Hinduja Global Solutions Ltd
NSE:HGS
Earnings Call Analysis
Q3-2024 Analysis
Hinduja Global Solutions Ltd
The company has demonstrated a strong and commendable financial performance despite the lingering economic uncertainties marked by high interest rates and inflationary pressures. With an impressive improvement in EBITDA margins from 11% to approximately 16%, the firm has turned around its Profit Before Tax (PBT) from a loss of INR 28.4 crores to a gain of INR 16.2 crores. This remarkable turnaround indicates a resilient and adaptive business model that is capable of navigating challenging economic landscapes.
Nevertheless, the company wasn't immune to challenges. The Profit After Tax (PAT) has taken a hit due to exceptional items and substantial tax reversals. However, strategic moves like the TekLink acquisition and rigorous cost rationalization, particularly regarding real estate expenses, have played a pivotal role in bolstering profitability and countering adversities.
Operational efficiencies have not gone unnoticed with the operating EBITDA showcasing a nearly 40% increase year-on-year and an 18% boost from the previous quarter. This is a testament to the company's commitment to refine and enhance its processes and offerings. The company's commitment to innovation is further evidenced by the sales performance of its proprietary platforms, Agent X and Analytix, signifying a successful product-market fit.
In terms of geographical spread, the U.S. remains the company's largest market at approximately 31%, while India trails closely with a 30% contribution. Canada and the U.K. are also significant markets for the company, each accounting for 16% of revenues. Diversified revenue streams across multiple markets underscore the company's robust global presence and market adaptability.
The company maintains a solid cash position with INR 690 crores in cash and cash equivalents, which provides a significant buffer and strategic flexibility for future investments or to weather potential financial downturns. This financial robustness is key to investor confidence, signaling the ability of the company to maintain operations and invest in growth opportunities even in times of economic strain.
Despite the positive operational metrics, the company experienced a decline in other income, attributed mostly to foreign exchange fluctuations and one-time property exits in the U.S. These external pressures resulted in a reduced total income and explained subsequent profit declines on a sequential basis.
In looking forward, the company's financials reveal a story of adjustment and positive signs. A one-time impact from the previously divested healthcare business and tax reversals contributed to some irregularities in the financial reports. However, the core operational performance remains strong, showcasing a resilient profit margin and a 39.3% EBITDA improvement over a 9-month period when compared year-on-year.
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Good evening, ladies and gentlemen. A warm welcome to Q3 and 9 Months FY 2024 Earnings Conference Call of Hinduja Global Solutions Limited. From senior management, we have with us today Mr. Partha DeSarkar, Whole Time Director and Group CEO; Mr. Srinivas Palakodeti, Global CFO; Mr. Vynsley Fernandes, Whole-time Director, HGS and Head of Digital Media Business; and Mr. Lakshminarayanan, CS, Chief of Staff, NXTDIGITAL, and Chief Financial Officer; ONEOTT iNTERTAINMENT Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Darshan Mankad from Adfactors. Thank you, and over to you, sir.
Thank you, Riya. Good evening, everyone. We welcome you to the call of Hinduja Global Solutions Limited for the third quarter and 9 months ended December 31, 2023. Before we begin the earnings call, I would like to mention that some of the statements made during today's call might be forward-looking in nature. And hence, it may involve risks and uncertainties, including those related to the future financial and operating performance. Lets bear with us if there is a call drop during the course of the conference call, we would ensure the call is reconnected the soonest.
I would now hand over the call to Partha sir for opening remarks. Over to you, sir.
Very good afternoon, Darshan. Thank you very much for that introduction. And ladies and gentlemen. Thank you for taking the time to attend our call today.
Start with the fact that we had some strong set of numbers in quarter 3, you probably have our deck in front of you as we speak, that's been uploaded on our website. Key call outs of this quarter is the double-digit growth in top line across the Business Process Management services and Digital Media services. We've also seen very good improvement in EBITDA and margin expansion on a year-on basis from 11% to approximately 16%. Our profit before tax before exceptional items stood at INR 16.2 crores compared to a loss of INR 28.4 crores. So that's a good turnaround. You probably see that in the numbers.
However, our PAT is down due to some exceptional items and also quite a large number of tax reversals that were done. And also glad to say that we had -- we've also seen a good pipeline. As you know, we've been investing in sales since divestment of our healthcare business. And a lot of these investments in sales and cross-selling across our traditional BPM services and our Digital Media services and our technology Services, those are also slightly starting to pick up traction specifically around our new acquisition made last year, which was TekLink.
We're also signing up technology partnership to strengthen our CX offerings in the market. In the U.K., we signed up with Form1 Partners. They are very well known in the U.K. market, and we are very excited with this partnership. We hope that this will help us build a better pipeline in U.K. I would say that there is a fair amount of economic uncertainty that still continues, driven by high interest rates. As you know, inflation is probably coming under control. But the banks are still -- the Fed particularly has still given an outlook of holding on to interest rates. They are not increasing it but they are not reducing it.
As a result of which we still have the overhang of high interest rates in the economies. And we do see that some of that economic uncertainty leads to delayed decision-making and longer sales cycle. I've also talked about the fact that a large part of our operations are still work from home. In fact, from U.S., U.K. and Canada. About 99% of our people are working from home. So we've been able to rationalize our real estate brick-and-mortar footprint quite a bit. We closed down our center in El Paso, Texas in the U.S. and also Alabang in Philippines because of this ability to move work to home.
I'm also glad to say that our lead times are improving across CX, technology and HRO clients, and our proprietary platform, Agent X and Analytix, these are also seeing good sales amongst our clients. If I move to the next slide, that is Slide 5, some dashboarded numbers out here. You will see that our operating revenues have actually improved from last year to the extent of 7.6% compared with last year quarter, about 2%. So happy with those set of numbers.
Operating EBITDA actually has shown a big jump, almost 40% compared to last year and 18% compared to the quarter before. Other income, while it has improved beyond last year, on a quarter-on-quarter basis, there is a slight dip, about 15% dip outside in other income. When you combine all of these things together, you will find that our total income has grown up by about 11.2% from last year and about 0.6% compared to last year. Total EBITDA also has grown up 61.9%, obviously, very infused by this big jump in profitability. And if you compare on quarter, we are about 0.7% up.
Because of the onetime items that we talked about, while our profit before tax has improved compared to last year and a big jump from minus INR 28.4 crores to a INR 16.2 crores number, you will see compared to last quarter, there has been a dip because of the exceptional items. And Pala is going to explain that in more detail.
So those are the headline numbers for quarter 3. Coming to our 9-month performance. Operating revenues are up 2.4%. Operating EBITDA, however, is a smart jump to close to 40%. Other income, a dip of 22.3%, most of -- quite a bit of the cash has been deployed, as a result of which the other income has come down. Total income, again, an impact of that is down slightly. Total EBITDA is down as well. And PBT before exceptional items is down as well. So the 9-month performance shows a mixed bag as compared to the Q-o-Q performance against in the previous slide.
Steady performance in the BPM business, going up to Slide 7. Canada and offshore, India, Philippines have done really well. U.S. and U.K. business remains been muted. It's a mixed bag. We've signed a few new logos in both geographies, i.e., where I can see right now, the pipeline is actually improving quite a bit. So despite the economic uncertainty that I talked about earlier in the call, the pipeline health is quite encouraging.
The tech solutions business has seen a slight dip in top line as we held on -- in fact, we've improved EBITDA quite a bit. And we're also trying to move away from selling project revenues as opposed to that we are trying to get into managed services with an emphasis on verticalization and industry-specific solutions.
Moving to Slide 8. We talked about the acquisition that we made in 2022. So coincidentally, this is the second year. This is 2 complete years of having Diversify as a part of the HGS family. Our revenue has grown an astounding 34% since we acquired. The business added about 30 new logos primarily from Australia of offshore staffing solutions across finance and accounting, IT, et cetera. We are trying to explore opportunities to cross-sell our traditional BPM services to the staffing solutions in the Australian market. We are seeing good interest, but deals are yet to convert.
When it comes to TekLink, it's been exactly a year almost. We closed the deal in February last year. It's posted revenue close to $30 million in the 9 months of FY '24 compared to $24.5 million for the 9 month of the similar year last year. EBITDA percentage is in the mid-20s, again, very smart EBITDA. Strong client win record despite economic uncertainties, and the pipeline continues to look good. And the most important part, which is the synergy part between HGS overall and Tek Services business is going well.
And also, I'd like to mention out here that our synergies with our Digital Media Business is also starting to show up. We launched a new service line called CelerityX. The funding of that, pay as we go, service has been developed by the GSIT team to help the Digital Media Business to bring a new product into the marketplace. And Vyns will talk more about that.
So looking ahead, we will going to continue to scale our technology practices, extremely excited by generative AI and the potential it has of transforming our business. We're going to leverage that particular tool, and it almost will become the basic foundation stone on which the CX business would evolve for this decade. It reminds me in many ways of the 1990s when Internet came in and completely disrupted and brought in new business models. I'm pretty sure that generative AI and large language models and transfer models are all going to do the same -- have the same impact on the way we do business and creates a massive opportunity for us.
Because it's a new technology, it almost creates a level playing field between the more traditional large brand IT companies and smaller number players like us because the technology is so new. So we are building our own AI-led process management solutions, trying to transform the CX operations by applying AI and Analytix, and also building a team that can sell technology. If you look at our revenue mix, our revenue mix is now slowly skewing towards having more via digital as opposed to the earlier people-based services that we have. So we need a different kind of a sales team to sell technology service, and we are ramping up our sales team for digital sales, cross-selling our existing services I also talked about verticalized solutions.
So we are trying to sell verticalized solutions for banking and financial services for technology, media and telecom businesses and e-tail, retail businesses. We will look at M&A, niche offerings that are relevant to the advancements in technology. We continue to look at that on an ongoing basis. And that will be the cornerstone of how we grow new capabilities. You've seen what we've done with TekLink. You've seen what we have done we Diversify. We will continue to skew -- scout out for more M&A targets to grow our business.
With that, I'm going to hand it over to Vyns for him to take you through the Digital Media Business. Over to you Vyns.
Thank you, Partha. Thank you, and good afternoon to everyone, and thank you for joining our Q3 FY '24 and 9-month update call today. First of all, before I start off, I request someone to confirm that my audio's clear, please. So I don't, Darshan or someone, can you confirm if you all can hear me loud and clear, please?
Yes, sir. Your voice is loud and clear.
Thank you. I'm going to start straight away with Slide #11. And this Slide 11 that you can see on your screen is an extremely, extremely proud and truly humbling moment for us as well. we were delighted to launch our new product from our enterprise business called NetX. We actually launched it, operationalized it on January 22 on the -- at the inauguration of the Shree Ram Mandir in Ayodhya. Truly, I mean, there can be a better occasion or a better time to launch a solution than this.
Effectively, we've provided connectivity from the cameras that were set up at the inauguration of the temple, all the way to global broadcasters overseas. We're showing it live and, therefore, connecting it and providing live feeds of the inauguration to millions and millions of people across the world. So I think there's no better way than to kick off the launch of NetX.
Just to give you an idea, and I go back a bit on this call, if you recall, when we launched CelerityX and we mentioned this in the Q2 call as well. The key objective of CelerityX was to change the enterprise business unit -- the enterprise business landscape and working very closely with the HGS IT teams and development teams the kind of synergy that's has gone behind developing these solutions has been incredible. And NetX just to tell you is effectively a premier and probably the first of its -- not probably, it is the first of its kind platform, aggregating platform in India.
It connects enterprises, national enterprises with about 18,000 Internet service providers across the entire country. And we've already signed on key anchor customers across multiple segments like retail, BFSI, et cetera, to use this product. I think this is an important thing that even Partha mentioned, the entire back-end development is testimony to the kind of synergies that HGS, BPM and the Media business have kind of worked on and developed. The HGS IT team and NXTDIGITAL teams have looked at 3 specific areas which have been of importance and which we all are continuing to push, namely artificial intelligence, analytics and automation and that is reflected in the development of NetX. Of course, there are other products already in the portfolio, which includes OneX, HomeX, SkyX and that's just the start of the products that we're launching in complete synergy with our back-end teams. So this is a great moment. And if you look at Slide 12, it's been reflected very, very, very happily in the press. There was major coverage because the entire media sat up and took notice of this very unique product, very unique solution. And the fact that it could eventually and it will become a game changer for the connectivity or the networking landscape in the country. So that's on pretty much on Slide 12.
On Slide 13, and if you see everything that we've spoken about over the last 3 quarters, 4 quarters are all taking fructification and therefore also reflecting in the numbers that I'll come to in a moment. We decided that the future -- our Prime Minister's entire push for digital inclusion is something that we've been very, very keen on reflecting as well and working on. And setting up the national long distance network has been one of those cornerstones of the business. So we've already rolled out, if you look at Slide #13, we've already rolled out, about 4,000 kilometers have already been operationalized, right, between Mumbai, Ahmedabad, Nagpur, Solapur, Kolhapur. There's Delhi, Agra link, there's Delhi to Dehradun.
So completely, we've built out -- we've operationalized. We are not investing in the fiber, but rather the electronics that ride upon the fiber that we source from companies like BSNL, RailTel, et cetera. So 4,000 have been commissioned kilometers, and there's about 2,500 kilometers that is work in progress. And the best part about it is that these routes -- if you just look at it -- for an example between Mumbai and Nagpur, there are multiple, multiple small towns, small towns and small cities, but which are slowly growing that are on that route.
And Solapur, Kolhapur, all of these, Bableshwar, Parbhani, all of these are becoming strong growth markets for us for not just our broadband business but also for our digital television business.
With a logical conclusion on Slide 14, if I can take you to. These initiatives that we've taken in and that I mentioned in the last quarters on this investor and analyst call are actually now showing up. We've taken initiatives for restructuring the entire model of the business in terms of the product that we offer. We've looked at building out a stronger network that we can depend. And we've looked at various initiatives like CelerityX and others that we've built into our product mix.
And when you look at Slide #14, you'll realize that, that is certainly starting to pay off very handsomely. On a quarter-to-quarter basis in terms of digital television, we've grown by about 7%, clutching about 4.46 million connected homes today. I think what is really notable about this growth is that the growth has happened essentially -- 60% of this growth has come from markets in the east of India, the northeast of India, the 7 sisters and in Andhra and Telangana.
But what is significant -- is very important and I thought I wanted to share, what is significant is that these customers when we've signed on for digital television or to our Hits platform, these are what we term as LTCs, right, which is long-term customers. In our parlance, it's long-term customers. What it means is that these customers enter at the lower level of the ARPU market or the average revenue per user. So they take a package, say, that's probably worth about INR 200 or INR 180, and then they keep on growing. Because these are customers who are experiencing -- a lot of them are experiencing pay television for the first time or just moved from the first level to the second level.
So for us, these customers that we've added on are going to provide growth for us or fodder for us to grow over the next quarters, but over the next years. And the strength of that is also reflected in the churn control. If you look at the churn control, over several quarters, we've been able to bring down the churn. In this last quarter, in Q3, to about 1.57% which is I can assure you, is the best in the industry today in terms of digital television.
On the other side, our broadband business is the excellent growth story. We've grown over 32% as compared to Q3 of last year. And just on a quarterly basis, we've grown by about 13%. This is pure subscribers connected on. And this reflects these slides that I mentioned to you earlier, the operationalizing, the long-distance network that we have. So a lot of this growth has come from those markets. Those markets that earlier probably had -- didn't have great connectivity or didn't have a reliable service provider or who couldn't provide them a quality of service.
So the -- providing a quality of service and fulfilling a need gap is something that we are focused on. And clearly, as you look at it, we've been able to grow by about 13% on a quarter-on-quarter basis. And at the same time, ensuring the churn is also managed. One thing, as we have shared in several calls, is that we are focusing on the quality of customer and the quality of revenue rather than just growing it. So the best part is these customers that you're seeing are part of a portfolio which will continue to grow.
So effectively, to kind of summarize where we are at, we've taken a lot of initiatives. We took multiple initiatives, we took the initiatives to ensure that we build new innovative models for our digital television business. We looked at strengthening our broadband business and laying a very strong foundation for growth by commissioning the National Long-distance Network of about 4,000 kilometers. We looked at how do we take the -- how do we leverage all our infrastructure, how do we leverage the incredible synergy that we have between the IT team of HGS and the NXTDIGITAL needs to grow the business and its requirement of artificial intelligence, analytics and automation and we came up with CelerityX which is now launched NetX and is in the process of commissioning customers on NetX, SkyX, HomeX and OneX.
So effectively, the good thing is that the business is clearly on track. It's working as a strong cohesive unit and the benefits of the synergies are clearly beginning to come out. With that, I'd like to wrap up. And of course, we would be happy to take questions at the end of this. And I'd like to hand over this to Srinivas Palakodeti, who is our Global CFO. Pala, over to you. Thank you, everyone, for listening patiently much appreciated.
Thank you, Vyns. I hope all of you are able to hear me clearly. I will start on the financial section. I am on Slide 16. This is the financial performance for the quarter. As you will see, revenues have grown -- the operating revenues have grown 7.6% on a year-on-year basis, and it has -- they have grown about 2% on a sequential basis.
Looking at the operating EBITDA, there is a substantial increase, about close to 40% on a year-on-year basis. And on a sequential basis, EBITDA is up by about 18.1%. So very strong performance. This is being driven by the very successful TekLink acquisition. Other parts of the business like Canada, also we have mentioned in our earlier calls, we are talking a lot of steps to rationalize our real estate costs and other costs. And you are seeing the benefit of those cost measures as well as shown in the improvement in profitability.
During this quarter, there is a one- time exit of close to INR 6.5 crores, other EBITDA as well as accelerated depreciation, arising out of the exit of one property in U.S. Coming to PBT, there is, as Partha mentioned earlier, for the profit before tax before exceptional item for the quarter ending September '22 -- sorry, December 2022, was INR 28.4 crores. That has now turned around into a profit of INR 16.2 crores for the quarter ending December. So clearly, a significant improvement in profit.
Though on a sequential basis, there is a small drop. That is primarily coming -- despite the increase in EBITDA. That is primarily being driven by the drop in other income. And as you will see from the publication page, we have a loss arising out of FX fluctuations. These are year-end, quarter-end exchange rate variations, less in India, but primarily in other markets where we operate, where the local currencies have appreciated against the U.S. dollar.
Moving on to next slide, again, on 9-month basis, revenues are up 2.4%. But the thing to really call out is the very strong operating EBITDA improvement. When we say operating EBITDA, this excludes any impact of the other income. So it excludes FX fluctuation or interest income. And you will see a very strong performance here again. EBITDA is growing by about 39.3% on the 9-month period year-on-year comparison. Moving on to Slide 18. This is the summary financial performance. As we will see the total EBITDA for the quarter was 16% compared to 11% in Q3 FY '23 and pretty much at the same level, marginally higher than the quarter ending September where EBITDA margin was 15.9%. Operating EBITDA, again, significant improvement over Q2 FY '24 as well as Q3 FY '23.
Coming back to the items on exceptional items last quarter. For the quarter ended September '22, there was a one-time increase impact of INR 33 crores. This is coming from the erstwhile healthcare business and also on account of the -- there are also some tax reversals. So that's why you'll also see a INR 47 crores negative number on the tax line for the quarter ending December of '22. So because in the absence of these 2 large items, PAT for the quarter ending December '23, is appearing lower than the profits for the quarter ended December '22.
But from an operational performance, if you look at PBT before exceptional items, you will see a strong turnaround from a loss of INR 28.4 crores to a profit of INR 16.2 crore. And the sequential basis, the decline in profits is primarily on the account of other income. As you will seem there is a drop of about INR 16 crores between quarter ending September and quarter ending December.
Moving to the 9-month performance. Just to call out strong improvement in the EBITDA, operating EBITDA as well as operating EBITDA percentages. The total EBITDA is lower primarily on account of drop in other income. As you will see, that has come down from INR 403 crores to INR 313 crores. Two big drivers for this. One for the quarter -- 9 months ended December '22, there was an FX gain of INR 72.5 crores. That has come down to INR 26.83 crores for 9 months ending depend -- in December.
Also, the other components of other income have also come down. This is primarily a reduction in interest income. You will recall there was a buyback of INR 1,020 crores and taxes related to that. There's been a large outgrow during FY '24. So that has also led to a reduction in interest income. So the overall drop in performance is on account of the drop in other income. And also, as I mentioned earlier, there is absence of exceptional items and tax reversals. So that's why we -- at the PAT level, our profits are lower. But if you look at the line PBT before exceptional item, it's a strong performance, it's only being pulled down by the drop in other income.
Moving on to Slide 20. This is the -- obviously, the buyback, the equity share capital is down to INR 46.5 crores compared to INR 52.5 crores in December -- in March of '23. On our net treasury surplus, we were at about INR 6,376 crores, that's come down to INR 4,893 crores, primarily on account of the buyback, taxes on buyback, as well as the funds which went out for the acquisition of TekLink. DSO days, you may see an increase between March '23 to December '23. But as I will show you, this is under control, there is an amount of seasonality. But if you look at, it will come up subsequently, there is an improvement in DSO days between September and December.
On the cash flow from operations, we have about INR 49 crores from operations. And to call out, again, there is close to about INR 450 crores, which have gone out for the TekLink acquisition. And we have cash and cash equivalents of about INR 690 crores as of 31st of December. That's only the cash and cash equivalents. And if you move to Slide 22, this shows the total position of net cash and treasury surplus that stands at INR 4,893 crores as compared to INR 4,875 crores in September. So there is an increase of close to INR 19 crores.
And you'll see -- as you can see, we have a very strong balance sheet, with net worth of about INR 7,056 crores (Sic) [ INR 7,561 ] crores and a gross debt of about INR 920 crores. So from a balance sheet point of view, we have a very strong balance sheet.
Moving on to the income. Other income, 57% is coming from BPM business. Digital services account for about 36%, and 7% is coming from other income. Moving on to Slide 24. This is revenue by origination. India is -- U.S. continues to be the highest at about 31%. India, including the Media business is next at 30%, followed by Canada and U.K., which are roughly of the same size at 16% each. And as we mentioned, we have seen significant growth in Diversify, the acquisition which we made 2 years ago. And revenues from Diversify [ a stroke ] Australia, accounts for about 5% of the total revenues for the quarter.
Moving on to the next slide, revenue by vertical. This is -- Media accounts for about 31%. We have -- the BPM business also has media clients, along with the media business in India. Consumer and retail is the second largest at 20%. And telecom and technology accounts for 15%. Public sector is 10%. That is primarily from U.K. and we do have some in Canada as well.
From a client concentration perspective, the top customer accounts for about 11%, the top 5 accounts for about 27% and top 10 customers account for over 38%. We are not seeing any significant changes here. And in terms of DSO days, as I mentioned earlier, it is down by about 5 days from about 68 days for -- as of September '24. to about 63 days. So there's a reduction of 5 days between September and December as reflected in the cash flow statement as well as the fact that overall net treasury surplus doesn't increase between December and September.
That's all I had from my side. We would like to invite you all to ask any questions you may have for us.
[Operator Instructions] The first question is from the line of Vivek from GR Investments.
Can you hear me?
Yes.
Okay. IT industry is facing headwinds due to slowness in demand from developed markets. There is some noise that the demand has bottomed out and that greenshoot is visible. What is the sense that HGS is getting in terms of sectoral headlines -- headwinds? And how is global BPM market responding? And what is the outlook for FY '25?
So that's a great question, actually, a little bit of a crystal ball gazing. I would say that decision-making cycles are still slow, and I did try refer to that in the call earlier where, as you would know, that the interest rates are still held -- they have not been dropped. Nowhere in the world have the federal banks dropped the interest rates. So they're still high. Cost of credit is high. As a result of that, economies are still uncertain as to where this is headed.
And decision-making is therefore slow in terms of large spends. So that continues to be the reality today. Whether it has bottomed out or not, I don't think I'm qualified to comment on whether it's bottomed out. I'll tell about the new opportunities, the new opportunities in the field of large language models in generative AI. That is going to be as transformational as the Internet was in the 1990s in the way it created new business models and separate old business models.
I think generative AI in many ways is going to do the same for many industries across the board. And that, as I mentioned, since it's a new technology that kind of levels the playing field between established big players and newer small players like us, because nobody has a edge on anybody else. So that is the new opportunity area that I think will drive growth and going to drive growth significantly. So that's the outlook that I can talk about right now. Generative AI being generative, general purpose technology cuts across verticals, cuts across service lines.
And it will be deployable across industry verticals. It will be deployable across service lines. That, I believe, is going to drive future growth. I mean it's slightly long term. Well, not long term because if you've seen the speed of adoption, it's actually got adopted really, really fast. So it's probably not in the long-term outlook, it's probably a medium-term outlook that I can talk to you about right now.
And just a final question. Sales growth in the last quarter was largely been subdued with the company's revenue in the range of INR 1,100 crores to INR 1,200 crores. Margins have been highly volatile as well. How do we see FY '25 turning out to be in terms of revenue growth and profitability?
Actually, if you see the quarter -- the quarter-on-quarter performance is actually quite positive. You would have seen in the numbers. I'm happy with those numbers, Okay? We don't give guidance for the coming quarters. We do see growth being -- as per our traditional growth rates and we would definitely try to improve the margins. So we won't be able to give you specific numbers. We don't give a guidance.
Next question is from the line of Janaish Shah, an individual investor.
Maybe my understanding with this company has been very limited and so I apologize if I have been very naive or maybe asking really naive questions. But when you're looking at your Business Process Management business, you clearly said that generative AI is going to be the cornerstones for growing this business. If you can just give a little bit of an understanding as to how the world is changing. Because what we understand earlier, the BPM business has been a cost arbitrage business, where the companies who are either [indiscernible] to the third party because there is an advantage on the cost, which people will be getting it. But when it comes to implementation of the technology, how do you see this business transforming? In a sense that the client -- the customer, our customer itself, can deploy those technologies and get the benefit, rather than outsourcing it to the companies like Hinduja Global or any other BPM companies where -- which may be offering them probably or it would be a little cost effective to do it in-house? How -- I mean if I have made myself clear.
See, companies outsource both services and technology services, right? And we are on both ends of the spectrum. It's not that because it's technology, they do it in-house. Even technology services are significantly outsourced today. And we play in that field, right? We also have a technology arm, which has about $100 million of revenue today, which is a combination of HGS Digital and TekLink. So just because the technology generative AI is coming, it doesn't mean that people will take the process of in-house and try to deploy the technology themselves, they will still go and depend upon outsourced service provider to provide that technology. Because people who are in the insurance space, people who are in the banking space would rather spend their time on improving their core product as opposed to try and improve their service. That is what traditionally has been outsourced, and I don't see that trend changing. So answer to your question is just because this technology is available, would people take it in-house? I seriously doubt it. The technology will be deployed and they will depend upon third-party outsourcers like us to help them deploy the technology.
Okay. My second question with regard to this is when we bring in these or use these technologies, obviously the automation probably will help us improve the margins, I mean, the revenue growth or probably there will be a cost deflation, which may happen because of the implementation or use of generative AI in our business. One -- so the question around that is, how are you going to see the revenue growth? I mean, in a sense, do we need to pass on these benefits to our customers which may remain like double [indiscernible] margins. I mean to what extent, the margins can improve from here?
Because you said the outlook on the generative AI adoption in the medium term has been very, very encouraging. And so if you look -- if we can get some sense as to how do you see your business shaping up in next 2 years, 3 years period,in terms of the revenue or in terms of the margins trajectory probably which you will be -- you would like a take.
I think that's a very good question. Part of the technological deployment may end up cannibalizing some of our revenues. So I would still use the word may. I believe that today's service levels are less than optimal. If you look at hold times, when you call up help line, the hold times are significantly high, 10 minutes, 20 minutes, et cetera. That is because our clients don't deploy enough number of people to answer those calls. I believe with technology deployment, that hold time will actually go down, which means that if you call somebody, if you call up a particular helpline, you will get an answer within 20 seconds or 30 seconds. And then the answer may not be a human being answering it, it will be a self-service bot who is answering it. So that 10, 20 minutes hold time that you have today will convert itself into revenue because you will not have that hold time. But by technology, we will be answering this as opposed to using only people. So that is the place where it is a little difficult for me to do a crystal ball gazing and tell you whether it's going to impact revenues, okay? Because I believe that 10 to 12, 30 minutes delay, that is pretty normal for many care and helplines would go our way and that's going to create revenues.
But we will not need as many number of people to answer those queries as people will be able to use technologies to answer those queries. And that is where I believe the margin outlook will improve. So revenue, I won't be able to give you a clear picture. But margins, I am reasonably clear will improve significantly going forward.
Could we get some sense like, today you are having, I think, the blended margins are -- sorry, on the EBIT margin side, it's been around 11%, 12%, where would it go to? I mean is it going to be like mid-20s? Or like how do we -- I mean, I'm sure the improvement is going to be there, but if you could just give some sense about the trajectory where it could land up.
Yes. Look, we will improve for sure. We don't give guidances. I think I mentioned that earlier in that earlier caller. I think had asked for that similar number. We don't give guidances. So we will try and see -- the margins will improve. I won't be able to give you a specific number today.
Okay. And on the Digital Media business, and broadband and -- like if you can just give a little brief about how do you want this business to shape up in terms of the deliveries and transformation, as you're saying the businesses are kind of going a transformation uptick. And how do we see, again the business needs to turn positive. So how do we see the business shaping up in terms of the margins in that? And what are the KPIs? Or what are the medium-term deliverables, which you have set yourself for in this business?
Yes. So that's the question I would allow my colleagues Mr. Vynsley Fernandes to answer. So Vyns, will you please take over from here?
Sure, sure. The way that this business is, the fact remains that even today, as I speak to you, the television in India, we talk about OTT, we talk about people using digital solutions. But the fact is, penetration of television in India is still around 65% to 66%. There's a significant headroom available for growth. That's number one. Number two is that wired broadband is still a long way to go. While we have close to just under 300 million households in the country today, 288 million or so, about 35 million have wired broadband connection.
What I'm trying to establish for you is that the kind of headroom available for growth is significant. And if you look at broadband, we took a conscious decision to operationalize a significant national long-distance network across India. We've completed about 4,000 kilometers already, and we're looking to close just under probably around 7,000 kilometers. And the idea is to connect as many people in terms of a quality service. But I think the one thing when you look at when you're asked in terms of what is the horizon, is the important thing that we are focusing on as an organization, therefore, effectively work on the path to profitability, as in, significant profitability, is to provide an integrated solution.
So wherever our growth is, we're not just offering either digital television or we're not just offering broadband. We are saying here is a combination product or an integrated product with digital television, wired broadband in certain markets with speeds up to about 1,000 Mbps. OTT, we've got a product called NXTPLAY, which is an OTT aggregation solution offers about 300,000 hours of OTT content. And then on top of that, we're going to layer other products like Voice over IP, public WiFi -- sorry, public WiFi and, of course, bespoke CCTV solutions.
So I think from a road map perspective, the strategy, the initiatives that we've taken over the last couple of years coming out of the lockdown, we've obviously upped our game significantly. And thanks to the integration, if I may use the term carefully with the HGS business, we've also started to look at how do we leverage future technologies through our business.
So the aspect of artificial intelligence, analytics, automation is already there in our NXTPLAY OTT aggregation. CelerityX is the second beneficiary, where all the product portfolios that we are rolling out for enterprise businesses. And like I just mentioned to you, we're very proud to have used NetX solution for the inauguration of our Shree Ram Mandir in January, I think all of those are coming together at the right time.
And not at the right time, they're coming together as part of a well thought-out carefully thought-out plan, which has milestones at every stage. And our milestones are very granular in nature, Mr. Shah. We look at, for example, key markets like I was sharing with you, for example, if you look at the NLD market between -- sorry, connectivity between Mumbai and Nagpur, there our target is not just to use a kind of spray method, but to use a very focused method and say, listen, these are the 10 markets, these are the 10 cities, towns on the way between Mumbai and Nagpur or between Mumbai and Ahmedabad, where I want to not just provide broadband, but I wanted to provide and be a market leader in that space. I want to be able to have a significant presence.
So I think those are the KPIs, sir, that we are keeping on putting together. And you'll keep on seeing that traction happening quarter-on-quarter. I hope I was able to answer your question, Mr. Shah?
Yes. So 2 things, in addition to this, how much more investment are you saying we need to make to ensure that...
Sorry to interrupt. Could you please return to the question queue for followup questions. Next question is from the line of Vignesh from [ Vig Associates ].
My question today is what is one major growth driver that the company is looking for the next 3 years? And what's the strategy in place to stabilize the margins?
So I think I talked at length about generative AI, that's the single most important growth driver that we're going to use to grow the business. And I did talk about margins. I believe that as we deploy more technology, our margins are going to improve.
I just have a follow-up on that one. So the HGS is developing its own proprietary model of generative AI. Do you have any figures of what kind of investment has gone in it so far? And how is the company going to pitch it to existing and probable customers, amidst competition from the likes of Google and Microsoft and others?
This is Pala here. So we have a solution called Agent X. And which is there specific to the markets and the clients we operate. You also can use it for internal use. And we have spent close to about [ 3.5 million ] on developing this solution and rolling it out.
Next question is from the line of Dinkle Shah, an individual investor.
I have a couple of questions [indiscernible] How foreign exchange currencies impacted our Q3 figures...
Sorry to interrupt, ma'am. We're not able to hear you clearly.
Hello. Am I audible?
Yes, yes.
Yes. So my very first question is how foreign exchange currencies impacted our -- this quarter's results?
Okay. So there's -- okay, when you talk of foreign exchange, there are two parts, right? One, there are cross currency -- I mean, we have a fair amount of offshoring business, where revenues come from markets like U.S. or U.K. and the delivery happens in countries where the costs are incurred in a different currency, India, Philippines, et cetera. There typically, we take forward covers in markets like India and Philippines to reduce the volatility, right? In the current quarter, we do have -- if you look at our publishing page, on the FX side, for the quarter ending December of this quarter, there is a loss of about INR 10.62 crores, right, compared to INR 22.4 crores of gain in quarter ending September.
But most of it is really what's it, temporary, and this is based on restatement of assets in a different currency into a local currency. For instance, if I have treasury surplus in a market like Jamaica and that is in dollars, and the Jamaican dollar appreciates against the U.S. dollar, then for the quarter, I will have to book a loss. The difference between rates between September and December. But if the Jamaican currency were to depreciate again, then this will add gains. So I hope that answers your question.
Yes, it does. So are there any other hedging strategies in place that you might use to mitigate this fluctuation in this?
I mean, Okay. For the -- where there's actual cash flows, I've already said we take forward covers. For pure balance sheet items, right, which is just exchange rate fluctuations between 30th September and 31st March, sorry, December, then we don't hedge really because it can't really be hedged. There are instruments which may be available, but sometimes the solution can be worse than the problem. So we don't do that.
Yes. Fair enough. Just one more question regarding, can you provide some insights on factors that are driving the recent margin improvement?
So multiple things. So Canadian business has performed very well. TekLink is performing very well. Digital business has also done well. And as mentioned earlier, we have taken several cost-correction measures. So you are seeing the benefit of that as we go along. And there was a one-time impact of about INR 6.5 crores because of the cost of exit, but that will get more than made up in better profits -- or sorry, I meant to say, lower cost for the rest of the year. Also what's happening is we are reducing onshore delivery footprint, especially in markets like U.S. and that business is being replaced, not all of it, but large portions of it. The work is going offshore. So while the revenue growth may be muted moving from onshore and to offshore adds to our profitability.
Next question is from the line of Janaish Shah, an individual investor.
My question was earlier on this the Digital Media investments. How much is likely -- I mean, until what time we are going to remain in an investment phase in that? And for how many years, I mean, it will take for you to reach that 7,000 kilometers kind of a mark and seed this business to growth? Second, on the treasury side, you already have a very big treasury, the cash on the book. Is there any strategy which is being designed by the management or the Board how do we wish to utilize this cash over next 2, 3 years kind of a period? That will be -- that's my question.
So let me take the question on treasury first, if you don't mind. See, bulk of this cash has come from the sale of the healthcare business which we have concluded a couple of years ago. Post that, we have used money for the acquisitions of TekLink. We have used it for Diversify. We have given dividend and special dividends. We've also done a large buyback, et cetera, right? So a fair amount of cash has been used in this process. We still do have, as just pointed out, surplus cash. And these will be deployed very carefully, either in acquisitions or for investing in growth of the business. And that is -- we'll come back and see there are more opportunities, but that's the current outlook.
Great. Thank you, Pala, for the answer on the -- Mr. Shah, going back to your question on the investment. As I said, we are not investing in the connectivity itself or in laying fiber or any of that, these fiber or this connectivity is already available through various companies like BSNL or -- and for example, using the optical ground wire of Maharashtra State Electricity Board or companies like those Odisha Power Transmission. All we're doing is putting in the necessary electronics and contracting that connectivity so we can manage it ourselves and therefore, make it more profitable and kind of optimize it to the biggest extent possible. So there are no -- there's no significant investments in the technology. All the investments in the technology have already been made. If you look at it, we are the only head in the Sky platform in the country today, and we've invested in a state-of-the-art technology broadcasting center up in Noida. Same thing with broadband, we've already invested and we're pretty much done and dusted with it. The only investment, if any is a variable investment in terms of the customer premise equipment, and that by and large, it's mainly kind of paid for by the customers. So there's no real capital expenditure outlay that we see in terms of it. I think our focus to achieve our targets or our KPIs or our profitability is now optimizing all the investments that we've made.
Optimizing the fact that things are now stabilizing 2 years to 2.5 years after the lockdown, et cetera, and now growth we are seeing in multiple markets happening. So I think that is the focus of the organization. I think the -- that is what will drive us to grow our subscriber base. I mean last year, this time, we were about -- overall about 5 million customers, 5 million households that we were touching, just over 5 million. Today, we already crossed about, between broadband and DTV, we're well above -- just close to the 5.75 million, 5.8 million mark.
So I think there's been significant growth that reflects also in the financial performance of Q3. And I think we will see that keeping on improving as the customers who come in at the ground floor start growing their ARPUs and seeking more and more higher-value services going forward. So that is very much clearly the strategy that we've adopted.
Can we get some kind of granular number that...
Sorry, I lost you there for a moment. Not sure if it was my connectivity. Could you repeat that, please?
Yes. Am I audible?
Yes. Now clear.
Yes. So my question was, could we get some more granular details about how the ARPUs are behaving against 2 set of businesses especially in broadband? And how are the profitability differ in this 2 kind of business which you have?
So in DTV, in digital television, a lot of the businesses, so just to [indiscernible] our ARPUs when you look at it and that's something -- while it's part of our KPIs internally, are well between -- within the range that the industry talks about, which is between INR 200 and INR 300, right? Because don't forget that there's an intermediate, a local cable operator or a last mile owner or a digital service provider there. In terms of broadband, since it's a growing business, we're also seeing, for example, a -- there will be, nother there will be, there is still a pricing discovery that's happening from a customer perspective.
We've been very cautious, all the new markets -- and I mentioned this in the course of the conversation. All the markets that we're going to we're not seeing too much of a pushback on pricing because the demand in those markets that we are entering, especially on the NLD routes, is for a strong quality of service. A reliable broadband connectivity service, reliable broadband connection, a connection that can give you speeds that you can keep on upgrading your speed as and when you need it or as and when you can afford it. And more importantly, giving you a strong quality of service or QS.
So there, again, it ranges anywhere between INR 175 to about INR 300, INR 350 for a franchisee customer, and it could go any price sort of broadband direct-to-home customer or a fiber-to-the-home customer. So I think that's -- and to be honest, it's not so much as important the KPI, Mr. Shah, as is the duration of the customer. So if I sign you on tomorrow, Mr. Shah, and you give me -- I sign you on -- you have 2 options. I sign you on a INR 700 pack per month or I signed you on a INR 300 pack for 3 months, I'm happier to kind of sign you on a long duration pack. Because also, I know I can -- your renewals will be much -- has a greater chance. Because the cost of renewing the customers on a shorter duration pack is always more challenging. So that's the kind of metrics that one would look at.
Ladies and gentlemen, that was the last question of the day. I now hand the conference over to Mr. Partha DeSarkar for closing comments.
Thank you once again for joining us for the quarterly earnings call. We hope to see you again towards end of May when we have our year-end quarter 4 closing call as well. Once again, thanks for taking the time.
Thank you. On behalf of Hinduja Global Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.
Thank you, everybody.
Have a good weekend. Thank you. Bye-bye.