HOV SERVICES cmp 142 market cap 178 cr
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 âExceed Expectationsâ.
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.
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 178 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 categoryâhence 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.
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 âtoo good to be trueâ. 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 couldnât 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.
PLEASE LOOK AT CONSOLIDATED NUMBERS FOR THIS COMPANY BECAUSE MOST OF THE EARNINGS IS FROM US AND NOT REFLECTED IN INDIAN OPERATIONS.