HOV SERVICES cmp 133 market cap 166 crore
HOVS is one of the largest end-to-end BPO companies, providing healthcare, finance and accounting, e-content management, document lifecycle, presentment, HR assist, and strategic consulting services across key verticals such as BFSI, Healthcare, Government, Telco, Publishing, Retail, Commercial and Industrial Manufacturing industries.
The motto of the company is “Exceed Expectations”.
True to the word, the company exceeded expectations of shareholders on the downside in terms of share price.
Reason: It sold of its stake in various subsidiaries namely 100% Stake in Bay Area Credit Services, 100% interest in HOV AR Management Services, and 30% minority stake in TRAC Holdings to Rustic Canyon for a consideration of 12 Million usd. In doing so the company effectively booked exceptional loss of 132 crores and hence reported a loss at net level in FY 10.
FINANCIALS
After all this mess clean-up, the company reported the following results for Q1 FY 11.
Sales 182 cr vs 223 cr (decline in revenues is due to divestment of subsidiaries)
NP 17.64 cr vs 12.27 cr ( improvement in margins is evident)
Interest payment has reduced from 9.41 cr to 7.36 cr.
As on June 2010 qtr, the total debt was at USD 100 Million down from 119 Million a year earlier.
Quarterly EPS is at 14.13.
Total outstanding shares are at 1.25 cr and total market cap is at around 166 crores.
Debt as on march 2010 was around 520 crores which is expected to go down.
Dividend declared during fy 10 was Rs 4.
Promoter holding is around 49%-- no pledging (around 9% shares were re classified as non promter from promoter category—hence q-on q reduction in promoter shareholding)
Company bought back around 63000 shares at an avg price of 32 during buyback which finished in Jan 2010.
INVESTMENT THEME:
If one were to annualise the quarterly eps of 14, we get an annualised EPS of around 56. So we are surprised why the stock is available at a pe of roughly 3 and market cap to sales of around 0.25? And that is where the dilemma occurs.
Sometimes we are faced with a situation which is just “too good to be true”. In such situations, one begins to wonder if there are skeletons hidden in the cupboard waiting to come out. I tried hard to find out whether there are any significant negatives in this company. Except debt and the write off, I couldn’t find too much.
Currency fluctuations could impact earnings.
Disc: I have HOV in my portfolio. The dividend declared has been regularly deposited in my bank account so the earnings are for real.
WHILE RESEARCHING/LOOKING AT THE RESULTS OF THIS COMPANY, ONE NEEDS TO LOOK AT THE CONSOLIDATED FIGURES BECAUSE MOST OF THE REVENUES COME FROM OVERSEAS MARKETS.
Next quarterly results for Sep 2010 will be declared on 28th Oct along with declaration of interim dividend.
