HGS to sell healthcare services business to BPEA

Hinduja Group company Hinduja Global Solutions Ltd (HGS) will divest its healthcare services business to funds affiliated with Baring Private Equity Asia (BPEA), based on enterprise value of USD 1.2 billion.

Post the divesture, the business process management (BPM) company is looking at adopting a "string of pearls" acquisition strategy to strengthen its "triple A" play in analytics, automation and artificial intelligence as well as cloud.

"The transaction (with BPEA) based on enterprise value of USD 1,200 million, subject to closing adjustments, is expected to complete within 90 days, subject to shareholder and other regulatory approvals," HGS said in a filing late Monday night.

Post completion of this transaction, HGS will transfer all client contracts, employees, and assets, including infrastructure related to the healthcare services business.

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The healthcare services vertical has over 20,000 employees across four geographies – India, the Philippines, the US and Jamaica – and recorded revenues of approximately USD 400 million in FY2021, the filing said.

Shares of the company were trading at Rs 3,235.85 apiece in late afternoon trade, up 5 per cent from its previous close on the BSE.

HGS' Healthcare Services business covers the entire lifecycle of a payer organisation, including member acquisition, enrollment and billing, benefit set-up, claims adjudication, grievance and appeals, among other services.

"We will use the generated funds to strategically invest for the future growth of the organisation," HGS Global CEO Partha DeSarkar sad.

Speaking to reporters on Tuesday, DeSarkar said HGS will continue to focus on aggressively expanding its CES and digital businesses in line with its goal to transform itself into a "digitally-enabled customer experience (CX) company".

"Our future strategy is going to be led by three As - analytics, artificial intelligence and automation. We do have organic capabilities to do all of these three things but today these are sub-scale. Our idea is to be able to build scale in all of this, so that is what 'String of Pearls' strategy will be," he added.

DeSarkar added that the company is also looking at cloud, given that cloud services also important in the customer experience transformation field.

Financial services, ecommerce and Telecom, Media and Technology (TMT) are verticals where some of these newer offerings can easily be sold, and that is an area of interest, he stated.

Post the transaction with BPEA, HGS will focus on strengthening its Consumer Engagement Solutions (CES), HGS Digital and HRO/ Payroll businesses that support several top global brands across its nine verticals.

DeSarkar said the proceeds from the transaction will also be deployed to reward the shareholders.

The executive said clients are also looking at near-shore centres as these are in the same time zones and involve lesser commute time.

"There is a new trend we're seeing emerging, which is the near shore...there are countries in the Caribbean region, countries in Latin America, which have interesting prepositions, so you could talk about Costa Rica, Colombia, Guatemala, Panama...these countries are emerging as new areas where our clients are interested in...we want to capitalise on that trend," he added.

Talking about the deal, BPEA Managing Director Jimmy Mahtani said the organisation has been investing in the technology services sector for more than two decades.

"We are excited to now have the opportunity to partner with CEO Ramesh Gopalan and his team to help take HGS'' healthcare services business to the next level as a new independent company. This will be our seventh investment in the sector and third in healthcare technology services," he added.

Previously, the company has invested in CitiusTech and AGS Healthcare.

Barclays Bank Plc acted as the sole financial advisor to HGS on the transaction.

In a separate filing, HGS said its net profit has more than doubled to Rs 117 crore in the June 2021 quarter from Rs 49.22 crore in the April-June 2020 period.

The company's operating revenues grew 25.5 per cent to Rs 1,550.5 crore in the quarter under review from Rs 1,235.8 crore in the June 2020 quarter, it added.

DeSarkar said building on the momentum from last year, HGS has begun FY2022 on a strong note.

"Our performance in the first quarter was better than expected, with double-digit YoY growth in revenue, EBIDTA and PAT," he added.

The results were boosted by robust volumes in the Healthcare and UK businesses, and a resilient Work@Home-led delivery model, he noted.

HGS' digital solutions are also opening up new market segments and opportunities for the company as clients embark on customer experience transformation to cater to digital natives, he added.

"Looking ahead, we are investing in driving aggressive growth for the rest of the year. While we expect a robust open enrollment season in the healthcare vertical, we are also setting up new centres and looking to hire significantly to support new client wins in the UK and Jamaica,” DeSarkar said.

HGS' capital expenditure for the quarter was Rs 44.8 crore, while it registered a reduction in gross debt of Rs 14.5 crore in the first quarter of FY2022.

As on June 30, 2021, its net cash stood at Rs 420 crore.

The company has announced an interim dividend of Rs 7 per share.

HGS added two new logos across verticals for core BPM services and nine for HRO/ payroll processing, and signed nine engagements with new and existing clients for HGS digital services (RPA, digital, analytics and social care services).

As of June 30, 2021, HGS had 252 core BPM clients and 717 HRO/payroll processing clients.

Its employee headcount stood at 42,769 at the end of June 2021 quarter, an increase of 2,880 from the March 2021 quarter.

HGS had 55 global delivery centres across seven countries at the end of the reported quarter, the filing said.