Detailed Rationale

Crisil Ratings has downgraded its ratings on the bank facilities and commercial paper of Hinduja Global Solutions Limited (HGS) to ‘Crisil A/Stable/Crisil A1’ from ‘Crisil A+/Stable/Crisil A1+’. Crisil Ratings has also withdrawn its rating on the commercial paper programme on request of the company. The withdrawals are in line with the Crisil Ratings policy on withdrawal of ratings.

 

The rating action factors in higher-than-expected moderation in of the business risk profile, due to decline in revenue and operating margin, primarily in the mainstay business process management (BPM) business, which forms nearly 70% of overall revenue. Revenue has declined by 14% year-on-year (y-o-y) during the first nine months of fiscal 2025, primarily due to the subdued demand scenario in the USA and UK and transition from the onshore to offshore services model. Resultantly, the segment saw its operating margin moderate to 1.5% (excluding non-operating income and lease outflow), from 6-7% reported in the past. 

 

The digital media business, which forms the balance portion of revenue, exhibited steady revenue growth of 15% y-o-y, supported by improvement in average revenue per user (ARPU), even as subscriber count fell as compared to March 2024. Operating margin was lower, with operating margin (excluding non-operating income and lease outflow) of around 9%, lower than 11-12% seen in the past. 

 

Consequently, Crisil Ratings expects the overall operating income to decline by 7-9 % (y-o-y) during fiscal 2025, and operating margin (excluding non-operating income and lease outflow) to drop to 3.5-4.5%, from 7.8% margin in fiscal 2024. The company is also incurring operating and financing lease expenses (not included in operating expenses in accordance with Ind AS 116) totalling over Rs 400 crore in fiscal 2025, primarily towards leasing of media related assets, net of which, the accrual remains negative. However, overall cash flow, supported by non-operating income, is likely to be over Rs 500 crore for fiscal 2025.

 

Operating performance in fiscal 2026 could witness marginal improvement, driven by recovery in the BPM business, supported by the new facility in Cape Town (for off-shore work) along with improvement in business conditions in key markets. The Cape Town facility offers 40-60% cost savings per full-time equivalent (FTE). The company’s ability to receive fresh contracts and provide transition to the off-shoring model remain highly critical. Crisil Ratings expects revenue to record low to mid-single digit growth, with moderate recovery in margin, supported by cost-optimisation measures and better fixed cost absorption. The same, however, remains a key monitorable.

 

The ratings continue to drive comfort from the strong financial risk profile, which is marked by low gearing and adequate financial flexibility and liquidity. Free cash, loans and investment balances amounting to 6,365 crore as on December 31, 2024 (including cash and bank balances of around Rs 678 crore, with the rest parked as loans, deposits and investments in various Hinduja group entities) provide high financial flexibility. Gross debt (comprising bank and other borrowings of Rs 1,213 crore and leases of ~Rs 828 crore) were moderate around Rs 2,000 crore as on December 31, 2024, against Rs 2,107 crore as on March 31, 2024, with gearing around 0.3 time. Over the medium term, the group plans to incur capex of Rs 100-140 crore per fiscal (excluding lease related additions) for both media and BPM businesses and fund the same via a mix of cash accrual, interest earned on funds, and existing liquidity, ensuring limited reliance on fresh debt. Strong networth and liquid surplus will continue to support the overall financial and credit risk profile.

 

These strengths are partially offset by exposure to intense competition in the BPM segment within the broader information technology-enabled services (ITeS) industry and the highly competitive broadband and digital TV media market. The company’s significant exposure to group entities also remain monitorable.

Analytical Approach

To arrive at the ratings, Crisil Ratings has combined the business and financial risk profiles of HGS and all its subsidiaries, including those operating in the media business, and the newly acquired business of Teklinks and Diversify, held directly or indirectly. All the entities share a common management, and are engaged in a similar line of business, with significant operational and financial linkages. Crisil Ratings considers these entities as being strategic to HGS, in view of their strong integration with the parent’s operations. Debt includes lease liabilities, following adoption of Ind AS 116.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Benefits from diversification in geographic and segmental reach: The legacy BPM business operates across diverse verticals such as technology and telecom (13% share of operating income in fiscal 2024), consumer and retail (20%), banking and financial services (14%), public sector entities (9%) and the others (12%) . However, higher share of deliveries from key customer locations (viz. the US, UK and Canada) vis-à-vis low-cost locations such as India or Philippines, along with legacy cost related to the healthcare vertical, which is being slowly restructured, has led to moderation in margin. The company is shifting work offshore to its low-cost centres in South Africa and Colombia, to serve high-potential international markets. While new customer addition is likely to be slow in the legacy BPM space, client additions in the new age analytics and digital segment could be exacerbated by mid-sized acquisitions, which in turn could bolster the margin as well.

 

Inclusion of NXTDIGITAL Ltd (NDL), the flagship media business of the Hinduja group, has not only diversified the business risk profile, but has also lent diversity to geographic reach. The media vertical has contributed to around 32% of revenue in fiscal 2024, backed by its longstanding track record of three decades in the media and communication vertical. India accounted for around 31% of revenue in fiscal 2024 (versus 10% in fiscal 2022). The company has a pan-India presence, with increased reach in lower tier cities, where it provides TV services through a dual delivery platform. The platform comprises the terrestrial fibre route and the country's only Headend-In-The-Sky (HITS) satellite platform, under the brands, INDigital and NXTDIGITAL, respectively. Other than TV services, the subsidiary, ONEOTT Entertainment Ltd offers broadband and internet services in 40 cities. Higher focus on customer acquisition, led by the broadband business, is seen as a key growth driver going forward. The company also plans to leverage the HITS platform to serve rural and underserved markets.

 

• Healthy financial risk profile with strong capital structure and liquidity: Financial risk profile will continue to be marked by moderate debt, high networth and low gearing. Gross debt (comprising bank and other borrowings of Rs 1,213 crore, and leases of around Rs 828 crore) remains moderate around Rs 2,000 crore as on December 31, 2024 along with low gearing of ~0.3 time. However, healthy cash accrual, bolstered by non-operating income and surplus cash and investment balances, should suffice to fund annual capex of Rs 100-140 crore (excluding lease related additions), ensuring lower reliance on additional debt and steady gearing of ~0.30 time over the medium term. Interest cover, albeit moderated from 9-10 times historically, should be adequate at 3.0-4.0 time (pre-leases) over the medium term.

 

Aggregate surplus funds of Rs 6,365 crore as on December 31, 2024, included cash and bank balances of around Rs 678 crore, and the rest parked as loans, deposits and investments in various Hinduja group entities. Actual deployment and balance funds post acquisitions, investments in group companies, expansion by NDL and other developments, and ability to recall these funds at short notice, remain key credit monitorables.

 

Weaknesses:

• Exposure to intense competition, impacting price flexibility and cost management: Both the ITES and broadband and digital video segments are highly competitive. Quality, pricing, reliability, range of services and data security technology determine the operating margin. HGS competes with established players such as Genpact, WNS (Holding) Ltd and Firstsource Solutions Ltd (‘Crisil A+/Stable/Crisil A1’) in the ITES space and with Reliance Jio Infocomm Ltd ('Crisil AAA/Stable/Crisil A1+') and Bharti Airtel Ltd ('Crisil AA+/Positive/Crisil A1+') in the broadband and digital video business. Also, increase in wages and cost associated with hiring, training and retention of talent pose challenges for adequate staffing and seat utilisation. Profitability will remain susceptible to competition, rising employee cost and the ability to transfer any hike in cost to customers.

 

In the BPM segment, restructuring of legacy cost related to the healthcare business, and cost rationalisation efforts, have helped the margin improve in recent times. While in fiscal 2025, the margin remained muted on account of de-growth in revenue, amidst geopolitical and macro-economic challenges in key global markets, recovery in margin remains a key monitorable. Also, the highly competitive media business has yielded a low margin, yet requires large capital to sustain growth in the subscriber base. Sustained growth in the subscriber base, along with improvement in cost structure, should improve the margin over the medium term and remains a key monitorable.

 

• High exposure to group companies: HGS has invested Rs 500-600 crore across various group companies. These investments generate a higher return of 8-9%, compared to fixed deposits and the loans are returnable on call. HGS has partly recalled these loans to fund its share buy-back. Besides, it has also invested around Rs 3,500 crore in debt instruments of overseas group companies, wherein it earns a healthy interest, albeit subject to volatility in foreign exchange rates. These investments are also available on call (with 7-15 days notice) and could be used to fund acquisitions outside India. Excluding these investments, liquid cash & bank balances were ~Rs 678 crore as on December 31, 2024. Substantial exposure to group companies remains a key monitorable.

Liquidity: Strong

Aggregate surplus funds of Rs 6,365 crore included cash and bank balances of around Rs 678 crore and the rest parked as loans, deposits and investments in various group entities, as on December 31, 2024, bolstered by proceeds from sale of the healthcare business. Utilisation of working capital limit of Rs 280 crore averaged around 89% (as a percentage of drawing power) over the 12 months through January 2025. Term debt obligation was moderate at around Rs 150 crore over fiscals 2026-27. Combined capex (excluding lease additions) of Rs 100-140 crore per fiscal could lead to moderate increase in debt. Crisil Ratings expects cash surpluses, including in India, will be maintained at a healthy level.

Outlook: Stable

Crisil Ratings believes the business risk profile of HGS will continue to be supported by established client relationships and presence in diversified businesses and geographies. Financial risk profile should also remain strong, backed by a large networth, low gearing and adequate financial flexibility.

Rating sensitivity factors

Upward factors:

• Sustained healthy revenue growth for existing business leading to EBITDA margin (post Ind-AS 116) above 13-14% on a sustained basis.
• Maintenance of strong financial risk profile and debt metrics while pursuing organic and inorganic growth opportunities

 

Downward factors

• Sluggish performance leading to revenue de-growth or operational losses on a steady-state basis impacting cash generation.
• Large, debt-funded acquisitions impacting financial risk profile and key debt metrics, with adjusted interest coverage below 3-3.5 times on sustained basis.
• Sizeable reduction in liquid surplus to fund growth opportunities/share buyback/dividend payout over the medium term.
• Substantial further increase in exposure to group companies.

About the Company

HGS is a part of the Hinduja group that includes Ashok Leyland Ltd, Hinduja Leyland Finance Ltd, Hinduja Housing Finance Ltd (‘Crisil AA+/Crisil AA/Stable/Crisil A1+’), Hinduja Renewables Energy Pvt Ltd (‘Crisil AA-/Stable/Crisil A1+’) and IndusInd Bank Ltd ('Crisil AA+/Stable/Crisil A1+'). The company provides BPM services, primarily back-office processing and contact centres, to domestic and international clients. As on December 31, 2024, it had 33 delivery centres in ten countries and 18,000+ employees.

 

On November 12, 2022, HGS received an approval from the National Company Law Tribunal to acquire NDL. Incorporated in 1985, NDL is the flagship media business of the global Hinduja group, with a track record spanning over three decades in the media and communications segment.

 

During the first nine months of fiscal 2025, HGS reported a consolidated profit after tax (PAT) of Rs 102 crore on an operating income of Rs 3,243 crore, against Rs 43 crore on Rs 3,517 crore during the corresponding period in the previous fiscal. PAT in fiscal 2025 includes profit of Rs 219 crore from discontinued operations (nil in the corresponding period in the previous fiscal).

Key Financial Indicators (Crisil Ratings-adjusted)

Particulars	Unit	2024	2023
Operating income	Rs crore	4,616	4,506
PAT	Rs crore	131	334
PAT margin	%	2.8	7.4
Interest coverage#	Times	4.31	4.85
Adjusted debt /adjusted networth	Times	0.34	0.14

# Includes interest expense on lease liabilities

Any other information: Not Applicable