HOV SERVICES  cmp 92

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.

 

Quarterly EPS  is at 14.13.

 

Total outstanding shares are at 1.25 cr and total market cap is at around 115 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 promoter 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 2 and market cap to sales of around 0.15?   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.

 

Technically, after recent run up to 115 in April 2010 from a low of 24, the stock is currently consolidating  between 80-100 since 2 months.

 

If the company continues with its performance and maintains the first quarter results going forward for next few quarters, there could be some rerating and good gains.

 

Company paid Rs 2 interim dividend in fy 10 and declared another Rs 2 final div for which record date is 21 aug.  After declaring the q1 fy 11 results, another Rs 2 interim dividend is declared for fy 11 for which record date is not yet declared.

 

Now it needs to be seen if the “Exceed Expectations” theme applies to the company on upside.

 

Acknowledgement :  This scrip has been brought to my notice by a senior TEDDIE, master . thanks sir.

Here are some updates suggested by master.

1. Debt position as on June30 2010 is net bank debt of 100.3 million dollars which gives d/e ratio of 1.3

2. Comfortable liquidity with DSO of 52 days.

Financials need to be looked in view of its consolidated results. Most of websites display standalone results and here it might provide a wrong picture.

Originally posted by hit2710 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.

Originally posted by genieinvestor Why is the Rediff data showing the EPS as Rs. 2.34 for March 2010 year???

You need to look at the consolidated figures. I mentioned earlier that most financial websites show standalone numbers. You can download results from bse or nse which give consolidated figures.