -- EBITDA to free cash flow conversion, which increased from 2% in FY 2019 to 60% in FY 2020. Our gross debt, excluding the lease liabilities, has increased by just INR 131 million during FY 2020 over FY 2019. However, our net debt witnessed a sharp reduction of INR 1,944 billion over FY 2019, and it stands at INR 734 million. The reduction in -- to the net debt [Audio Gap] attributed to sharp increase in cash and cash equivalents to the tune of INR 2,076 million in FY 2020 to INR 5,308 million. HGS in FY 2020 paid total dividend of INR 500 billion, including dividend distribution tax of around INR 80 million. Because the dividend payout ratio for FY 2020 was 24% as against 14% in the previous year. It may be noted that the dividend of INR 20 per share is double of the total dividends of INR 10 per share in FY 2019. I understand some of you have expressed concerns about of around INR 4,320 million of loans under current assets between March '19 and 2020. We want to highlight that as of March 2019, there is a loan of around INR 848 million under noncurrent assets, which has been reclassified as a current asset as of March 31, 2020. And this doesn't represent an increase as only a reclassification. This loan has since been repaid. Further, you may recall that HGS had sold off its India domestic business in end January 2020. The funds received from the sale of the India domestic CRM business, liquidation of receivables and retail deposits have been deployed in the form of short-term loans. These loans earn rate of around 8.3%, and have since been repaid after March 31, 2020. The loans given are part of the treasury management are short-term in nature, and are pending long-term deployments based on the needs of the company. Our endeavor to take more seats on an OpEx basis continues. No doubt there would be a change in the mix because of the sale of the India domestic business. And hence, OpEx fees as a percentage of total seats declines to 62% as compared to 76% in Q3 FY 2020. Going forward, our endeavors will continue to be to take more and more seats on an OpEx basis and reduce the CapEx intensity of our business. Our reference to increase revenue productivity continue. And at the end of Q4 FY 2020, we achieved an average monthly revenue per employee of INR 106,042, up by about 7.4% over INR 98,711 in Q4 of FY 2019. I would now like to conclude my portion and throw the floor open for question-and-answer session. I do wish to remind all the participants that our Q1 FY '20 results will be out shortly. And I would request participants please limit their questions to our Q4 FY 2020 performance and overall FY 2020 performance. Thank you.

[Operator Instructions] The first question is from the line of Ajay Sharma from Maybank.

Can you talk about the outlook for the year? Seeing basically in terms of the demand in your pipeline? And also on the margins, how do you see with the rupee depreciating, you should be benefiting. So what is the kind of EBITDA margin target for this year, you can provide some color of that. And secondly, can I confirm that the loan or the -- was it the intercorporate deposit to a related party? And has it been fully repaid? And where has it been deployed after the repayment?

Let me take the first part of the question. And Pala, you can take the second part of the question. Sir, you may be aware that we don't give guidance. And historically, we haven't given, and I will like to hold the same. Without getting into specific numbers, I can say that we -- the quarter 1 results, we are not free to discuss today. And you will have an opportunity to ask us quarter 1 impact very soon. But the outlook for revenues as of this point of time, and I'm talking about my visibility as of August, since better than what I had expected when COVID first hit us. But I did mention in the call, that there are significant uncertainties, yet. We are still seeing a second wave of the virus hitting at different economies. Unemployment is at a peak in U.S., and all of these things have impact on our revenue numbers. So as of this point of time, while I can say that we had thought that the impact will be worse than what it is, but the -- and we are probably a little better off so far as the first few months are concerned. It is very difficult to give you a definitive picture on how revenues and margins would look like for the full year, given where we are with so many uncertainties all around us. So with that, I'm going to hand it over to Pala. Pala, the question on the loan, if you could answer that, please.

Yes. So the loans were to related parties. And when you see the annual report, which will come out shortly. Our full disclosures have been made in the terms of the name of the party, et cetera. So full disclosures are being made as far as related parties are concerned.

Okay. Has it been -- can you confirm? Has it been fully repaid? And where has it been deployed post the repayment?

Yes. It's an ongoing treasury deployment program. So those were -- loans were repaid and redeployed were required in terms of short term. So these are ones which are available on -- to be called back on short-term spending deployment, for a long term perspective.

Okay. Has it been given back to the related party or outside of that?

No, no, no. It's -- as I said, it's a portfolio which keeps sterling. So depending on the amount of money we require, we take whatever is required and redeployed, but all were repaid.

But can you confirm that right now, nothing is outstanding to the related party?

No, no, no. I'm not saying that. So I can confirm everything was repaid and redeployed as required. After reducing staking up something is required for the usage of the company. These are all liquid money available.

So it could still be with the related party, that's what you're saying?

Yes.

Right. But just -- I know you're doing for treasury, but it just -- it brings a corporate governance issue actually because if you're sitting on so much cash, you might have to pay more dividend or unless you have some M&A targets in mind because -- although it's arm length, I know, but it's still the market doesn't like it, and as you've seen the stock price reaction today. So just a feedback.

No. I understand the feedback. Why is that a corporate governance issue when it is fully disclosed.

I guess you -- end of the day, you're still assisting a group company, right?

Well, yes, it's treasury management, earning us a much higher yield than what we will get from any commercial bank today.

But what is the guarantee that it doesn't go bad basically. That could be also 1 of the concerns markets has from time to time.

No. We are reputed-related parties.

Parties.

I am sorry.

No, go ahead Pala.

So I said it's a matter of assessment. We are pretty sure that these are parties which are liquid with money, their money will be returned. And we could get into a debate about the alternate uses of funds. People have invested in debt funds in the past, and I don't want to get into what has been the outcome. So as -- from a corporate governance point of view, we have gone through necessary approvals from the Board. Necessary disclosures have been made, and it is our assessment that means, there is no risk, and all our money will come back while we are earning better than market rates point of time. And also, these are all short term, while we decide in terms of the alternate use of funds, whether it is debt reduction or dividends or M&A. There are multiple usages. But I think it is -- you should not mix up utilization of short-term surpluses against long-term deployment.

Okay. Just that the amount is very substantial as compared to your overall market value, right, basically. I think that's where the concern is then. Yes. Whether there's some approval of shareholders would be required for these kind of related party transactions.

No. We've gone through the full process. So this is something which the Board has reviewed and taken into account what requires approval. And this clearly is coming under the approval of the Board. We have taken necessary approvals in the Board before deploying.

The next question is from the line of [ Pawan Nahar ], individual investor.

Yes. So operationally, nothing to ask. It continues on the point which Ajay mentioned right now. So the way I understand it is now, you are not making any commitment going forward in the future. There could be more, there could be less, budgets deployed and given as ICDs to the group company, which then becomes an overhang on the stock.

[ Pawan ], sorry, I missed the first part of your question. Could you repeat that?

So I'm saying the answers, make we believe that it is now a -- it is now an integral part of your treasury strategy. And this could be an overhang on the stock. That whenever there is surplus cash, it may have -- it may be deployed, it may be given to group companies, right? I mean is it just an open statement that's being made or that's being perceived now.

No, no. We don't...

And please correct me, I thought an approval is required in case a related party transaction, is more than 10% of net worth.

No. We have -- okay, let me check. I think we are pretty clear that we have taken necessary approvals before making any transactions, right? So that's one thing we have gone through. And we have taken approvals from the Board to do this transaction. We are within the limits prescribed by the Companies Act. So that's as far as...

So [Technical Difficulty]

I'm sorry, [ Pawan ], your voice is cracked.

For the related party transaction, without majority of minority accruals.

I can check, I don't have it offline. But this was examined in detail before we did this transaction. So that's the first point, I mean. Okay. I don't have it off-line, but I can check and let you know. Second, there is no specific view. This is something which was a surplus at that particular point of time, which has got deployed. And as I said, the -- we will take the Board -- we'll go back to the Board in terms of alternate usage of the surplus cash, whether it is debt reduction, where possible or dividends or M&A. That is something which will go back to the Board for discussion. So that's all I would like to clarify.

No. You've already gone to your Board, right? I mean why would you go back to your Board and you are saying your Board has approved, the CEO has approved, the CFO has approved, right? And to all of us as outsiders, it comes. In fact, I would now like to believe that this may have been a material reason for you to have disclosed your March quarter results right now. Otherwise, I was surprised that you all must be having very good MIS, right? Why would you be disclosing results anyway, so that's diverting. So my point on my request still is that it does not -- I mean it just doesn't appeal to us as outsiders to have this transaction or to say that it might continue. Give a dividend. I mean you have got INR 600 crores of debt or INR 500 crores of debt or repay that. Look probably, I understand that all of you are professionals. But I really wish -- I really hope that the independent director, right, something is done about it. Something needs to be done about it.

Thanks, [ Pawan ].

[ Pawan ], I can only say -- [ Pawan ], I can only say, dividend has been doubled. It says that the rate of 24%.

The numbers we've seen -- the dividend has not been doubled. The dividend was cut sharply, right? And it is now being restored. It has not been doubled. I'm sorry. You're not professional, I respect the operational numbers, right? But as the CEO and as the CFO, right, even more the independent directors. And even more, why is that disclosure coming now, that this transaction would have happened in the March quarter? It is a material transaction as a percentage of your net worth. INR 400 crores of loans, INR 430 crore of loans on a net worth of, what, INR 1,600 crores or something like that?

Yes.

So it's a material transaction, why would you not disclose it? The request is, look, the request is that it will be good if this can be sorted. I mean the promoters have other revenues, including pledging shares, whatever, I mean of course, they are knowledgeable. And then in your respect on the way overall, things have shaped up. But this is completely out of the box. March quarter results, material disclosure coming now.

Okay. I've heard you, so we will consider what you had to say. But I want to just go back to facts. The fact is that dividend has doubled. It has moved from INR 10 to INR 20. So that is the fact. And I place facts on the table for you to consume.

Sure, sure. And look, operationally, happy with the way things have shaped up, right? But...

You know it.

Yes. I've heard your feedback, [ Pawan ]. So I'm not saying that, okay, your feedback is falling on deaf ears. I will not say that. I have made our point of view to you. You made your point of view. We've disclosed whatever disclosures are required. So there is no hanky-panky out here. Anyways, let's move on. I have understood your feedback.

[ Right. And it just that ] it has to be disclosed, right? And it's just that is being disclosed now, right? I mean, it's not a question of disclosure. It's a question of the transaction. I mean, disclosure has to be made. It's a question whether the transaction should have happened.

The next question is from the line of Subhankar Ojha from SKS Capital.

So Partha, Pala. So I also have the exactly same concern. And nothing really on the operational aspect of the company, but this ICD amount is significantly high. And I just want to express my concern that this disclosure has come to all of us as a shocker, actually. And that too, it has come so late, actually. So that's all. And I hope that you will seriously look in to this matter.

Any other questions, Subhankar?

No, no.

The next question is from the line of [ Naman Purohit ], individual investor.

So actually, the margins -- on the margins front, it's very disappointing. If you look at the employee costs, count was 45,000 in December 31. And the employee count now is 37,000, yet the employee costs have gone up. Could you provide the reason for that? Hello, yes, can you hear me?

Yes. So when you -- so you're comparing which quarter to which quarter, if I may ask?

Yes. I'm comparing Q3 to Q4.

Correct. So fair enough. So Q3 and Q4, so there is an increase, for sure. So part of -- so 1 of the things is due to exchange rates because we have significant number of employees in our overseas geographies. So the cost gets translated into rupees. Second, when we look at quarter ended March '20, you would have total costs include, for 1 month, the cost of the India domestic business. And also there were some related costs of some employees who stayed over and who left during the quarter. Third, if you're looking at -- there is also the period towards the end of March '20, when due to disruptions of COVID, we had employees on roles. But while the work at home was being rolled out, there was a loss of revenue. So these are 2, 3 drivers for a relatively high employee cost for the quarter ended March '20 vis-à-vis the revenue.

Last point is not understandable. I mean if they were working from home, why would the costs go up?

No, no, no. There will be cost, but not revenues. That's what I'm saying.

They were not working. They were stuck at home. In the last 2 weeks, of March, when offices closed down, people could not come to work, we still had to pay them salaries, but there were no revenues. Because we were not able to activate work from home for the last 2 weeks.

I agree, but you had 7,300 employees also going off the books. Savings of that would have also come in for those 2 months.

That ended in January. Yes. That ended in January.

Yes. So that benefit must have come in the February, March months.

Correct. But the revenues also went away, right? For January, Feb. And also, there were some final settlements, which are all done, which also came in the quarter.

Okay. Also, depreciation also has gone up substantially even after 9 delivery centers being transferred. Why is that?

That's primarily because of account of Ind AS. That you -- apart from regular depreciation, you have extra depreciation because of lease accounting. The way lease accounting does. Your rental costs will come down, but your depreciation and interest will go up. So if you see the difference between the 2 quarters, there is impact of -- between March '19 and March '20, you'll see a significant increase in pre-depreciation. So this is -- actually is going to be the run rate now. Is that correct?

Yes. But also bear in mind that when we had to do for the quarter ended March, we had to procure a lot of new headsets, which were instead of 100 -- which are written off in the year in the moment you use that. That's the company policy. The extra impact of that on the depreciation because of the headsets as we rolled out work from home.

Okay. And in the discontinued operations part, you have shown a PAT of INR 14 crores. Is this for 1 month?

Yes, that is only for 1 month.

But that's -- it is a very profitable business then, INR 14 crores is generating a PAT, why would you sell it?

So this is...

One month PAT is INR 14 crores, right?

Yes. But that also includes profit from the sale of the business, right?

Okay. You've added that into this, right?

Yes. Yes. Yes. The profit from sale of the business. But if you go back to our earlier transcripts. This was a business, high headcount, where we've had a lot of hedges, a business which is prone to increases in minimum wages across states. So if you see that dip in profitability in FY '19, this business had a significant impact. So we restructured -- I mean we improved the profitability of the business, changed the portfolio mix. But took a decision that came to a conclusion that in the long term, it would be a drag on our profitability and capital employed. And hence, we sold the business in Jan 2020.

But this INR 14 crores you're saying includes the profit from the sale of business. Is that correct?

That's right. That's right.

Okay. And regarding this loan that you have given to the related party, may I know which company has been given to since you're saying that it's already disclosed the annual report?

Yes. There are 2, 3 companies within the group.

So can you nail them?

Yes. I will see Hinduja Group Limited, Hinduja Realty Limited, Hinduja Energy Limited.

Yes. Okay. So I just heard the previous participants. So although you're saying that you took a legal recourse and you took permissions. Ethically and principally, it is incorrect. It is highly incorrect that you actually rolled it out to a group company. In fact, if you had paid off the loans, the shareholders would have benefited.

Yes. You need to bear in mind that there are certain loans which cannot be prepaid. Like, for instance, in India, on the India balance sheet, we had a INR 20 million of external commercial borrowings. And as per RBI guidelines, not prepay such loans. So the -- and today, even if you -- as per the RBI rule, if you take a rupee term loan -- sorry, a working capital loan, the first bucket of 60% will be used again as a working capital demand loan. And only then can you start drawing on cash credit, which you can pay in and out. So you could -- you'll always be in a situation where you'll have debt, and you may not have the ability to pay because of the RBI restrictions for a loan like an ECB from RBI. Similarly there are...

Yes. Which I agree, which I agree. But could you have parked it up in other liquid assets rather than concentrating this much assets into 1 family group company.

No. That's a discussion. Okay. That's -- I understand your point I'm making, but I'm saying, you've been in the business. You have seen the -- some of the pressure with some of the liquid mutual funds have also faced, right? So you could be at -- that money could have been at a risk if it goes depending on which liquid mutual fund it is. It's just -- I mean, because a fund is called liquid mutual fund. It's not necessary that the money is actually safe. And several of them have -- investors have had to take haircuts.

So you could have put it in corporate -- you could have put in government bonds that is more safer.

Yes, yes. I understand. I take your point of what would be the best way. All I'm saying is every instrument comes with certain... [Technical Difficulty]

Pala, you are not audible.

Ladies and gentlemen, the line for Mr. Srinivas Palakodeti has got disconnected. Please hold while we reconnect him. Ladies and gentlemen, thank you for waiting, the line is reconnected. Thank you and over to you sir.

Yes. Sorry, was it from me? Or was for the next person, for asking the question?

No. No. So hello?

Yes. Yes.

Yes. So actually, earlier, you said that this is for short term, this loan. How short term is this?

So I mean this money can come -- can we come back at a week's notice.

So, but when is it actually going to come? Or is it off to you to call it back?

Yes. For us to call it back.

So in terms of corporate governance, can you just immediately take a -- all of you can take a Board decision, go to the Board take it back because this comes out as very, very poor corporate governance.

So we've -- I've heard your point, we will share this feedback with the Board.

Yes. Please.

Yes. And if you ask me, that is your opinion. I don't know why you're saying this is the corporate governance issue. But anyway, you are impacted to your opinion. So I'm thankful.

It is not my opinion. It is not opinion. These are facts. Imagine if I own a business, and there are other partners in it. And I lend the treasury cash to my own relatives. Wouldn't the partners tell me that this is a corporate governance. And you say, but I took the permission. Permission is fine. But at the end of the day, there's a too much concentration risk on 1 family group, transferring the shareholders' assets to 1 family group. And this group has already in the news for family fights defaults happening in the U.S., et cetera. So it is really not to say that this is a very safe, et cetera. The rest, what, where you have given and whom you have given this to.

Fair enough. That's your opinion.

No. It's not opinion. It is -- this is a fact given a light example, it is not an opinion. It is a fact. You're transferring the shareholders' assets to a private group company with a large concentration risk in 1 group. If there is a default and there's no going back. Those are from my side, anyway. There's no answer from you.

The next question is from the line of [ Anurag Basu ], individual investor. As there is no response from the current participant, I have muted the line.

Hello? Sir, my son joined, [ Anurag ], but later I came to concall to attend, I'm [ Mr. Madan Lal ] on behalf of [ Sita Kumari ].

Who is [ Anurag Basu ]?

[ Anurag ], my son. He contacted because, he has lot of questions in his mind. Sir, are you hearing, sir?

Yes.

Sir, [Foreign Language] loss making subsidiaries [Foreign Language] Sir, can you understand my Hindi language?

Yes. We have already disclosed that. We have talked about AxisPoint.

Sir, AxisPoint, you've purchased at nearly INR 82 crores approximate I'm calculating. On that, you have already spended INR 150 crores for 2 years. Means -- by what means you have purchased AxisPoint that you are not able to guide us what will happen in future INR 250 (sic) [ INR 150 crores] already invested, and we are not able to know what will happen in future about AxisPoint. When the company will come in profit? And you are not at all giving guidance about AxisPoint also.

Yes. You're right. It has been more difficult than we thought it would be. So we are trying to solve the problem. We have not been able to solve it. You're absolutely right.

Sir, why then -- after -- in 2015, you have acquired Colibrium. At the time, you know that due to Obamacare, you have acquired that one. But Obamacare election is [Foreign Language] election [Foreign Language] company [Foreign Language] Colibrium [Foreign Language] loss [Foreign Language] Sir, [Foreign Language] acquisition [Foreign Language] indirect benefit to some other -- some other peoples.

Sir, you are being abusive and derogatory.

Sir, I'm not abusing. I'm just asking why you are acquiring this type of company to collapse the balance sheet. And one side, you are saying that we are doing good, sir, UP depreciated 20% do you know, sir. And due to other income of...

Sir, the PAT has improved 16.6%. Have you noted that?

Sir, 16.6% means, sir, INR 80 crores is other income. You are not at all improving company at any point of time from last 5 years, I'm holding these shares and nothing I have got from this company. And whenever I ask this company, why you are keeping this loss-making companies continuously and why you are feeding these companies continuously.

No. So we will decide sometime soon as to whether we want to continue those operations or not.

Sir, [Foreign Language]

One minute. One minute. You made various acquisitions, right, where we are feeding somebody else, you made these kind of comments right now, right? This call is being recorded.

Yes, sir. I have no problem because what I'm feeling -- I'm feeling -- means a shareholder which is not at all getting any benefit from -- means this is Hinduja Global company. And one more thing, I'm telling you, sir, when you have transferred INR 340 crores or whatever be the amount to your related companies, means sir, this is, what is going on. Means they -- one side in Hinduja Group companies, they are acquiring shares from the market in the March month, at cheaper rate and the rate has been doubled, sir, when they can invest companies money by investing in secure lease, why you can't do it that 1 sir, then?

Sorry, I'm not able to understand your question.

Sir, Hinduja Global [Foreign Language] IndusInd Bank [Foreign Language] shares acquire [Foreign Language] share [ Foreign Language]

I'm sorry, I'm not able to understand. Hinduja Global has done what?

Loan amount group companies [Foreign Language] Hinduja Group Companies.

No. You said Hinduja Global. So you have to be very clear about what question you're asking, right? So I told you that we have gone and bought some shares of IndusInd Bank.

Sir, group company...

Sorry to interrupt you. This is the operator. [ Mr. Basu ], may we request that you return to the question queue for follow up questions. Ladies and gentlemen, due to time constraint, we'll take this as the last question. I would now like to hand the conference over to Mr. Ravi for closing comments.

Thank you, Faizan. Again, Ravi here. Thank you to all the participants for joining us on the call. Is there any further questions or clarifications about [Technical Difficulty] strategy and on the full year financials, please e-mail me to our Pala, the CFO. And we'll more than happy to get back to you. This is Ravi signing off on behalf of HGS management. Thank you. Thank you.

Thank you.

Thank you, everyone.

On behalf of Hinduja Global Solutions, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.