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

Good evening, ladies and gentlemen. A very warm welcome to the Q2 and H1 FY 2024 Earnings Conference Call of Hinduja Global Solutions Limited. From the senior management, we have with us today, Mr. Partha DeSarkar, Whole-time Director and Group CEO; Mr. Srinivas Palakodeti, Global CFO; Mr. Vynsley Fernandes, Whole-time Director, HGS and Head of Digital Media Business; and Mr. Lakshminarayanan C S, Chief of Staff, NXTDIGITAL and Chief Finance Officer, ONEOTT iNTERTAINMENT Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Darshan Mankad from Adfactors. Thank you, and over to you, sir.

Thank you, Lizzan. Good evening, everyone. We welcome you to the earnings call of Hinduja Global Solutions Limited for the second quarter and first half year ended September 30, 2023. Before we begin the earnings call, I would like to mention that some of the statements made during today's call might be forward-looking in nature and, hence, it may involve risks and uncertainties, including those related to the future financial and operating performance. Please bear with us if there is a call drop during the course of the conference call. We would ensure the call is reconnected the soonest. Next, I would like to hand over to Mr. Partha DeSarkar, Whole-time Director and Group CEO, to share his views. Over to you, sir.

Thank you, Mr. Mankad. So a very good afternoon to all of you who have joined the call today. I wanted to give you a summary of the first half of the year for the BPM business, and I hope you have access to the presentation that we have put on the website, which we're going to talk all of you through as well. So overall, I think first half of the year, we have seen reasonable growth in revenues, but we can see that the revenue growth is kind of -- outlook for the full year is going to be a little muted because, as have been seen by other people in our peer group, there has been a fair amount of uncertainty in the global economic outlook, and that's where clients have actually cut spending and have delayed decision-making. As a result of which, we do see that it's slowly catching up with us. It wasn't really that visible in the first quarter, but in the second quarter, we're seeing some part of it as well. And like our other peers, we seem to be facing some revenue headwinds. So what we have done as a result of that is we've really focused this quarter on managing costs and improving margins. But we haven't really given up on investing on growth. So we have gone ahead and hired 2 heads of business development in both U.S. and U.K., very senior professionals whom we expect will add a lot of value to our business development function for our operations in these 2 geographies. We have also, as a part of cost-rationalize exercise, continued to cut down on our real estate onshore. We had talked about this earlier. Our onshore footprint is almost entirely...

Sorry to interrupt, sir. Sir, there's a lot of disturbance from your line. Sir, there's a lot of background disturbance.

Then I guess you have to connect me back again because I wouldn't know why this has happened.

Sure, sir. I'll disconnect your line. Ladies and gentlemen, we'll be reconnecting the speaker. We request you to stay connected. Thank you. Ladies and gentlemen, thank you for patiently holding. We now have the line for the speaker reconnected. Over to you, sir.

I believe there were some obvious issues earlier, so I don't know to what extent I was audible. So I'm going to start from the beginning. I was explaining that this quarter, we have seen a little slowdown on revenue growth. And as we head into the quarter 3 as well, we believe that there are some revenue headwinds cropping up. It's something that even our peer groups in this sector have talked about. So it looks like it has caught up with us as well. We are seeing that the global economic uncertainty is leading to client spending cuts and delayed decision-making. So the new logo acquisition has been a bit of a challenge. Despite this, we have gone ahead and strengthened our business development function. So we have hired 2 heads of business development for both our U.S. and U.K. geographies. Given the revenue headwinds that we see, we have focused on managing costs and improving margins. And our real estate footprint rationalization exercise is also continuing as we speak. In U.S., U.K. and Canada, 99% of our workforce work virtually from their homes. And we are stuck with -- we were stuck with a lot of brick-and-mortar footprint when we started. But over the period of the last 1.5 years, we've significantly cut down. Even this quarter, we have shut down one more office in Illinois. And our focus this quarter has been on administrative expense management, overhead management and real estate cost management. So slower growth of revenues in quarter 2, but we have increased margin by focusing on cost rationalization, real estate footprint and G&A costs. So that is a summary for the first half of the year. The CX business has had a reasonably strong performance from the Canadian business. A lot of good volumes coming in. We have also focused on offshore, nearshore businesses. APAC region is doing very well, that is India, Philippines are doing really well. Diversify is showing some improvement. Colombia and Jamaica is also seeing steady progress. Onshore U.S. and U.K. business remain muted in both revenue and profitability. We have signed some new logos and have had some key renewals in the U.K. But the challenge has been to replace the COVID, public-related health revenues in FY '21, '23 and the subsequent ramp-downs and because of which the U.K. business has continued to shrink down. The change of business mix, real estate rationalization and cost containment has allowed us, in a year-on-year and a Q-o-Q basis, to improve our EBITDA margins. If you go to the technology side of the business, it has been a modest performance. The TekLink business has ramped, continued to do very well. It's performed at an EBITDA level of 20% in Q2 as well and has won new logos and improved cross-sell with our CX business, several languages with existing clients. We continue to focus on longer-term deals in the areas of management services. Our pipeline looks good, led by cross-selling efforts and sales enablement. Our new solutions, like Agent X, seems to be doing very well. And while the slower client spending, because of economic activities continue to have -- create some headwinds, we have remained optimistic and we have continued to invest on growing our business development function. Let's move to some of the dashboard metrics. Operating revenues have improved 4.1%. Operating EBITDA at 26.9%. Other income has seen a drop of 5.8%. Profit after tax has grown by 10.8%. Other income in quarter 2 was higher by INR 77.8 crores. And if you have the presentation in front of us, we have given you the breakup of what the other income components are. We'll move to the next slide. Operating revenue in this particular case, we are showing you the numbers for the first half of the year, up by 5.7%. That is what I meant by a slightly muted growth. But operating EBITDA, the thing that I've been harping on, we have focused on cost containment measure, overhead management, et cetera, because of which our operating EBITDA has grown significantly. Other income, 54.4%. And we have had a slight decline in our profit after tax to the extent of 54.6%. The other income in the last year was higher by 136.2% (sic) [ INR 136.2 crores ]. Because of this other income fall, we are having the issue with the lower profitability. As you know, historically, I'm going to the next slide now, the current state is that we have our traditional CX business, which is primarily contact center, and we have the digital business. The contact center has been traditionally very labor-heavy. Back-office processes and the technology you've seen as a job tool, whereas the traditional application development, cloud deployment and migration has been the cornerstone of our digital story. What we are trying to do is to bring these 2 together. In our future state, we will have something that is the hybrid of the digital and the traditional sales business, which is what we are calling the digital operations business. A significant part of that will be driven on the levers of artificial intelligence, automation and analytics as well as cloud. We'll have AI-driven process management; AI-supported unattended customer service, which is going to be generative AI-driven; chatbots and interactive voice response units; AI-supported attended customer service as well; and AI Ops, which is essentially data tagging and labeling. Generative AI, the most exciting development since November 2022, it will continue to dominate CX strategy going forward. We are deploying AI for monitoring, supporting and improving CX across the front-office and the back-office processes, while we are driving the transformation of customer journeys. This should be giving us faster handling times, better and smarter responses. Training for success when new people join, generative AI gives them the access to very relevant articles on the knowledge base, because of which it's possible for them to come up to speed quickly; and enhanced self-service because apart from being very menu-driven bots that we have seen in the past, the bots can be now made really intelligent because they are using generative AI to back them up. We have used generative AI to embed in our internal applications as well, including our data analytics platform, HR apps, training portals. Open-source AI on a subscription basis and internal AI development, so we have our own AI lab that we have invested in. We have opened up an AI lab in New York as well. We are working with natural language processing and machine language to improve our client databases. We are using Fit Index and Early Warning System to predict attrition possibilities. Focus on predictive and cognitive analysis, cloud migration, social, contact center telephony, et cetera, these are the parts of our new offerings on the technology space. So this is what we're going to be doing with generative AI. We are very well positioned to harness the potential of this new technology to take our CX operation to a completely new space, which is what we are calling the digital operations. So that's what the future looks like. I want to hand over to my colleague, Vynsley Fernandes, to give an update on the NXTDIGITAL operations. Over to you, Vyns.

Thank you, Partha. Good afternoon, everyone, and this is Vynsley Fernandes. Shilpa and Tanuja and others, I hope my audio is clear. Moderator?

Yes.

Yes, thank you so much. Thank you so much. I'm on Slide 13. It's been a very, very exciting quarter for the Digital Media Business division of Hinduja Global Solutions. If you look at Slide 13, this is by far the marquee event in this last quarter. We launched our enterprise business unit called CelerityX, which is effectively a strong competitor in the fastest-growing segment globally, which is enterprise business or enterprise connectivity solutions. This service was launched in September. We've already bagged a significant amount of corporate and enterprise customers. And I will share those -- we will share those with you in the next quarter because a lot of them are under implementation, testing and commissioning. But if you go to Slide 14, which the headline says CelerityX launched, we have a very clear value proposition. There are 4 products in this portfolio. One is SkyX, which is a rechristened broadband over satellite solutions. We are already providing high-quality connectivity right now across the country. And all -- a lot of businesses in remote areas, factories in remote areas, e-commerce companies in remote areas have already logged on to the solution called SkyX. There are 3 other products, I won't spend too much time. There's NetX, which is a single-window kind of solution for providing feasibility and delivery of connectivity for corporate customers who are looking to connect their businesses nationally. And this is not just -- we don't just connect customers through satellite or through fiber, but it is over multiple services, whether fiber, whether radio frequency, whether 4G, 5G connectivity and, of course, broadband over satellite. So it's a tremendous product, NetX, that was launched. OneX is also a strong product, which has seen by far the greatest traction, where companies with multiple or thousands of retail outlets have been able to connect seamlessly without compromising their security. And this is a very important thing. We all know the importance of the fact that there are no geographies today and companies are pretty much Pan-India or global, and this solution has worked beautifully for them. HomeX is a solution as more and more people move, even my colleague, Partha, was explaining, there's a lot of hybrid workplace models that are there. And it's not just providing them a broadband connection at home, but it also is important to provide security, to provide access to core applications, data integrity. And this solution, HomeX, works beautifully for them. So this value proposition of CelerityX was launched in September, and we've already seen great traction. If you see Slide 15, you will get a sense of the incredible coverage that the media has attributed to this product, to this solution. This is just some of the clippings of the press coverage of the online coverage that we have secured for launching CelerityX. And we hope to, in the next quarter, to make some even more exciting announcements around CelerityX. Going on to Point #16. And here, again, a great -- this is for the broadband business. We promised you that we will look to how do we expand our footprint across India. And we launched our project called Project NLD, our national long-distance backbone for broadband across the country. Our target was 8,000 kilometers, and we were -- we have set up the kind of deadline of October 31, and then, of course, the remaining spurs connectivity by middle of November, et cetera. I'm really delighted to tell you that as of date, we've commissioned over 6,000 kilometers of these NLD networks have been operationalized as against 351 cities, which we already connect. We've added another 125 cities and multiple towns and villages on route. Not just that, the kind of capacity that we've created is about -- is over 800 gigs of capacity for our existing and new customers. And we've connected key routes like Mumbai-Nagpur, Delhi-Patna, Delhi-Dehradun, Mumbai-Delhi and Mumbai-Goa. And the best part is there is no additional cost for adding customers now in these locations, right, because we have a strong backbone, which provides that kind of throughput. So our broadband business, which we believe is the driver not just for the next year, not next 2 years, but we believe for the next decade at least, broadband will become the key considering the penetration is so limited in India. As you'll know, with over 300 million households in the country today, broadband -- wired broadband is barely in about 30 million households -- or 33, sorry -- between 33 million and 37 million, which is about 8%. And we believe that, that penetration will keep on growing year-on-year, at least for the next 5 to 7 years, if not longer. So we are at the forefront of that as your company. And our broadband business, we're at the forefront of leading that charge. And the performance of that is reflected very strongly in Slide #17. Slide #17 refers to the key performance indices that we use for our business to track our performance. Really, really rosy and happy and strong picture. If you look at digital television, the subscriber base has grown from about 4 million just under -- around just about 4 million to over 4.16 million on a Q-o-Q basis as against the challenge it was facing in Q1 of this year and Q3 and Q4 of last year as the new tariff order came into place. So it shows that the digital television business is well on track for growth. But I think most exciting is the broadband business. As you know, as I mentioned to you all in a couple of calls earlier, that we spent the last 1 year stabilizing, building processes, building -- weeding out low-cost, low-ARPU customers. And just quarter-on-quarter, we've grown by about 9% over Q2. And this is something that will keep on growing exponentially. And another parameter, very important parameter, if you look at the right -- lower-right quadrant, the broadband 90-day churn, which is a very important barometer of the quality of service, shows that the number of customers or the percentage of churn has come down significantly, nearly a full percentage point, to 4.79%. So overall, as I mentioned, it's been a very strong year from 3 perspectives. One is the digital television business, growing, beginning to see major growth across the country as we enter new markets. Our broadband growing by over -- by nearly 10% quarter-on-quarter, driven largely, of course, by 2 factors. One is the national long distance network, where we've commissioned and operationalized over 6,000 kilometers of connectivity and created capacities of over 800 gigs for customers. And third, the launch of CelerityX, which propels us into a segment of the industry where there are not too many players and where there's tremendous amount of growth as corporates and enterprises look to be able to improve their quality of service to the customer, their networking, their retail base. So with that, as I mentioned, it's been a good quarter. And at HGS, we will continue to drive this piece of the business as well for the next quarters and well beyond that. Thank you, everyone, for your time, much appreciated. I will hand over to my colleague, Pala, for the financial update. Thank you so much, everyone. Pala, over to you, please.

Thank you, Vyns. I hope my voice is clear. Can you hear me?

Yes, clear. Loud and clear, Pala.

Thank you. Good afternoon, everyone. Thank you once again for joining our Q2 earnings call. I will cover the financial update. I'm on Slide 19 of the...

Sorry to interrupt, Pala, sir, your audio is not sounding clear.

Okay. Is this better?

Sir, slightly better.

Okay, one second. Okay, is this better?

So much better. Thank you.

Okay. You're welcome. Thank you. So I'm on Slide 19 of the deck. We thought we'd start off by giving a quick overview of what has happened at HGS since the sale of the health care business way back in January '22. So the transaction got concluded in January. And since then, we have made 3 acquisitions. The first one was Diversify in March of '22. And we -- that acquisition was about $28 million of consideration paid. After that, in February of this year, we completed TekLink acquisition. That added another $57 million outgo. As Partha mentioned, it's a business which is doing well and delivering EBITDA margins of about 20%. And we also used -- sorry, acquired the Digital Media Business in -- effective 1st of April last year, and that was a noncash transaction. Over and above that, we have paid INR 549 crores as dividend and about INR 1,240 crores was from the form of buybacks, INR 1,020 crores were returned to the shareholders. And about the balance, INR 230-odd crores, was used for the buyback for the taxes relating to the buyback borne by the company. So INR 1,020 crores went back to the shareholders without any tax to the shareholders. After all this, we still have, on a net cash basis, around INR 4,875 crores as of 30th of September. Moving on to the next slide, Slide 20, this is the quarterly performance. As you would see, there is significant improvement in our operating margins. While revenue growth has been flat, EBITDA margins have improved from 6.4% to 8.3% on a year-over-year basis and have gone up by 150 basis points from 6.8% on a sequential basis. So as Partha mentioned, while revenue growth may be muted, a lot of cost rationalization, also moving businesses from onshore to offshore, has led to improvement in the operating EBITDA margin. Coming back to other income. As Partha covered in the earlier slides, there is a drop in the other income, and that was primarily because of 2 things: higher interest income earned in Q2 FY '23. Over the period, funds have been used for buyback, dividends and acquisitions. Q2 of FY '23, we also had profits from the sale of real estate, which was there to a much smaller extent in Q2, and also lower FX and other components of other income. So that has led to a drop in other income, which is also showing up in the form of drop in PBT. So this is a case where the EBITDA operations have become more efficient, financially better. It's the drop in other income which has driven down the drop in PBT. In addition to that, if you see the tax line in Q2 of FY '23, there was a tax reversal of INR 69 crores coming from the combination of the media business into HGS. So there's a clear saving of about INR 69 crores. This quarter, we had a tax of INR 6.1 crores. So there is a significant swing of about INR 75 crores on the tax line. And on Q2 of last year also had roughly about INR 46 crores of profits from the discontinued operations, the sale of the health care business, which we don't have, right? So to sum up, there is a one-off of sale of health care business profit. There is a tax reversal -- absence of tax reversal that took away INR 75 crores and also the drop in other income. So these are 3 big drivers for the drop in profits. But again, to highlight, significant improvement in the operating EBITDA in quarter 2 of this year, both on a year-on-year basis as well as on a sequential basis. Moving on to H1, half yearly performance. You would see, again, we had a significant improvement in the EBITDA margins by about close to 200 basis points from 5.4% to 7.5%. The PAT is lower, again, primarily for reasons mentioned earlier coming from Q2, drop in other income, lack of profits from sale of real estate as well as the lower -- I mean, change in the tax reversal, right? So because of this, the PAT for the quarter, for the half of the year is lower than what it was the earlier first half of FY '23. Moving on to next slide. I'm on Slide 22. This is the balance sheet. We have net worth of about INR 7,488 crores, which remains strong. If there's a drop compared to March '23, primarily on account of the buyback. Also because of the buyback, there is a reduction in treasury surplus. And also there was a small payment -- additional payments to be made to TekLink sellers as per the transaction documents. Moving on to Slide 23, this is the summary of cash flows. You will see that cash flow from operations, after adjustments for working capital, that has also improved from a negative of INR 28.3 crores for quarter ending September '22 to INR 31.2 crores (sic) [ INR 31.7 crores ] for the period ending September '23. Moving on to the next slide, on 24, this is the summary profile. Our book value is at around INR 1,600 per share. We have gross debt of about INR 873 crores, and we have net cash and treasury surplus of about INR 4,875 crores. So there is a small drop of about INR 87 crores between June '23 and September '23. This is primarily coming from the additional payments to TekLink. So at the overall level, cash flows have improved, and the business margins have also improved at the operating EBITDA level. Moving on to the next slide, this is the total income composition for the quarter. You'd see the BPM business accounts for about 56%, 36% comes from digital services and about 8% comes -- has come from other income. Moving on to Slide 26, this is revenue by delivery. Our India portion includes the revenues of the media business, which is about 38%. Canada is about 16%. There has been growth in this quarter there. U.K. is at about 13%. And U.S. has come down significantly, 19%. As Partha mentioned, we are focusing on moving revenues from reducing the onshore footprint and having more revenue growth on offshore business with delivery from Philippines, Jamaica and Colombia. From an origination perspective, U.S. continues to remain large at 32%, followed by Canada and U.K. in the 15% to 16% range. The India portion consists of the HRO business as well as the Digital Media Business, which account for about 31% of the total revenues per origination. From -- moving on to next slide, Slide 27, this is revenue split by vertical. Media accounts for about -- is the largest one, at about 32%, followed by telecom and technology at 14% and consumer and retail at 21%. A lot of the TekLink revenues come from the consumer and the retail segment. Moving on to the next slide, Slide 28. This is the client concentration, where the largest client accounts for about 10% and the top 5 accounts for 27% and top 10 accounts for about 38.5%. These revenue concentration numbers are primarily for the BPM business. And if you see the table on the right side of Slide 28, our DSOs are stable. There's actually been an improvement, down from 68 days as of June to 67 days. And this is, as you can see in the cash flow statement, there is a significant improvement from where we were same time last year. So we are seeing better collections as well as improvement in the EBITDA margins, along with -- and driven by change in mix of business as well as reduction in costs, and our balance sheet remains strong. And we still have around INR 4,875 crores after the buyback, return of acquisitions made and investments in CapEx for the business. This is my last section. So I will now open -- give it back to the moderator for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Mandara from Invesco.

So my question to you is, do you think the decline in PAT is likely to continue for the next few quarters following the lower source of other income? And if other income is lower, what would be your strategy in place to improve your overall PAT margin?

Okay. So thank you for the question. It's a good one. As you said, we -- the drop in the other income is primarily because of drop in interest as well as the profit on the sale of assets. So that was clearly a onetime item. And so we do not expect any significant changes on the -- on that line, on profit on sale of assets. The other side is on the interest income, which obviously may come down because funds being deployed for the business, at the same time, there are opportunities. As you know, interest rates have been on the rise, so they may be stable. So some of the older investments made, when I say investments, funds deployed at lower rates, as they come up for renewal, there is an upside that we increase in the interest rates. So we have to see. And the third component is the FX variation. And that's difficult to predict because it's FX variations between June and September. So that's a little difficult to predict. But with all the uncertainty, there is a chance that the various currencies may depreciate against the dollar, especially in view of all the global uncertainty. But to go back to the other part, we will focus on improving our margins, as we have shown in Q1, both sequentially and on year-on-year basis. Also, we are invested in -- I mean, in sales, as Partha mentioned, there are hirings being done in both in U.S. and U.K. to focus on growing back sales and improving margins and also improving the business mix, grow more offshore rather than onshore as well as the digital business.

Yes, great to hear that, sir. And one more thing. What is your sense from the interaction that you have been with your customer over the spending cuts and delayed decision-making? And how long do you think this is likely to continue as we see the global market and the geopolitical conflict is ending soon?

Partha, would you like to take that?

That's a good question -- that's also a good question. So this is a little unpredictable now. I think it's going to continue for this year.

Mandara, are you done with your questions?

I have one more question. Can I go ahead?

Yes, please proceed.

Yes. Generative AI business in today's world, what is the contribution do you expect from this segment from -- of your CX business? And what kind of further disruption can be expected? And can this be alter your market share?

We believe that generative AI is actually going to be very, very good for the CX industry. Today, when you are dealing with bots, most of these bots are unintelligent bots. They can handle only a limited sort of queries and are very frustrating to use. So all these bots will become highly intelligent, and they will be leading artificial intelligence of generative AI. So I believe that generative AI is going to be a big boost for the CX industry.

[Operator Instructions] The next question is from the line of Kevin Gandhi from CapGrow Capital.

Sir, just wanted to understand about the future trajectory of the cash utilization, approximately INR 4,800 crores, that's a huge lot. How do we wish to use the cash? Have we seen any possible tech acquisitions on the cards? So any sort of guidance would help. And like that's the first part of the question. Second part, how do we see the tech is to CX ratio building over 2 years -- over 3 years? So that's the first part of my question, like the 2 which are stated. The second question is on the TekLink and the NXT. So how much is the sales of the TekLink and the NXT business in this quarter out of the INR 1,179 crores of the sales which you have done in this quarter? So yes, that's my two questions. I have more. And if I want, I'll join back in the queue.

So look, most of the funds that we have on our balance sheet are meant to fund our organic or inorganic growth. So organic growth will be CapEx, opening new centers in new countries and all of that. And the inorganic part will be growing through cyclical or digital M&A. So that's what that cash is going to be used for.

Okay. And sir, how do you see the ratio of the tech is to CX business building after 2 years, 3 years? How much ratio do we anticipate? Because, as we know, you just mentioned about TekLink. These are very, very high-margin accretive business, whereas the CX business is not performing that great. So as an investor, I would want that the digital business builds well, right? So how do you plan the same, sir?

So we expect the technology business to be at least 50%, if not more, in 2 to 3 years.

Okay. Okay, sir. And the last -- like the second question was on the sales proportion of the TekLink and the NXT business, how much has been the contribution in the INR 1,179 crores approximately this quarter?

So TekLink business for this quarter was about INR 67 crores. That's the revenue for the TekLink business. And so -- and if you -- sorry, what was the other question?

Sir, my other part was the sales of TekLink. How much sales have been contributed by TekLink to this quarter?

So TekLink gave INR 67 crores of revenue. And NXTDIGITAL, the media business, gave INR 273 crores for the quarter.

INR 273 crores, okay. Okay. Sir, the last question is, if I could possibly squeeze in, the NLD backbone, which sir mentioned, like 6,000 kilometers of NLD network. So that looks very promising. As we see the matrix of NXT business, that hasn't done quite well since many quarters, since we have acquired the NXT business. How does NLD backbone or the broadband business would shape up for Hinduja Global? And how do we -- how much growth do we expect in the broadband business? This is what I want to know, sir, if you can please highlight certain points.

Sure. So Pala, should I take that?

Yes. Yes, please.

Yes, yes. So Kevin, Vynsley here. Thank you for your question. I think the one critical thing that -- see, growth is driven by the fact that I mentioned to you that there's barely about 8% of penetration in the country today in terms of wired broadband. So that is the kind of opportunity that is there across the country because you're talking about 300 million homes and barely 33 million homes -- 37 million homes wired broadband. Even if you discount a number of homes and say, okay, listen, 50% only are going to get wired broadband, we still had about 150 million wired homes considering television today, penetration is close to about 200 million. So one would expect a minimum of 200 million homes to have wired broadband going forward. So that is obviously the kind of potential that we're looking at. Now the critical thing is, where is the growth happening? If you look at reports of the past couple of quarters, and I'm not talking about our reports, I'm talking about general reports, rural connectivity is growing faster than urban connectivity. Why? Because obviously, people have aspirations there. They want to be able to have a reliable kind of connectivity available to them. And they want to be able to use broadband for not just broadband, not just day-to-day users, but also content and other aspects of governance, et cetera, that is there. So the entire NLD rollout that we did of 8,000 kilometers is based on the markets that are actually on route. So when I say, for example, Mumbai and Nagpur, right, it's not just Mumbai which is the key and Nagpur. The 41 cities on route, whether it's Jalgaon, Akola, Amravati, Aurangabad, Karjat, Kasara, that entire belt automatically becomes part of that growth story. So Kevin, when you look at it, the moment you have your own backbone, 2 important things happen: number one is you can acquire customers with a higher quality of service; number two, more importantly, your cost of acquisition of a customer comes down significantly because you're using your own operationalized backbone. Yes, you're riding on someone else's connectivity, whether it is overhead connectivity, you say Mumbai transmission, power transmission, Orissa power transmission or whatever. But the fact is you're riding on your own connectivity, so your cost per subscriber -- your cost per connectivity, as we term it, right, CPC, comes down radically. So for us, we believe that, that is the symbolism or that is the kind of ethos in terms of taking this business significantly higher. We -- the entire organization of HGS is strongly behind this. And I think the next quarter, you'll probably get a better sense of how we are trending considering that just Q1 -- Q2 over Q1, we've already grown at about 9% of the customer base. Hope that answers it.

Yes. Yes, yes, yes. Sir, how much touch points do we cover now versus how much touch points will be covered once this NLD thing operationalizes?

So the NLD capacity can add easily another 1.5 million, 2 million customers, given the routes that they're on. Today, we are already 1.2 million customers, right, in terms of broadband, as I mentioned to you, right, 1.11 million versus the quarter with. Out of that, if you look at it, all the growth that's happened, 10% growth that's happened in Q1 over Q2, and mind you, the NLD rollout has happened mainly at the end of Q2 and early Q3, as I have mentioned in the Q1 call, if you recall. So out of the 10%, I think barely a fraction is on that NLD. So the real NLD growth, you'll start seeing in Q3 and Q4. So that's why I think, Kevin, probably at the end of Q3, I'll be able to actually give you a sense of what is the percentage of base that is riding exclusively on the new initiatives that we have taken, namely the NLD.

The next question is from the line of Ravi Sharma from Sharma Investments.

I had 2 questions. I firstly wanted to understand how are you leveraging your AI Ops framework, major consumer tech companies trade India AI for their product portfolio? And secondly, I just wanted to understand how will the acquisition of Reliance Capital by the Hinduja Group impact the profitability and share price of HGS? These are my 2 questions.

Yes, yes. AI will significantly improve our CX operations because I think I tried to explain that in one of the questions that was asked before. Today, if you look at it, whether you're visiting a particular website or you're talking on the phone with somebody, a large part of the initial interaction happens through either chatbots or through IVAs. These chatbots or IVAs, in the older design, are all very manageable. They had very limited functionalities, and they could only do a limited set of interactions. And most of the time, they were not able to properly understand you or answer your question. Now with generative AI, the AI tool itself can make these self-service options, whether it's chatbots or whether it is IVAs, very, very powerful because we will be able to use the tools and techniques that generative AI has to properly understand what you are saying or what are you asking. And then based on the question, you can use ChatGPT or bot or anything, you can ask any free-form question. It will search the database and give you the correct answer. In that scene, when you look at our customer knowledge base, when you ask a free-form question, the chatbot or the voice bot will be able to accurately search through the customer's database, the customer's proprietary data base, and give you an answer that is curated from the database and will be much more useful than the bot capabilities that you have with this. So that's how it's going to fundamentally change the CX front-office operations. AI is also going to use automation, intelligent automation, and do a lot in terms of streamlining the back-end process. So that is also something that we are working on. So fundamentally, as I said earlier, AI is going to completely transform the way businesses perform front-office, middle-office and back-office functions. There's going to be a lot of technology. The fact that we have acquired technology capabilities from our acquisition of Element Solutions in 2018 to TekLink now gives us an opportunity to play in that field. So that is the answer to question number one. Question number two, the Reliance Capital transaction is a separate transaction. It doesn't have anything to do with HGS.

[Operator Instructions] We'll move on to the next question, that is from the line of [ Ranga Prasad ], an individual investor.

My question relates to the performance of the media division. Earlier, Mr. Vynsley has presented a growing report of the future growth of the media division. However, my concern is with the sharp losses that were incurred by this division in the last quarter. The losses seem to have increased from INR 15 crores to INR 30 crores in spite of the growing business. So I'd like to get a sense of by when can we expect to see breakeven levels in this division? Can you please throw some light on that?

Sure. Mr. Prasad, so Vynsley here. Pala, you want to first talk about the numbers from a perspective of the numbers itself?

I want to talk from the bottom line perspective. See, I'm a little concerned that the losses are continuing to mount. That is the -- that is my main concern.

Right. So I'll just put it to you slightly differently. I think this business, any growth in the customers results in 2 aspects, sir. One is the fact that top line has increased pretty systematically and pretty significantly. But equally, there is a cost of the customer acquisition, which is the device, et cetera, which impacts, to some extent, the depreciation factor. Having said that, I think if you look at it from a perspective of trending, the top line trending, we believe that we have seen already a lot of benefits happening, like for example, the NLD. Once the NLD backbone, which obviously is a capital expenditure investment as well, once the NLD backbone is built, all the customer acquisition, Mr. Prasad, on top of that, is actually revenue straight to the bottom line because there is no additional capital expenditures that we will incur per customer. So as I was explaining also to Mr. Kevin earlier is that the entire NLD rollout -- the NLD is not just for broadband, it is also equally for digital television that rides on this capital-intensive business, where now that the investments have been made to be able to connect all these networks, you will see a significant amount of improvement of top line already, as Pala pointed out, there's already -- the top line has been significantly enhanced by the media business in this quarter. We'll see that, sir. So from a perspective of how many quarters it will take, I think the next quarter, Q3 and -- and next 2 quarters actually, Q3 and Q4 will give us a very, very good sense of how the NLD is benefiting the bottom line and, therefore, not just the EBITDA levels, but also benefiting the PBT levels and PAT levels. So I think, sir, if you allow me, we will see a much better trend over the next 2 quarters, sir, to be able to answer your question specifically.

I sincerely hope that we see growth and reduced losses in the coming few quarters.

Thank you, sir. Truly appreciate it, sir.

[Operator Instructions] The next question is from the line of [ Raghav ], an individual investor.

Congratulations for a strong operational performance as a company. Sir, I wanted to understand that since there were huge cash on the balance sheet, so how are we placed for the next 2 quarter to invest it in the organic opportunity -- or organic expansion?

I'm not sure I understood your question. So we do have cash, and that -- so if you see the cash flow statement, the amount which has been used for CapEx is not very large, right? This is relatively -- not a huge amount has gone for from a CapEx perspective. So we will use growth required, as and when required, for instance, in the BPM business. Traditional model was to set up a delivery center and get people to come to work. In a lot of the markets like U.S., U.K., we don't -- everybody is almost working from home. In markets like U.K., the employees even bring their own device, right? So it depends geography to geography. But we have adequate cash to make sure that we have -- to fund any organic growth.

Right. So very clear. So the organic growth does not require a lot of cash, right? So the requirement could be towards inorganic opportunities only. Is that understanding correct?

Yes. Yes.

So are we looking at any sizable deals at the moment? Or we will just take it as it comes?

So we are in the process of evaluation. But beyond that, I can't say more until something conclusive happens. But we are looking at acquiring new capabilities more on the digital side. That's the -- that's all we can say right now. It's all at evaluation stage.

Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

Happy Diwali to all of you. Thank you for joining the call with us today, and we will hope to see you back again here for the Q3. Have a good weekend, everyone.

Thank you, everyone, and wish you a very happy Diwali.

Yes, Vynsley here. Thank you, everyone, for joining the call today. Truly appreciate it. We take this opportunity, on behalf of Hinduja Global Solutions, our Board of Directors, our promoter and all our employees to wish each and every one of you and your families a very Shubh Deepavali. We wish that this new year starts wonderfully for everyone, and we look forward to our next quarter connecting with you again. Good day to everyone.

Thank you, members of the management. Ladies and gentlemen, on behalf of Hinduja Global Solutions Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.