Thread by @BeatTheStreet10

What went wrong in Hinduja Global Solutions

Why stock is down 20%

Is there any fund siphoning?

The back story: Company sold its best business ( high margin, cash generating, booming) in Aug 21 for around ₹8000 cr to Baring Private Equity

Business: IT Services to Healthcare Business

Rational of Business selling remain unexplained as they said it will give growth capital for remaining business but IT as business is cash rich and asset light, does not require much capital. This is why IT Companies known for dividend buyback.

Further above biz was sold at price to sales ratio of 3 while TCS trade at P/S of 6 and Tata Elxsi at P/S of 16.

Question on valuation remain unanswered..!

Now they got their 8000cr from Baring and what they give back to shareholder as dividend is just 300 cr.

Utilization of ₹8k cr:

300 cr dividend
3500 cr Loans & Investments
500 cr Loan to promoters
100 cr Loan to Group companies

There is very important thing : promoter integrity of Hindujas.

They are known for heavy debt, family fiasco, pledging and fund siphon.

Due to these issues indusind bank fallout like below

View on HGS: avoid completely and exit as soon as possible

Here is another case of business selling and fund siphoning

Prabhat Dairy sold their dairy business and agrees to distribute money among shareholders. Later promoters decide to delist the company and take proceeds from sale in their own pocket

What Went Wrong In Hinduja Global Solutions



Why it's share falling

The bad deal
Promoter fund siphoning?
More dividends?
Corporate governance issues

What should you do?

#hgs
#Hindujaglobal
#hindujaglobalsolutions

More insights on HGS Fund Fiasco

Promoters will take 200 cr from interim dividend announced since they own 67% stake in it

With sale of this biz company 's revenue will be down from 1600cr in Q2 to 800 cr ( based on Mgt guidance)

Valuation
HGS' healthcare business leading to an earnings drop of nearly 40%, maintaining its 22-times price-to-earnings multiple could mean the stock drops to Rs 2,320/share

HGS market cap its peak was around 8000 cr = same it made from deal.

Mostly people bought considering value bet but at they end Corporate Governance was, is and will be the king

The most imp factor..!

Few companies do bad things lile this are

Prabhat Dairy
Elder Pharma
Eris Lifesciences

Who did good then ?

Its Majesco

New Business


Old Biz Sold

View Remain Same : EXIT