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

Good evening, ladies and gentlemen, and a very warm welcome to the Q1 and FY 2027 Earnings Conference Call of Hinduja Global Solutions Limited. From the senior management, we have with us today Mr. Venkatesh Korla, Global Chief Executive Officer, HGS; Mr. Vynsley Fernandes, Whole-Time Director, HGS and CEO of NXTDIGITAL Media Business; and Mr. Mahesh Kumar Nutalapati; Global Chief Financial Officer, HGS. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Venugopal from Adfactors PR. Thank you, and over to you, sir.

Thank you, Nirav. Good evening, everyone. We welcome you to the Q1 FY 2027 Earnings Call of Hinduja Global Solutions Limited. Before we begin I would like to highlight that some of the statements made during today's call may be forward-looking in nature. These statements involve risks and uncertainties including those related to the company's future financial and operational performance. Additionally, in the unlikely event of a call drop during the conference, we will ensure the call as reconnected at the earliest. I now invite Venkatesh sir to deliver the opening remarks. Over to you, sir.

Thank you. Can you all give me okay?

Yes, sir. Loud and clear.

Excellent. Good evening, everyone, and thank you for joining us. I'm Venkatesh Korla, Global CEO of HGS. I'll start with a brief update on our overall performance for Q1 FY '27 and then share some of the key developments that are shaping that growth journey. This quarter reflects our continued focus on execution, capability building and positioning HGS for its next phase of growth. We are working through a planned transition with some legacy contracts, completing as expected, while newer engagements continue to ramp. Although the revenue contribution from these wins will build progressively over time, we are encouraged by the momentum we are seeing in areas such as AI-led transformation, digital modernization, platform services and intelligent operations. We believe the portfolio we are building today is strategically stronger, more aligned to evolving client needs and better positioned to drive sustainable growth in the years ahead. Moving on to the Slide 4, snapshot of HGS' final performance. For Q1 FY '27, our revenue from operations stood at INR 1,050.4 crores, and total income was INR 1,201.2 crores. Total EBITDA stood at INR 116.3 crores with EBITDA margins at 9.7%. Two things sit behind that number. First, the contracts running off are doing so all schedule as expected. Second, the new business replacing them carries a different profile. More technology content, more offshore delivery and increasingly commercial side to outcomes rather than headcount. The impact on margins is immediate because of rent and training costs. Looking at business highlights for the quarter. During the quarter, we made steady progress on several business priorities. We are seeing multiple AI embedded client engagements move forward. These are not just pilots or proof poise anymore. Increasingly, clients are looking at AI as part of real operating models where the focus is on measurable outcomes, productivity, speed, quality and business impact. We added 19 new logos across CX and digital services, and 8 clients in HRO and payroll processing. That is encouraging because it shows continued client confidence in our capabilities, even in a cautious demand environment. However, many of these relationships are at an early stage, particularly within the OSS business, and we expect revenue contribution to build progressively as projects mature and the scope expense. Our pipeline remains strong in areas such as agentic AI, process automation, contact center, digital modernization and platform services. We have also strengthened our focus on domain hiring, fractional advisers and solutions buildout, which are important as we move deeper into specialized outcome end engagements. Another important development was the incorporation of HGS MENA IT consulting in Dubai. This will help us build technology and consulting capabilities across the MENA region and support our expansion strategy. We continue to see encouraging external validation of our strategy and execution. In Q1, we received recognition for our AI-led innovation and employee experience initiatives, while analyst firms, including Forrester, Everest Group and Avison highlighted our capabilities, sector expertise and evolving position in the market. Overall, the quarter reflects a continued focus on disciplined execution, expansion and innovation. Driving business growth through delivery of intelligent experiences, let me now spend a few minutes on where we are headed as a business. Over the past few quarters, we have been deliberate in sharpening our market position. The opportunity today expands well beyond traditional CS or digital operations. Clients are looking for partners who can bring together technology, data, AI, automation and operational expertise to deliver clear business outcomes, create better experiences for our customers and employees, and provide leaders the insights needed to make smarter decisions. When businesses reimagine entire processes around these outcomes, the impact goes far beyond efficiency. It creates stronger customer relationships, improves agility and builds a competitive advantage that is difficult to replicate. So clients are increasingly seeking trusted partners who can help them drive end-to-end transformation and translate technology investments into real business value. HGS has positioned well to win in this space and aspires to be a leader in helping businesses move from cost savings to revenue generation. And first moving execution across industries, we are seeing AI adoption accelerate, but the conversation has clearly changed. Today, enterprises are asking sharper questions around ROI, business value, speak to value, governance and scalability. This is very evident from my recent meetings with clients and prospects. That shift plays to HGS strength. We have always understood operations deeply. We understand workflows, customer journeys, compliance needs and the complexity of execution -- and executing large transformation on a global scale, where that operational depth is combined with AI, automation, data and platforms, the opportunity becomes much more powerful. So our focus is very clear. We want to help clients move from AI pilots to AI execution. In other words, not just deploying technology, but ensuring that it delivers a measurable business impact for our clients. HGS is turning brand promise into business action. At the end of March '26, we introduced a sharper market position for HGS as the intelligent experience is partner. Since then, our focus has been on translating their position into action across the business. In line with our new position, we have clarified our portfolio under three solution areas: intelligent interactions, intelligent operations and intelligent platforms. This will enable us to convey our end-to-end capabilities and our proven expertise in AI and automation. A key part of this is our focus on outcome-led engagements and production-ready innovation. Our 90-day proof of value model is designed to help clients go in with more clarity, move faster to outcomes and scale with confidence. We believe this formula is a strong differentiator in the market, and it is resonating with customers. We are verticalizing into four markets where we have real death, BFSI, consumer products and retail, health care and public sector and utilities. Verticalization is a mechanism, not a batch. It means clarifying what we know into reusable assets, vertical agent libraries and package solutions. So the second client benefits from the first. We are also continuing to strengthen our delivery, talent and go-to-market capabilities. Alongside this, we are building a growing portfolio of packaged solutions accelerators in AI-powered platforms, including investments in agent ex and workflow-centric AI capabilities. So for us, this is not just a brand statement. It is a clear operating direction for the company. As an example, I'll go to a 360-degree refers to customer understanding. Let me share an example from the manufacturing sector that highlights how connected data can drive meaningful business outcomes. The plant, a beverage manufacturer -- a beverage can manufacturing company was managing critical sales, production, inventory and customer data across multiple SAP and non-SAP systems, making it difficult to get a unified view of operations and making agile decisions. It just built a cloud-based analytics platform on Asia that brought these data sources together into a single view, enabling better planning, forecasting and decision making. The results were significant, 99% sales forecast accuracy, 70% inventory cost optimization, 95% production planning accuracy and improved responsiveness to customer demand. This is a strong example how data and analytics can translate into measurable business value. In closing, let me finish with what we are actually seeing within our business. First, the shift -- the pricing shift. We intend to move a growing share of our contract value on to outcome linked and non-headcount commercial structures. This is the single most important thing we are doing because it is what is AI-driven productivity into our margins. Second, placing the runoff with better revenue. The contracts we have lost were largely labor priced. The contracts we are winning carry technology content and offshore weighted delivery. We expect that to show in the margin structure ahead of revenue cycle in following quarters. Third, proof over promises. Every offer will take to market comes with a 90-day proof of value and defined outcomes. If it does not work, the client does not pay for it. We will hold ourselves to that. While the revenue line does not yet reflected. This is not a fault. It is a deliberate change to what we sell and how we get paid for it. And the market is moving towards it and not away from it. Again, thanks, all. And I'm now going to hand over to Vyns to talk about our media business. Here you go, Vyns.

Yes. Thank you. Thank you, Venk for that. I hope you can hear me is my -- am I audible, so then I'll continue. Someone confirmed.

Yes, sir.

Yes. Thank you. Thank you very much. Good evening, everyone, and thank you for joining us today. I'm going straight to Slide 11. And to share with you all, it's actually been a very, very strong start to the fiscal on the broadband front, and there have been several key aspects and several key factors driving that. I'm going to actually start on the reverse, which is the third point, which is challenges on the digital television vertical front. As you all know, there is -- there are significant headwinds impacting the digital television of the Linear TV business. And those are not just industry-wide in India, but also pretty much globally. And rather than kind of take them in our stride, we have taken it head on, and we focused instead on what would be the appropriate mitigation aspects. And if you look at the challenges that are facing the business, the DTV business, we've been able to mitigate them through a lot of aspects, not just broadband, but also cost optimization is as adjacent to innovative measures as important. So there have been a whole slew of innovative measures that we've rolled out, which is bundling broadband with DTV in certain markets, rolling out IPTV and of course, cost optimization which we will continue to focus on. I mean that is something that as a business, it is we are beholden to look under every rock in every crevice to figure out how to make the business more robust. That is on the DTV front. In the broadband front, CelerityX, which is the enterprise business of oil, as I mentioned in the last quarter, is -- has been identified as one of the forward growth engines for the future, and we have been putting in a lot of efforts on that front. And we pleased to let you all know that we've seen not just new prestigious logos being added in the last quarter, but also more importantly, and this is very important, we've been able to get in corporates for repeat orders. And repeat contracts are very, very critical. Because -- and why it is significant because corporates, number one, it reflects the faith they have in services and the solutions of CelerityX, but more importantly, from a one OTT Entertainment Limited perspective, repeat contract is a longer duration contract, and that is something which gives us great comfort and confidence. The third point, and I'm going to spend some time on the next slide itself. So if I request you to go to the next slide, I apologize, there's no number. Slide #12, 13, actually, which says Project Ganga was launched on 9th June 2026. This is -- in fact, this is not just for one OTT Entertainment Limited. This is a matter of great pride for the entire nation because it's a very unique project that was flagged off by the Honorable Chief Minister of Uttar Pradesh, Shri. Yogi Adityanath ji on the 9th of June 2026. It is truly a project or truly an initiative, not just in digital transformation, but also in social upliftment and pretty much expands all across the 75 districts of Uttar Pradesh. As you can see from the slide, which is on your screen, there's been significant amount of coverage, not just from the television channels and the news networks, but right across the board because that is indeed the complete focus for the nation in terms of digital inclusion also, as all of you know, has been one of the pillars for growth. What makes it really interesting, and I'm going to go to the next slide, which is an update on Project Ganga, the title say Project Ganga update. We just launched this on 9th June 2026. And just to recap for everyone, this initiative focuses on empowering youth. We're looking to support the government of Uttar Pradesh with enabling about 8,000 to 10,000 entrepreneurs at the Nyaya Panchayat. Nyaya Panchayat is a collective of Gram Panchayat to be developed into independent digital service providers with 50% of them being women. And this is a very important factor that we've been focusing on. And over the next 2 to 3 years, Project Ganga, which as you know, is an acronym for government-assisted network for growth and advancement. We'll look to connect over 2 million, 20 lakh households with high-speed broadband. And do you see the photographs on the right, those are actual training that have been done. We've received about 2,000 applications on the Project Ganga portal and mobile app as of 4th August in terms of getting this report ready. And as of today, we're very proud that about 500 such applicants have been trained in business operations, technology and field services. So it is -- it has parameters for selection. And on the basis of that, we shortlist people and training that you look at those three are in Noida, Prayagraj and Lucknow. And of course, there's an online dedicated training system that we've developed, which is a Project Ganga LMS, learning management system. This has been developed and with a very clear focus, again with guidance that people in the most remote areas who have challenges of travel and making it to the cities or towns for training will be able to access the online training modules and pass the -- because there is a certification process and be a part of the potential Project Ganga BSP growth. So that is on this slide, which says Project Ganga update. And I will, in the next meeting and the next quarter that we have, I will share with you KPIs, key performance indices in terms of how many people have been, not just strained, but also how many people, their networks have received their own from the CM YUVA scheme, how many people have been -- have rolled out their networks and how many customers they've onboarded. Because as you know, one OTT entertainment in the broadband vertical of Hinduja Global Solutions, is tasked with being the knowledge partner and enabler. And our role is to handhold these potential DSPs or DSPs once they are operationalized all the way up to helping them roll out their technology networks as well as helping them market their services customers and turn their business into -- turning into a DSP business. With that, I'm moving to the next slide. And just before I go on to KPIs. We've always been in the news for the right reasons, and we're quite happy. If you look at the news in addition to the entire project, Gana coverage, which is a significant, we've also been in the news in terms of our growth factor, in terms of what our strategy is. And all that, the investments that we've made, the -- not just in people and technology, but also in processes, in innovation, in ideas like Project Ganga, of course, all of those have been able to kind of best out -- we've been best out with the best future-ready network superior. If you look at on Slide 15 on the right-hand side, this is very critical because the award essentially cites our consistent innovation and technology. And the fact that we continue to leverage our vast partner-driven network. So it is not just building our own networks but also leveraging our partner networks, something that I've shared with you all in terms of the success of CelerityX. And as Venk was mentioning, we are focusing and we are harnessing and enhancing the HGS global approach of harnessing the 3s, artificial intelligence, analytics and automation. And a lot of our processes, a lot of our technology is being leveraged to build out an integrated connectivity mesh across the country. So this is something that we've been doing quite effectively. That's Slide 15. And I'll take you to Slide 16 now. This is something we monitor, as I mentioned to you, I think, literally on a daily basis, because this reflects truly the strength of a broadband company or the strength of a broadband network. In terms of the customer adoption of the customer adaptation to packages and upgrades and upselling. And if you look at the shift in customer mix on Slide 16, pretty much high-speed reduction, right, which was barely in the low single digits, about 1.5 years ago, already, it's risen from about 11% last year at this time to 15% on an expanding subscriber base. So that is -- if you look at the two pies on the left-hand side, it talks about 101 Mbps to 200 MBPS, 8% and greater than 200 - [ 3 ] MBPS So that's 11% in Q1 last year, that has moved, if you look on the right-hand side to 15% in those two segments in this quarter. And the other thing that gives us also a lot of comfort and confidence is that customers are choosing higher base plans at the start. So that the base plan of 10 to 30 MBPS, which is like an entry pack, the customers opting for it is reduced from 22% to 18%, and that bodes pretty well. Of course, the mid-band, which is 31 to 50 MBPS, that's pretty much stable at around 67%. But the 51 to 100 again is -- has continued to move up. So all in all, this gives us for anyone tracking how future growth or future revenue structuring of future, how do I put it, future broadband offtake across the country. This is a great measure to show that the package uptakes will continue to increase. People opt for better packages at the start. And this is, of course, aided by sustained upselling and rising data consumption. People are looking at so many more apps and other aspects. So that is pretty much it from my side. Thank you all for listening patiently to me. With that, I'm going to hand over to my colleague, Mahesh Nutalapati, who is our Global CFO. Mahesh, thank you, and if I can hand over to you, please.

Thanks, Vyns. I hope I am loud and clear.

Loud and clear. Loud and clear, Mahesh.

Thank you. Good evening, everyone, and thank you very much for joining us. As you would have heard from both Venk and Vyns in their respective business updates, this has been a quarter of deliberate disciplined execution across both sides of the business. Sharpening our position as an intelligent experiences partner, adding around 19 new logos in CX and digital services and 8 in HRO and payroll, incorporating HGS MENA in Dubai and building a strong pipeline agentic AI in platform services. On the media side, as Vyns mentioned, Project Ganga was launched in June by the Honorable Chief Minister of Uttar Pradesh. CelerityX continued to add and -- and spice logos. And we have kept the digital television headwinds well mitigated through cost optimization strategies and initiatives that were put under way. What I will now take you through is the financial expression of that agenda. The first quarter reflects a business that is holding its revenue base steady while we invest ahead of the curve in sales and -- and domain talent and in our AI capability to build. I will walk you through the consolidated performance, the balance sheet and our revenue composition and then close with how we see the year progressing. So turning to the numbers for the first quarter of FY '27. The headline is business holding its revenue base broadly, with profitability for the quarter, absorbing the investments and planned phaseout of a large client engagement and its related onetime costs fairly in line with what Venk and Vyns have just described. So let me take you all through it. I'm on Slide 19. Revenue from operations for the quarter stood at INR 1,050.4 crores, moderating around 3.2% sequentially and marginally lower by 0.6% year-on-year. Total income was INR 1,201.2 crores, down 4.3% sequentially and up 1.2% year-on-year. Depreciation for the quarter is at INR 123.6 crores as compared to INR 134.9 crores in the previous quarter and INR 128.3 crores in the corresponding quarter last year. Interest cost has come down to INR 45.5 crores from INR 48.1 crores sequentially and INR 57.9 crores year-on-year, reflecting continued discipline on the debt book. Other income for the quarter is at INR 150.8 crores as against INR 170 crores in the previous quarter and higher by around 15.1% on a year-on-year basis. Profit before taxes -- before exceptional item is at negative INR 52.8 crores as compared to a positive of INR 14.1 crores in the previous quarter and negative INR 26.5 crores in the corresponding quarter of the previous year. There are no exceptional items this quarter as against INR 4.8 crore in the previous quarter relating to the new labor course. Taxes for the quarter were at INR 13.5 crores as against INR 22.9 crores in the previous quarter and INR 19.9 crores year-on-year basis. The total PAT for the quarter is a negative INR INR 66.3 crores as compared to negative INR 13.6 crores in the previous quarter and a positive INR 11.2 crores in the corresponding quarter last year. Noting that the year ago quarter included INR 57.5 crores from discontinued operations, which does not repeat in this quarter. Total EBITDA is at INR 116.3 crores with a margin of 9.7% as compared to 15.7% in the previous quarter and 13.5% year-on-year. On margins, let me clarify about the drivers. This is not compressed because of any demand that is delivering this. Operating expenses have stayed broadly flat around INR 1,084.9 crores revenue moderated. And the quarter also absorbed one-time cost related to planned phaseout of a large quant engagement and also some front-loading of investments in sales, solutions, domain hiring and our AI capability build, including agent tax and the 90-day model that Vyns spoke to. Consistent with what we have said in our prior quarters, we view this as a onetime cost and investment phase adoption rather than any structural change in our earning power, and we expect auditing leverage to return as volume normalizes and these investments commercializes. Moving on to Slide 20, which is the balance sheet. Our balance sheet remains strong. Total assets stood at INR 11,474 crores as of June '26, against INR 11,556.7 crores in March '26. And total equity is at INR 8,402.5 crores against INR 8,436.1 crores, broadly stable through the quarter. Other equity includes noncontrolling interest of INR 111.3 crores as of June '26 against INR 119.6 crores as of March '26. Gross treasury and cash surplus is INR 6,605 crores against total borrowings of INR 1,279 crores within our net treasury and cash surplus of INR 5,326 crores as compared to INR 5,346 crores at the end of the March. Liquidity remains solid, gearing ratios are comfortable and working capital metrics are stable. Collection discipline continues to hold, and we are funding our growth initiatives, including Project Ganga, primarily through internal accruals. Moving on. Now I am on Slide 21. We went composition by source and vertical on a base of INR 1,050.4 crores. The left side shows revenue by source. So CX Services accounts for 54% of operating revenue and digital and media services or 46%, consistent with the balance we have in through FY '26. The right side shows a split by vertical. Tech Media and Telecom continues to be our largest vertical at 46% of the total revenue. CD and retail at 19%, at 17% and public sector at 12%, primarily from the U.K. and Canada. Health and Life Sciences is 3% and other at 4%. The direction here is deliberate. Our vertical mix has become more diversified compared with prior quarters, with lower dependence on our largest vertical and the broader base across the FSI retail and public sectors, which is exactly the portfolio rebalance we have committed at the start of '27. Moving on to Slide 22, revenue composition by origination and delivery. From an origination standpoint, India accounted for 40% of revenue for the quarter. U.S. 30%, U.K. 16% with Australia, Canada and other adding up to the balance, 15%. From a delivery standpoint, India accounted for 40%, U.S. 20%, Philippines 15%, U.K. 14% with Canada and others making up the remaining 11%. Our delivery footprint remains well diversified across geographies, giving us a benefit of both cost flexibility as well as resilience. The point I would like to underline picking up from Venk's remarks, our investments in Agentic AI is in tax in our platform portfolio is steadily moving from big Phase II commercialization with multiple AI embedded client engagements now in progress and a strong pipeline in Agentic AI contact center modernization and platform services. There is a near-term margin absorption as we're going to scale up these capabilities. But the client pool we are seeing gives us confidence that this is a medium-term margin accretive and not to one. Looking at, we remain cautiously optimistic. Micro uncertainties and line prudence may persist in the near term, and our first quarter reflects that, but with a stable revenue base, a strong balance sheet, a well-diversified portfolio and a clear AI-like differentiation. We are positioned for a gradual improvement in both growth and margins through the year. Our priority remains sustainable profitable growth with continued rigor on cost, productivity and capital efficiencies. With that, I would like to end the presentation. Thank you once again for all of you for your continued trust and partnership. With that, I'm handing it back to the moderator.

[Operator Instructions] First question is from the line of Pasha Shah from Shar Family Office. Next question is from the line of Ankit Jain from Gravita Consulting.

Am I audible to all of you?

Yes, sir, go ahead.

I just wanted to understand that we read in certain sections of the media that the project Ganga is going to be on no profit, no loss sort of a situation. Just wanted to understand what margins are we anticipating in Project Ganga? Is it the normal pricing that we are doing, like we're doing in all of the cases? Or will it be a subsidized program where we'll be being the cost of the implementation?

Okay. If I may take that. Mr. Jain, Vynsley here. Can you hear me, sir?

yes, I can hear you.

Yes, yes. So in terms of Project Ganga, we are the enabler and the knowledge partner. So from our perspective, obviously, our role expands right up to handholding and commissioning the partner. Your point is really valid in terms of what would be the broadband pricing, what would be the margins and how the business would operate. Let me put it you slightly differently. The idea is that because of the scale of over 2 million homes to be connected there remains enough of traction. And just to share with you, it's already pretty much public knowledge in terms of the pricing that's going to be rolled out. The pricing is in line with the competition that is there in Uttar Pradesh today in terms of national competition as well as local. So pricing is not the competition. What we're supporting the State Transformation Commission and the Project Ganga team, is to ensure the quality of service because that is what the challenge is today. So from a perspective, when you look at it from a -- and you rightly, you pointed out the non-profit no loss aspect, that is in terms of helping support the networks to roll out. But in terms of being a pure ISP providing broadband or providing Internet services, that remains very much what we're doing in all markets and what is currently prevalent in the state of Uttar Pradesh. I hope that was provided some level of clarity, Mr. Jain?

Yes. So this will not be a negative cash flow play in your view also. Is it?

It is not a negative cash flow at all. That is the reason why we've looked at it for me in no profit, no loss perspective. Because one simple reason, the process -- so let me put it differently. The expertise that we're bringing are from in-house people. We already have the resources in house. We already have the capabilities in house, we already have the training team in house. So from a perspective of hand holding, we already have the resources, the capabilities and the capacities. And from an ISV perspective, that is a completely different game in terms of being able to help connect them and provide them the bandwidth. So yes, to you answer, absolutely. We agree with you.

[Operator Instructions] Next question is from the line of Sharma from Eikan Investments.

Am I audible?

Yes, go ahead.

So my first question is that you added 19 new CX digital logos in Q1. So how should we think about the ramp-up for this client? And -- when do you expect them to start contributing meaningfully to the revenue growth?

I'll take the question. This is -- Can you hear me?

Yes, yes. Yes, sir.

So typically, once we add new clients, it takes around 6 to 8 months before you start seeing the benefits of that revenue and scale. Initially start off a small or a small amount of work around $150,000 to $300,000 and then eventually scales up. In the first three months or so, there is actually training and onboarding and ramp-up costs, the that is what you -- to some degree, you will see some margin impact in the nation as we grow. But before the end of the year, we should start seeing growth in being margin accretive to the company. Hope that answers your question.

Understood. Understood. So my next question is that with the strong addition of the new logos, what do you see as the key factor limiting faster revenue growth right now? Is it the time taken for the clients to ramp up? Or it is the deal size? Or is it the growth in the existing business?

It's a combination of both, a, growth in existing business continues to exist. There are some deliberate ramp-downs, as I mentioned in my presentation that will continue to happen and we should be coming to an end of that before the end of this current fiscal year. There will be -- as we add these new clients, they're going to have the they're smaller in size compared to the past clients because with AI, the actual revenue size grows marginally smaller than in the past. But on the other hand, margin is higher. Therefore, we expect the higher margins and revenue growth to pick up before the end of the year. As far as the limiting factors that this ramp up, essentially, it takes time to transition on the customer, get the trading done and get people deployed into the projects.

Okay, sir. Okay. So one last question from my side. Do you expect the pace of new logo additions to remain strong through FY '27? Or was Q1 and unusual strong quarter in this regard?