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

Good evening, ladies and gentlemen. A very warm welcome to the Q3 and 9-Month FY '25 Earnings Conference Call of Hinduja Global Solutions Limited. From the senior management, we have with us today, Mr. Partha DeSarkar, Executive Director and Group CEO, HGS; Mr. Vynsley Fernandes, Whole-Time Director, HGS and CEO of the Media Business; and Mr. Srinivas Palakodeti, Global CFO, HGS. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Darshan Mankad from Adfactors PR. Thank you, and over to you.

Thank you, Rayo. Good evening, everyone. We welcome you to the Q3 and 9 months financial year '25 earnings call of Hinduja Global Solutions. I trust you have gone through results and investor presentation that are available on exchange. Please do note that some statements in today's call might be forward-looking in nature. Owing to the nature of the business, it may involve risks and uncertainties, including those related to the future financial and operating performance. Request you to consider the present sectoral scenario while analyzing the results. Please do bear with us if there is any disturbance or call drop. We would ensure it is resolved the soonest. I now hand over the call to Partha sir for his opening comments. Over to you, sir.

Thank you, Darshan. Before I start off, a quick audio check, am I clear?

Yes. Yes. Yes.

Okay. All right. Thank you. Good afternoon, everybody, on the call, and thanks for taking the time to listen to us, present our financials for quarter 3 to all of you. We have sent out a slide deck, which captures what we are going to talk you through. So I would request you to refer to Slide 4, which tells you about the company at a glance. The key thing that I want to say in this slide is since our divestiture of the healthcare practice, this business has actually transformed itself completely. What used to be a pure-play BPM player is now a tech-enabled transformation partner for our clients. We are obsessed with optimizing the customer experience life cycle, digital transformation, business process management and digital media ecosystem. So it is no longer the company that it used to be when it was a pure-play BPO player. And significant investments in R&D and in M&A has gone in to build technology capabilities for this company, which will augur well for this industry, which is being reshaped by massive developments in artificial intelligence. And we're going to take you through what we are doing in subsequent slides. I also wanted to tell you that since January 2022, when we divested our healthcare portfolio, we have actually grown the business. If you look at our footprint, our footprint has grown in Australia. Our footprint has grown in South Africa, where we have just set up a shop last year. So we've continued to grow our business. And today, we have 18,000 employees. We operate from 10 countries with 33 delivery centers. We have a big broadband business as well, which is broadband and DTV, and we cover 4,500 pincodes across India. We have 1.2 million broadband subscribers, 4.43 million DTV subscribers. And the biggest thing assurance that all of you should have is that we have about INR 5,000 crores in cash and treasury surplus arising mostly from the divestiture that we did in Jan 2022. If you move to Slide 5, you will see the operating highlights for quarter 3 and the 9 months. Our total income stood at INR 1,234.9 crores, $147 million. Operating revenue was INR 1,064.1 crores, about $126.7 million and total EBITDA was INR 234 crores, USD 29.9 million. EBITDA margins were 19%. For the 9 months in FY 2025, the total income stood at INR 3,661 crores, that's about $435.9 million. Operating revenue was at INR 3,243.1 crores, that's $386 million and total EBITDA was INR 532.6 crores, USD 63.4 million. Margins were at 14.5%. Quick metrics for the business in Slide 5. Let's come to Slide 6, where we'll talk about some key business highlights. We do see continuing delays in decision-making on award of contracts. But in spite of that, we've won quite a few deals in this year. The largest that we have had is a core IT services engagement with a banking company from the Americas. It's a very large contract. We've won it in the fag end of last year, and we have started ramping up in quarter four but the revenues will start showing up in our books in quarter one of next fiscal. We also have been able to deploy Agent X to a large public sector client, a new client in Canada for whom we are doing complete contact center transformation projects, which includes setting up of their cloud-based contact centers, manning their service clients and other technology services. So these two wins highlight our ability to transform ourselves from being a pure-play BPO care to play in cloud, security services, contact center services and in AI. And that's the highlight of this particular transformation that we have gone through in the last three years. Our sales pipeline continues to grow. We have won significant new logos in quarter three and quarter four. Unfortunately, because we have been won so late in the year, the revenue will actually start clocking only in quarter one of next year. And you will therefore see that quarter three and quarter four will have some depressed margins because what you will see is that the start-up costs mostly will come in quarter four and the revenues will start coming up in quarter one of 2026. The other encouraging business is that our onshore footprint has significantly reduced. You will see that onshore business, as you know, has lower margins. We have been successful in winning our customers who were pier onshore customers to start operating with us offshore in Philippines and more recently in South Africa as well. The result of that is that we will see a revenue decline because offshore rates are higher than -- lower than onshore rates but we are hoping that we will be able to deliver better margins from our offshore centers. Other factor that we have to speak about is simplification of our corporate structure, a fairly important piece of work that we have done. We've had a lot of foreign subsidiaries, mainly emerging out of the various acquisitions that we have done in North America over the years. We've simplified the corporate structure. As of February 15, now we have merged 5 U.S. wholly-owned subsidiaries with HGS CX Technologies, a step-down wholly-owned subsidiary of HGS. It's been completed as of 6:00 PM Eastern Standard Time on February 14, 2025. It is a major administrative move, which will reduce lot of administrative costs that you will face of reducing number of board meetings, reducing number of audits that need to happen, all of that. So that is something that you should be aware of. I talked about expansion. Our new geography in South Africa is tracking really well. You would recall that we opened up the center and it went live sometime in quarter three. That center is already oversold in a sense that we had taken two floors. And based on the demand that we see today, two more floors are necessary, and we have signed up for two additional floors. That means that we will have a center with four floors with approximately 360 seats and the revenues from these -- from this center will show up in our books starting next fiscal year. I'm also very happy to state that we've taken an additional floor in Bangalore. This is on top of our existing corporate office. This is the tenth floor. We have added seats to set up our AI hub and our support center to support the banking client whose business we have won, I talked about it earlier. So this is, again, a very exciting news for us because it truly speaks volumes of our successes in slowly transforming the company from being a labor-led pure-play BPO player to a technology-led business transformation player. And I'm also happy to state that in April, we inaugurated our first center in Waterloo, Canada. It is in the province of Ontario, and this is going to serve our public sector client for the government of Ontario. Again, another hybrid sale that we have done, which is a combination of cloud, security services, AI and Agent X services. So this is to talk about some exciting times ahead for the next year. Let's move on to Slide 8 now. We'll talk about Slide 9, sustainable technology-driven business. So today, our business stands on three towers. The two extreme towers are the traditional CX business that we've done since 2000, right? That's where we started. It is basically headcount-based contact center. We are now transforming it to AI-supported automation. We are driving cost down through global shoring, which is reducing our onshore footprint and increasing our offshore footprint. And most transactions -- most contracts that are FTE-based, we are trying to move towards a transaction-based pricing and gives us an upside if we are able to deliver more through automation. On the extreme left-hand side, we have our technology services. This is something that we acquired in 2018, a small company called Element Solutions based out of Austin. You'll be happy to know that our technology services are almost $90 million, which is a big growth since we acquired that company, which was about low teens when we acquired it in 2018. We embellished that with another acquisition of TekLink in 2003. That acquisition is now over and has been fully integrated. We are trying to now move from project-based revenues to managed services of recurring revenue. I talked about the banking and financial services client. It's a complete IT outsourcing or a GCC. We are also building new capabilities and AI-based development and implementation services. But what is most important to understand is the middle tower, digital operations, transitioning traditional BPM services into verticalized AI-driven Platform-as-a-Service. This includes AI-based unattended customer service, which is chatbots and intelligent voice assistant, AI-driven vertical process management solution and AI operations, which is data tagging and labeling. So this is the convergence of the two sides or the two extreme pillars, technology services and traditional CX. What we are doing in the middle tower is trying to see how we can completely transform our BPO business using technology. And this is where we are having good momentum as we are able to sell to our existing clients. The net effect of all of this is that we will have lower revenues in the short term but our margins will increase over time because these are technology-based, subscription-based and because it is offshore, typically gives you better margin. And we should also be able to, with automation, drive nonlinear recurring revenue. The two wins that I talked about that has started up in Bangalore, that is for a bank, which is the largest bank in -- one of the largest bank in the Americas. It serves about 500,000 customers in 20-plus countries. It faced issues related to core IT spend and execution as well as innovation. We have been servicing this customer from a BPO perspective. We manage their call centers but we went and pitched our technology services to them. I'm very happy to mention that we have signed up a multiyear, multimillion dollar deal. It will involve hiring several tech specialists in Bangalore to deliver IT strategy and consulting services, cloud services, application development, automation and cybersecurity services. We are also going to deploy about 20, 25 people onshore in the geography where the client operates. We are now seeing interest for similar engagement from other banking clients in North America. I want to spend some time in talking about the government client in Canada. This is a government vertical in Canada. It's a public sector agency responsible for transportation in the Province of Ontario in Toronto and the surrounding regions. It carries about 100 million passengers annually. We have signed up a 6-year contract with them to service them on technology services. The first part of it is cloud contact center deployment, then cybersecurity services and then agent-assisted services and AI-assisted services. And the reason I mentioned these two is basically a proof point of the fact that we have now finally got endorsement of our technology prowess that we have been building since our healthcare divestment. Let's move to Slide 10. So I talked about it briefly. We are moving onshore to offshore. It will result in short-term revenue decline. It will -- not just short-term, it will result in revenue decline but hopefully better margins. We are also moving all support services from onshore to offshore in Philippines and India. AI-supported CX, Agent X is our biggest [indiscernible] to say. Knowledge Assist & Training has been deployed across Americas. Agent X is now a part of every deal that we bid for. Multiple proof of concepts are in progress with clients to augment conversational artificial intelligence, and we are hopeful that we will be able to sign up with these clients for long-term contracts in a license to a subscription model. Agent X, we've talked about it today. We've developed it to be able to handle 250 global languages including support for Indian languages. It is completely human-like. You will not be able to differentiate whether you're talking to a human being or whether you're talking to an AI chatbot. It has capabilities of voice authentication and deep fake detection. It can fully automate the QA function. It can listen to calls and rate those calls as to whether they are good or bad. This function used to be a human function. Now it's been completely automated where it has the capability of judge the quality of calls. Digital operations, I talked about the fully -- this is Slide 11, fully automated quality assurance. Disclosure Bot expanded beyond HGS agents to our clients' worldwide operations even in their own centers. Vertical Platform-as-a-Service solution, fully functional anti-money laundering solution being developed for our banking clients; loan origination automation, again, for our banking clients. For telco, we are developing a platform Customer 360 solution for hyper-personalization in telecom. And for consumer goods and retail, knowledge-based copilot solution using Gen AI. And the reason I'm saying this that these are not horizontal solutions unlike the Agent X. These are very, very industry specific. So over the last few years, we have spent significant amount in R&D, and Pala will talk about in detail to develop these capabilities and these platforms, which I believe will stand us in good stead as we move forward. Slide 12, moving from project-based to managed services. This is our endeavor. Some success, can't say it's been a huge success but our endeavor continues. And IT outsourcing global capability center and cybersecurity practice and security operating centers for both, we've signed up our first clients as we speak. Slide 13, we have verticalized the sales and account management piece along three lines to improve customer engagement. So our three verticals are BFSI, TMT and consumer goods and retail. Apart from that, we also have a significant concentration in public sector, focusing on pipeline growth and industry-specific solutions. We've also built a presales consulting team and partnership with significant technology players, SAP, Snowflake, Genesys, KPMG, strategic collaborations with Microsoft and Amazon Cloud Services and AI lab, our own investments in labs across Philippines, India and New York. Well, we can make tall claims. Here is the proof point, Slide 14, which talks about how ISG, one of the top analyst firms, rates HGS as a leader on the right quadrant. And we are placed in a leaders quadrant with billion-dollar firms, Sutherland, Foundever, Teleperformance, WNS, Genpact, these are big names. These are billion-dollar names. And we are really a small boutique out there trying to flex our muscles and our claim to fame. Other awards in Slide 15. the one that I'm very proud of is the Great Places to Work. Again, as you know, talent is key to success in our business. We've been certified in Canada and in Philippines, very, very happy that we've been certified in the Great Places to Work in these two countries. With that, I'm ending my section, and I'm going to hand it over to Vyns for his section on the Digital Media business. Over to you, Vyns.

Thank you, Partha and I hope everyone can hear me. It would be good if just I get a confirmation in live that my audio is clear.

Yes, it's.

Thank you. So I'll go straight to Slide 17. The reason why I put up Slide 17 is for a very specific reason that there's a lot of forays and a lot of initiatives being taken to ensure India sees significant broadband growth over the next decade, if not more. One of the key challenges that the country has faced has been obviously the lack of penetration. Today, with over 300 million homes, only 40 million homes of broadband in the country wired broadband today. And I am really delighted that the government is doing everything in its power to accelerate that broadband penetration, especially if you look at it in Tier 2, Tier 3 market. So if you look at Slide 17 and if you look at the budget 2025 impact, the customs duty cut on Ethernet switches, the main sector that it will boost is establishing telecom infrastructure for rural markets. That is something that's very critical for us as an organization. 60% of our base comes from the rural markets of the Tier 3 and Tier 4 markets, and we believe that will help tremendously. Also, the fact that there's significant push by the government to provide broadband connectivity to primary health centers as well as rural schools, that is something, again, we're delighted that we'll be a part of. I mean, this is all part of bridging the digital divide, and as the Digital Media division of Hinduja Global Solutions, our focus has been clearly on that. What's really important for us in our business is our key performance indices. And I'd request you all to go to Slide 18. Slide 18 is a reflection and a reflection of the commitment that we made at the end of fiscal '24. At the end of fiscal '24, one of the questions on the call was that, are you going to see growth this year? And the answer was that the focus this year will be on improving profitability and more importantly, working towards sustainability. I'm very happy that we've been able to grow our ARPU significantly because remember that, as I mentioned to you, 60% of our base not only comes from Tier 2, Tier 3 markets, but also where speeds are below 50 Mbps. So that shows the kind of potential for growth, potential for sustainability. And that is the market where we're very happy that the ARPUs, which were at around INR 169 last year per customer, considering that we have a business-to-business to customer model has grown to INR 199 at the end of quarter three of FY '25. More importantly, if you look at the graph to the right-hand side, we again mentioned this in the last quarter that our focus is on a sustainable business also, which is not subject to the vagaries of pricing or periodic renewals, and that is the Enterprise segment. So the Enterprise segment continues to contribute 10% of the revenues even for the period ending December 31, 2024, the 9-month period. So that is a robust -- that reflects a robust diversified portfolio where our -- where we are making sure our enterprise business, the managed services business all start to fire on their own cylinders. So rather than the pie getting smaller, it's that the stakes are getting bigger for us. And in line with that is one business, which we launched commercially in December 2024 in Mumbai, that basically caters to the SO segments of what we term as the SMB, small to medium businesses. So that was launched in December 2024. That's also well on song. With that, one of the critical things that is important to also note is that we are focusing now on broadband being a sales-driven organization. The entire process of putting it on the path to profitability, the process of ensuring there's a robust backend, the process of ensuring that the business is sustainable and profitable, those are activities that have been largely completed. And now we're focusing on profitable growth. So our entire focus is on building a very strong customer-facing organization, sales organization to push broadband all across the country, especially in Tier 3 -- Tier 2 and Tier 3 markets. That is actually a reflection also of the next slide, which is Slide 19. As you all know, and I won't make any bones about it. The linear television business is facing a lot of headwinds, right? I mean you see it whether it is direct-to-home or whether it's cable television or whether it is any other linear platform are facing challenges. The one thing that we've worked on is rather than focusing on just growing the business, our focus has been on retention of the customers and in parallel, trying to push up the ARPUs or the average revenue per user. The way we've done that is by a renewed push of our integrated product. We're one of the few companies that has the benefit of being able at the linear level to combine broadband and digital television. And that is something that has helped us ensure that the trajectory for digital television growth or rather digital television sustainability remains on song. So to kind of summarize, our driver for growth is our broadband business, where you've seen the ARPUs grow by close to 18% over last year, which is really significant in the current environment and also reflects the potential to grow further. That is the growth driver. The strong base to be able to provide further for that growth is our digital television business where we are at 4.16 million subscribers and where, again, ARPUs, which were around INR 116 at last year in the same period, have grown to INR 122. So overall, there's a very clear combined strategy for both the key flagship verticals to grow. Obviously, I'm happy to take any questions that will come up at the end of this session. But as of now, that's all I had in terms of the slides. I thought I'd keep it tight in terms of just the KPIs. With that, if I can hand over to my colleague and Global CFO, Pala. Pala, can I hand over to you, please?

Yes, Vyns. Thank you so much. I hope you're able to hear me?

Loud and clear, Pala.

I'm on Slide 21. This is the financial performance. So revenue from operations for the quarter came in at INR 1,064 crores. Out of it, roughly about 73% has come in from the BPM business and about 27% has come from the Media business. And it's not too different from what we saw in Q2 of this year, but slightly lower than what we had in terms of Q3 of FY '24. On the depreciation side, on a sequential basis, there is a small increase of about INR 4 crores but there's clearly a drop on a year-on-year basis. Similarly, on the depreciation -- on the interest expense, there is a drop on a sequential basis but there is a slight increase of about INR 7 crores on a year-on-year basis. On the other income side, significant change, up from INR 120 crores to about INR 170 crores. And if you see, it's there part of our published results. In -- for the quarter ending September, we had an FX loss of about INR 9 crores, INR 8.85 crores to be precise, whereas in this quarter, there's an FX gain of about INR 31 crores. So there is a INR 40 crores impact swing on the -- which is part of the other income coming in from FX and interest, et cetera, and other components of other income. On a sequential basis, there is a rise of about INR 10 crores. So overall, about a INR 50 crore increase on the other income on a sequential basis. On a year-on-year basis, again, there was FX loss of about INR 10.6 crores for the quarter ending December. So roughly about INR 42 crores swing on the FX gain plus increase in interest income, et cetera, so which explains the change in the other income side. At the PBT level, there is roughly an INR 80 crores variation from a loss of INR 40.7 crores in September quarter to quarter ending December '24, giving a profit of INR 41.2 crores. However, there is a substantial increase on the taxation side. This is a combination of both current tax as well as deferred tax. The current tax is roughly about INR 19 crores for the quarter and the deferred tax part is close to about INR 31 crores, arising out of the timing differences. And the current tax is primarily payable in some of geographies coming up from the treasury income. I will come to that separately. And as Partha mentioned, we have been spending about $2 million per annum every year on the development of Agent X. Clearly, that's had an impact on the margins in the past and the current year. But we are very confident that this will give us good returns, and Partha alluded to it during his section in the coming years. But clearly, that investment in Agent X is having an impact on our margin. At an overall level, PAT for the quarter, primarily coming in from the changes in the deferred tax, there's a loss of INR 8.6 crores but it's substantially lower than the loss of INR 50.5 crores, which we reported for the quarter ending September. So there's a substantial improvement in the performance of the company between quarter ending September and quarter ending December. If we go to the next slide, I'm on Slide 22. This is revenues for the 9 months ended December '24. Revenues are lower than the previous period for the 9 months ending December '23. This is coming primarily on account of drop in the BPM revenue, whereas the Media business, there has been an increase. Out of this INR 3,243 crores, roughly about 72% has come in from the Media -- sorry, the BPM business and 28% has come in from the Media business. Depreciation is fairly flat in the range of INR 400 crores. Interest expense, there is an increase of roughly about INR 44 crores. Other income, there is an increase of about INR 105 crores. So with the changes in the other income as well as on the profit from discontinued operations, which came in, in Q1 of this year. On a YTD basis, our PAT for the 9 months ended December is INR 102 crores compared to INR 43.2 crores profit for the year -- for the 9 months ended December '23. If we move to the next slide; this is on the balance sheet. You will notice the total borrowings, which is basically current and noncurrent. There the borrowings stand at INR 1,212 crores for December '24, whereas as of March '24, it was about INR 1,305 crores. So roughly, there is a reduction of about INR 93 crores during the course of the year. And you would see in the subsequent slide that there's also a reduction on a sequential basis. I'll come to that in a minute. That's the main call out from the balance sheet. And as you will see, we have a very strong net worth of about INR 7,830 crores as of December '24. Moving on to the cash flow; I'm on Slide 24. Our cash flow remains strong. If you see for the 9 months ending December, INR 272 crores from operations and even if you net out the CapEx -- sorry, the CapEx of INR 67 crores, we are roughly about INR 205 crores of net free cash flow. And in addition to that, we have -- that is enough to support even the payment for Teklink, there was an earn-out payment, which happened in June. So it is able to absorb that INR 129 crores payment as well since the net free cash flow from operations after CapEx is about INR 204 crores. So our cash flows remain strong, and we do have a healthy balance sheet as well. Moving on to Slide -- the next slide, I'm on Slide 25. This is the overall position. As a company, as of December '24, we have net cash of INR 5,152 crores. And you would see that the borrowings have come down by INR 44.5 crores in the quarter ending September, that has come down from INR 1,257 crores to INR 1,212 crores. So we do have a strong balance sheet and net cash of about INR 5,152 crores. Moving on to Slide 26; this is revenue split by origination. About 57% comes from the CX business and 43% comes from our Digital Services and our Digital Media business. If you look at the next slide, this is revenue by origination. U.S. continues to remain large, 24%. India is a combination of our Media business, the HRO business and some small components of the digital business from a delivery location. And from an origination perspective, the U.S.A. is the largest at 31%, and we have Canada at 12% and U.K. at 13%. India comprises the HRO business and the Media business as well. Revenue split by vertical, I'm on the next slide, on Slide 28. The tech, media and telecom is the largest vertical at about 53%, followed by BFSI at 17% and consumer & retail at about 14%, and we have a fairly big public sector clients, mostly from U.K. and some also from Canada. Moving on to Slide 29; this is the client concentration. So you see the -- from a revenue perspective, this is all -- it's fairly good. The top customer accounts for only about 10%, whereas the top 10 account for about 32%. So this is fairly well distributed from a client-concentration perspective. And given the nature of business, the top customer, top 5 customer, top 10 customers would all be from the BPM business. On the -- if you look at the table on the right-hand side of Slide 29, significant improvement in the DSO days. We were at about 60 at the beginning of the year. It went up because of seasonality and ramp-ups to about 65 days. That has come down to about 61 days. So again, this is helping in the overall cash flow from operations, as I pointed out in the earlier slide. That's all I had on my section. Now I hand it back to the moderator for the Q&A session. Thank you, everyone, for listening to us.

[Operator Instructions] The first question is from Nakul Dev from ND Investments.

I have a couple of questions. The first one being the Media business remains a significant challenge for the company's turnaround. So if possible, could you share some insights into the company's plan to enhance its profitability? And what key measures are you taking to drive this improvement?

Nakul, this is Vynsley. Can you hear me Nakul?

Yes, yes.

So Nakul, I think the one fundamental aspect is the Media business is a significantly capital expenditure-driven business, right? And this is not unique to our company. This is across the entire spectrum in the space that we play, whether it's broadband or whether it is digital television. One -- although having said that, the key aspect that we look at is that when you look at the business, the main factor that we look at is the EBITDA. Are we on course for that? We definitely are on course where that is concerned. But as you asked the question, how do we perform in terms of the -- where do we go from here in terms of the profitability. As I was saying during the session, the driver towards profitability will come from the broadband business. The broadband business is continuing to grow. If you see the ARPUs from INR 169, it's gone up to INR 199, right, while DTV, which has been the base business and the strength of the organization, has also continued to improve its ARPUs. Now combined between both of these, we expect definitely a significant push in terms of working towards our path to profitability. I think I've mentioned this, in fact, right in the last call that while the business is already making operating profits, the depreciation impact is mainly due to the CapEx the company has incurred for expansion, right, whether it is acquiring Seven Star Balaji last year broadband to create ONE7Star, whether it is the setting up of equipment for the national long distance routes. So there's a significant impact that we've had in terms of the depreciation for expansion. But we are clearly working on a path to breakeven at PBT levels. We have a horizon. I mean, it would not be correct of me to kind of put a number to it, but -- or a date to it. But I believe between the 24- to 28-month period at a PBT level, we definitely expect to get there. Would that answer your question? And the second part of your question, Nakul, was what are the initiatives? So the initiatives are, first things first, we've entered the -- we pushed the Enterprise segment significantly. If you look at the Enterprise segment, earlier, it contributed a very small percentage of our revenues. And Enterprise has two great advantages. One is the ARPUs are very, very high because obviously, it's the Enterprise segment. Second is that it works on long-duration contracts, right? You're talking about minimum of 12 months going up to 3 years, 4 years, 5 years. So you're assured in terms of your revenue realization and your revenue assurance. So we are continuing to focus on the Enterprise segment. But at the same time, the second big initiative to tell you, Nakul, is that 60% of our base today, and this is a very important KPI, 60% of our base is actually in the speed range of up to 50 Mbps. Why? Because those are mainly in markets in Tier 2, Tier 3, et cetera. So for us, it's not just growing the subscriber base. We don't need to necessarily just go out and push for more customers. We also have the inherent advantage of upselling and upselling not only to the lower usage segments like a 10 Mbps segment or a 30 Mbps segment but also to the digital television base that we have. So that has been our key initiatives in Q2 and Q3, and we will continue to push those initiatives right through right now. As of this quarter, our focus has been on how do we build a strong customer-facing organization and see significant sales orientation. So there's been a lot of activity in terms of building a strong sales organization. That is the other aspect that we are focused on now that all the building blocks are together. So Nakul, with that, I hope I was able to explain myself.

Yes. This is very, very helpful for what I wanted to understand. Two questions that I had. The next one being that in the previous call, if I was not wrong, you had mentioned that the Internet through satellite.

Correct. Correct.

Could you provide an update on this development over the past quarter and what is the growth outlook in the coming quarters?

Okay. Sure. So Nakul, if you recall, we were hoping that the licensing process would be eased off and the Telecom Regulatory Authority of India was going to work on a structure. Unfortunately, as of today, there's still a bit of gray area around that aspect. The one thing we know is that the couple of international players that were looking very closely at India have complied with the laws of the land that are required to secure a license. So that's good news. From our perspective, we are continuously engaged already, as I mentioned to you, in providing services. So for us, all we're doing is kind of waiting on the sidelines for that to take off. Will it take off? Absolutely. I think there's been strong -- let me be clear. The government is very, very clear on bridging the digital divide, right, whether it is Tier 3 markets or rural markets, there's a strong push towards digital inclusion across all parameters. And I think it's a matter of time and not how when we'll be able to see some traction. But I think time is the key question that we're kind of all waiting on. If I ever get an update before that, I'd be happy to share that Nakul.

Understood. Understood. If I can squeeze in one final question. How much further could we scale in South Africa? And how further do you think we can improve our revenues and profitability in the best case scenario?

Pala, would you like to or Partha?

Nakul, as you say, we started operations in beginning -- I mean, somewhere around June, July. And already, the demand is strong for us to take additional space and expand capacity. Being offshore, we believe that it will have better margins than what we would see if we are doing the same revenue in U.S. or U.K. So that's what I would like to say broadly in terms of where we expect the business to go.

Next question is from Mithil Bhuva from Unlisted India.

Yes. Firstly, I'd like to congratulate the management that Sagility is now a listed company with over INR 20,000 crores of market cap. Any comments on that, sir, from the management? No. I mean we know that it has been sold but still, it was the healthcare unit, right, of HGS.

So it basically talks to the inherent value of the businesses that we build, which probably don't get easily recognized by the stock market. So even now, if you look at our stock prices, it's not reflective of the core value of the business. You have to understand where the business is, right? Let me take an analogy. And if you don't mind me taking an analogy, which is more day-to-day as opposed to business. If you're into gardening, you will prune a tree, hoping that the tree will grow back, right? Now once you've cut the leaves of the tree, which is what represents the healthcare business, the tree takes time to go back, to grow strong. We've also transformed the company from a pure-play BPO player to a technology player. It takes time. So that's why I know there is impatience. I know that there is concerns about revenue decline and profitability. We've tried to cover that as to what is happening in our business, how we are changing things up and how we are setting ourselves up for success in a world driven by AI. It just needs time. And like the healthcare business in the past, the value will be understood once the transformation is over.

I had a couple of questions. Firstly, on the INR 5,000 crores cash that we have on the balance sheet. So we have deployed that in the Group companies that is Machen Dev Corporation, IndusInd Finance, INR 2,000 crores, Machen Dev is around INR 1,000 crores. So can you just highlight like are these long-term finance that we have given them or is it short-term in nature? So when we transfer the fund...

These are primarily short-term, and we have the ability to call back these funds as and when required. Let's say, we were to make an acquisition, then -- and if we need the funds, these are available to be called back.

So it can be called back any time. So it's a short-term in nature.

Yes, yes.

And for example, Machen Dev Corporation, what will be the yield on the ICD?

Broadly speaking, for funds which are outside, we are all -- I mean we are in the range of around 6% plus in dollar terms.

Okay. Any areas where we want to deploy this particularly because it's a very significant amount. So -- and any timeline within, which we want to do this?

So we continue to look for opportunities where there is business synergy, and we expect these to be all in the space of digital, AI, automation and where -- so that's a broad direction where we expect to get new capabilities or new technologies, which we can implement for our growth. That's where we are headed from a direction point of view. Obviously, as and when a transaction happens, we will -- we are required and we'll make the announcements. So at this stage, I will not be able to say anything more.

Okay. Sir, the other question is on the DTV side. Are we like planning to collaborate with some big celebrity who can understand this business very well? Like on the sales front, they know what sells. Like when I see the subscription pay channels, we have paid around INR 540 crores last year that was year-end 2024. So are we in technical collaboration with some celebrity who understands this content business very well?

Sorry, I didn't understand. In terms of celebrity, are you referring to an individual or something who can be a brand ambassador?

Yes. Yes. For example, if it's Shah Rukh Khan, so he understands the content so very well that what content sells actually. And last year, we see that subscription pay channel is around INR 540 crores. So are you yielding any money on that or not? That's what I'm trying to understand.

So the content cost is purely the pay channel content that we bring on board, right? So for example, last year would be Star Television, Viacom or Jio, which is the channels like Colors, et cetera, then Sony, then Zee, all the pay channels have a content cost, which we kind of distribute to our customers and then who pay us, obviously, for the packages madly, right? What we work on in terms of the brand marketing, see, our business is mainly B2B2C. So if you had a brand ambassador, your challenge will be that there will be significant what we term as marketing wastage. I'll give you an example, right? For example, if I advertised digital television in Mumbai, the chances are there would be a significant wastage because the cable operator that connects your home will be either aligned to NXTDIGITAL or he may be aligned to a competitor. So even if you wanted my service and you're in an area of, let's say competitor 1, it may not be possible necessary for you to switch your service. So that is where the use of a kind of a marketing icon becomes a challenge. On the other hand, broadband is something that we've been looking at. I'm not sure if you've caught we've been advertising recently over the last quarter. There's no real brand ambassador. It's been more family orientation because our whole idea Mithil is to show that our brand is something for everyone, whether it's a daughter doing a homework using a laptop, whether it's a grandfather kind of supporting someone with a recipe or whether it's a child and his mother playing a game. I think what we're doing is first establishing that one broadband is a very powerful brand that can basically provide connectivity to the whole family. Would we have thoughts in the future about having a brand icon? Absolutely, Mithil. I don't think the idea is out of the way. So I appreciate that.

Actually, I was not referring to the branding part.

Mr. Bhuva, really sorry to interrupt but may we request you to join the queue as there are several participants waiting for the turn.

Sorry, Mithil, maybe my answer was -- yeah, sure.

I'll just complete it that branding was not for the marketing but for the strategy, like what content really our subscribers are looking out for. So someone smart like Shah Rukh Khan understands that what is the content that really sells. So I was just referring to that, I'm just...

Got you. Got you. Got you. Duly noted. Duly noted.

Next question is from Amit Agicha from HG Hawa.

First of all, congratulations, and I appreciate a lot to all three company -- Mr. Partha DeSarkar, Vynsley Fernandes and Mr. Srinivas Palakodeti because like the presentation is excellent and the speech, which you all gave is self-explanatory for most of the things and appreciate the presentation. My question was connected to the use of cash. Like are the company having any potential dividend buybacks or investment plans for using the cash?

This is Pala here. So as you know, we've already completed the one buyback in the month of June of '23. So that's -- so we returned about INR 1,020 crores of cash to the shareholder. Most of the fund, which we now have are abroad to do the buyback would be bringing your money to India, which becomes tax inefficient to start with. And as you would know that with the changes made in tax rules last year, buyback is no longer efficient from a shareholder perspective itself, right? So we're not sure that's the best way to utilize the funds. We would rather use the funds for growing the business organically or through acquisitions, as I mentioned in response to one of the earlier questions.

And sir, are there any plans to reduce the debt further given the strong cash position?

Yes. So where possible, we will reduce cash as we have demonstrated during the quarter and during the year as long as we don't run into prepayment penalties, et cetera.

Next question is from Ranga Prasad, who is an individual investor.

At the outset, let me say that I'm very enthused to know that the HGS management is very optimistic of better performance in the quarters to come, especially in improving the operating margins. I'm also very happy to know the improvement in profitability of the Media division. Hopefully, this signals a turnaround, which will continue in the quarters to come and add to the profitability of our company. My question relates to the high level of deferred taxes. Can we expect this trend to continue or it's a onetime thing? I mean in the quarters to come, will there be high levels of deferred taxes? The second question is with the finance cost of INR 174 crores, even when we have a cash and treasury balance of INR 5,000 crores, can we expect to see a reduction in the interest cost in the quarters to come because that will add to the profitability of our company.

Thank you, Mr. Prasad. This is Pala here. So if you look at the interest component, so they are, basically broadly speaking, two, three broad components on the EBITDA -- two broad components on the interest cost, right? So one is the actual interest paid on borrowings. And as I've said, we are seeing a reduction in debt borrowings during the course of this year. The second component is basically what is coming out as accounting from IFRS 15 or Ind AS -- sorry, IFRS 16 or Ind AS 16. Whenever you have a property or [indiscernible] or anything which you take on lease, from an accounting standard point of view, you will have to create additional interest and depreciation. So that is one, which may increase because you may take a new office premise on lease or you may lease a transponder or you may lease set-top boxes or those kind of transactions. So as I said, on the interest side, attempts are made to reduce debt and reduce the interest cost, and we have shown the reduction in borrowing. So I hope that helps. Second, on the deferred tax, I think Q3 was extraordinarily high. So going forward, we expect those amounts to be lower as we go through on a go-forward basis.

Now I want to make an observation on the Media division. I'm really very enthused about the performance. The segment-wise performance shows that it's actually shown a profit of INR 10 crores before unallocated interest, that's very good from a loss of INR 43 crores last quarter. So I'm hoping that this does indicate a turnaround and not just a onetime one-off quarter. Mr. Vynsley can explain on that.

Sure. Sir, nice to connect with you again. Thank you so much for your support. And you're right, we've been working very hard as we've assured you to -- and you can see it from the revenues itself on a year-on-year basis. I'm going to ask my colleague, Amar to explain it, but it's a combination of a lot of cost rationalization that we've done, bandwidth negotiations, transponder negotiations, broadcaster costs. So there's a lot of those activities. So Amar, if I can respect -- request you perhaps to explain that more from a high level for Mr. Ranga Prasad.

Am I audible, Vyns?

Yes, loud and clear.

Yes. So coming to the profitability swing from a negative of INR 42 crores to a positive of INR 10 crores. There are a couple of two, three components in that. One, of course, there is other income increase, as you may have seen, other income has increased by about INR 20 crores because we keep looking at how can we sort of monetize some of our passive assets, which -- for which we have invested in the past, but whether we can monetize it because the business needs cash. So that's roughly about an increase of about INR 20 crores. Is that a onetime? It could probably recur because it's not that we monetize all our assets. We keep looking at, which are the idle assets which we can monetize. That's point number one. The remaining increase is caused by the cost rationalization. There are three core components of our costs, which are very, very -- which are very critical. One is the broadcaster cost, which is the main cost. Then we have transponder, satellite transponder cost. And third is in the broadband business is the bandwidth cost. So as far as the bandwidth cost, like Vyns has explained in the past, we have been renegotiating with all the bandwidth providers, and we have had a significant saving in the bandwidth cost as far as broadband business goes on its path to profitability. As far as the broadcaster cost goes, yes, there has been a renegotiation with the broadcasters because like every other MSO, we've also renegotiated with the broadcasters on deals and sort of arrived at a variable cost model with them that if the business grows, then the cost grows. Otherwise, it's at a steady state. The third, of course, is the transponder. Transponder again, we have been going back to the satellite service providers because whenever there is an interference, solar interference or whatever it is, we definitely go back to them for certain discounts because there is loss of revenue. So a combination of these three costs on the cost side and the other income has actually resulted in the profitability. And we believe that it is a sustainable change.

I'd like to congratulate the entire HGS team for putting a very informative presentation. Thank you very much.

Thank you, sir.

Thank you.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Partha DeSarkar for closing comments.

Thank you. Once again, very happy to be with you and looking forward to another engaging conversation at the end of quarter four. As you realize that we are in middle of a transformation of a business, which was very traditional, very pure-play BPO into a technology powerhouse, it takes time. I would ask you guys to be patient as you go through this journey. And I'm sure you will see more value being added to your business as we improve our profitability. With that, I'm going to finish this call today.

Thank you everyone.

Thank you very much, everyone.

Thank you. On behalf of Hinduja Global Solutions Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.