Hinduja Global Solutions vs Firstsource Solutions: India’s BPO/BPM companies are recognised all over the world because of their superior delivery skills and low costs. But did you know that there are a few listed BPM companies in the Indian stock market? Are they a good investment?

In this article, we’ll perform a comparative study of Hinduja Global Solutions vs Firstsource Solutions, two sector leaders and see if they can be attractive investment opportunities.

Hinduja Global Solutions vs Firstsource Solutions

We’ll begin our comparative study by getting ourselves acquainted with the business process management (BPM) / outsourcing (BPO) sector. Next, we’ll learn about the two businesses: Hinduja Global Solutions and Firstsource Solutions.

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After that, we’ll race through the financials of both stocks. A highlight of the future plans of both the companies and a summary conclude the article at the end.

Industry Overview

The global business sourcing industry was valued at $ 238-243 billion in 2021. The sector demonstrated growth in double digits because of multiple factors: growing demand from developed nations, increased demand for value-added and digital services, higher spending, and strong business recovery. 

Such a large market allows room for plenty of small and big enterprises to operate with many developing expertise in selected niche areas.

Overall, the BPM industry is expected to grow at a steady pace with increased investments and spending in healthcare, medtech, digital banking, retail, BFSI, fintech and other areas. 

Furthermore, the incumbents will have to adapt to the evolving needs of various industries and include recent developments in the areas of analytics, automation, artificial intelligence, etc. in their portfolio offerings.

Company Overview

In the previous section, we learnt about the BPM industry landscape. Now, we’ll read about the similarities and differences between their businesses for our Hinduja Global Solutions vs Firstsource Solutions study.

Hinduja Global Solutions

Part of the century-old automobile to lubricants conglomerate Hinduja Group, Hinduja Global Solutions Ltd. (HGSL) is a leading business process management (BPM) / outsourcing (BPO) company with an international presence.

The company offers a broad range of services to its clients such as digital marketing, social media engagement, automation, analytics, cloud management, back-office processing, contact centres, and HRO solutions.

In addition to all this, HGSL also delivers digital services through its media and communications vertical. It provides television content delivery services through satellite, digital cable and broadband under INDigital and NXTDIGITAL brand names.

The digital cable television platform has a strong pan-India presence with a franchisee base of close to 10,000 last-mile owners.

The company employs close to 20,700 people across its 35 delivery centres spread across nine countries. As of March 31, 2023, the company had 292 active CX/ BPM clients, 762 HRO/payroll processing clients and 5+ million customers for its digital media business.

Firstsource Solutions

Set up in 2001, Firstsource Solutions Ltd. (FSL) is a part of the sports-to-retail conglomerate RP-Sanjiv Goenka Group. It has grown to become the nation’s prominent business process management (BPM) / outsourcing (BPO) company with an international footprint.

FSL employs over 23,000 people across 42 centres in 5 countries. As a feather in its cap, the BPM company serves 18 Fortune 500 companies and 3 FTSE 100 companies. 

It boasts 150+ international clients with a key presence in US non-bank lending market, the US healthcare revenue cycle management market, and the UK media & BFS customer experience market.

FSL’s portfolio of services is broad and includes customer support, sales support, data capturing, debt collections, analytics and business intelligence, fraud management, and more.

Hinduja Global Solutions vs Firstsource Solutions – Revenue Growth

The operating revenues of Hinduja Globa Solutions and Firstsource Solutions stood at Rs 4,505 crore and Rs 6,022 crore in FY23 respectively. The profit growth of the two companies is not comparable as during the study period HGS underwent two key changes.

The company divested its healthcare services business for Rs 8,940 crore to  Baring Private Equity Asia (BPEA) a leading Asian investment firm. In another instance, HGS acquired the digital media business NXTDIGITAL from the Hinduja Group and brought it under its control.

The table below presents the operating revenues of HGSL and FSL for the last five fiscals.

Fiscal YearHinduja GlobalFirstsource
20234,5056,022
20224,2735,921
20212,6025,078
20204,9874,099
20194,4703,826
5-Yr CAGR0.16%9.50%
(figures in Rs Cr except for CAGR)

Hinduja Global Solutions vs Firstsource Solutions – Net Profit Growth

As for the bottom line figures, HGSL and FSL earned net profits of Rs 305 crore and Rs 514 crore respectively in FY23. 

The RP-Sanjiv Goenka stock has been consistent with profits against the Hinduja Group company which reported losses in FY21 and FY22. The losses arose because of exceptional items arising from the divestment of its healthcare business and the acquisition of its digital media business.

On a five-year basis, both companies have demonstrated growth in earnings. The figures below represent the net profits of Hinduja Global and Firstsource for the previous five financial years.

Fiscal YearHinduja GlobalFirstsource
2023305514
2022-39537
2021-59362
2020184340
2019173378
5-Yr CAGR12.01%6.34%
(figures in Rs Cr except for CAGR)

Hinduja Global Solutions vs Firstsource Solutions – Profit Margins

We read about the bottom-line and top-line growth of the two companies for the last few years for our comparative study of Hindustan Global Solutions vs Firstsource Solutions. Let us know to see how both stocks score in terms of margins.

FSL demonstrates higher operating profit margins of upwards of 11%. Comparatively, HGSL’s margins are lower, hinting at a difference in business model (platforms-based), stage of operations (recent acquisitions and newly launched platforms) and diversity in business (digital media business vertical).

The table below highlights differences in operating profit margins of Hinduja Global and Firstsource over the previous five years.

Fiscal YearHinduja GlobalFirstsource
20236.811.5
20224.412.0
20219.811.8
20208.711.0
20196.012.2
(figures in %)

Taking forward our margin analysis, the impact of exceptional items on the bottom line doesn’t allow an in-depth comparative study. However, looking a the recent FY23 net profit margins we can say that Firstsource commands better margins than Hinduja Global with the latter having ample headroom to grow its earnings by expanding its margins.

The table below showcases how the net profit margins of Hinduja Global Solutions vs Firstsource Solutions behaved over the past five fiscals.

Fiscal YearHinduja GlobalFirstsource
20236.88.5
2022-0.99.1
2021-2.37.1
20203.78.3
20193.99.9
(figures in %)

Hinduja Global Solutions vs Firstsource Solutions – Return Ratios

Let us now move to rank the two BPM stocks in terms of profitability. Historically, FSL demonstrated high return ratios: RoCE and RoE. However, the figures declined in FY23 because of a higher equity base (past profits) and lower earnings in the recent fiscal. 

Comparatively, the return ratios of Hinduja Global were much lower with RoCE and RoE at 3.2% and 4.1% respectively in FY23. This is because of the higher equity base arising from the sale consideration of the healthcare business and the acquisition of the digital media business.

The table below showcases the return on capital employed (RoCE) ratios of Hinduja Global Solutions and Firstsource Solutions for the last few fiscal years.

Fiscal YearHinduja GlobalFirstsource
20233.213.4
20221.817.6
202117.317.6
202014.512.3
201913.414.1
(figures in %)

The figures below represent the return on equity (RoE) ratios of Hinduja Global Solutions and Firstsource Solutions for the last few financial years.

Fiscal YearHinduja GlobalFirstsource
20234.115.3
202278.217.7
202116.112.9
202011.712.3
201910.813.9
(figures in %)

Hinduja Global Solutions vs Firstsource Solutions – Debt Analysis

Hinduja Global Solutions is a debt-free stock. The management of the company used the business sale proceeds to pay back the debt. Comparatively, Firstsource reported marginally higher debt with debt to equity ratio of 0.25 for FY23.

However, FSL is a fundamentally strong stock with a high-interest coverage ratio of 12.12. Furthermore, the debt component in its capital structure aids it to post higher RoE for its investors.

Future Plans

So far we looked at the previous fiscals data for our comparative analysis of Hinduja Global Solutions vs Firstsource Solutions. In this section, we’ll try to get some sense of what lies ahead for the companies and their investors.

Future Plans of Hinduja Global Solutions

  1. Recently HGS acquired US headquartered TekLink, a financial planning and analytics service provider to expand its build advanced expertise in these offerings.
  2. As part of its strategy, the company is evolving from a  services provider into a solutions-accelerator & platforms provider which can benefit it in coming years in terms of scalability and competitive advantage.

Future Plans of Firstsource Solutions

  1. Recently the company acquired American Recovery Services and The Stonehill Group to strengthen its portfolio offerings and acquire more clients inorganically.
  2. Furthermore, the management hopes to bring higher revenue growth in the quarters ahead from cross-selling and delivering higher client satisfaction.

Hinduja Global Solutions vs Firstsource Solutions – Key Metrics

We are almost at the end of our comparative study of Hinduja Global Solutions and Firstsource Solutions. Let us take a look at some key metrics of the stock other than the ones covered above.

ParticularsHinduja GlobalFirstsource
CMP₹1,081₹128
Market Cap (Cr.)₹5,900₹9,000
EPS₹66₹7.3
Stock P/E21.817.5
RoE4%15%
Book Value₹1,630₹48
Price to Book Value0.692.67
Promoter Holding66.6%53.7%

Conclusion

As we conclude our comparative study of Hinduja Global Solutions vs Firstsource Solutions, we can say that the former seems to look undervalued because of its low price-to-book value and huge headroom for growth ahead from its current base. But the market will only reward it if the company is able to post higher revenue and profit figures in the coming quarters. 

On the other hand, Firstsource Solutions seems to be in a sweet spot with consistent earnings and a strong client base. In your opinion, will HGSL be able to catch up with FSL in the coming quarters? How about you let us know your views in the comments below?

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