PINC Research has Initiated Coverage on HOV Services Ltd

Mumbai, Maharashtra, India

-- CMP: Rs. 196.90
-- Target price: Rs. 347

PINC Research has initiated coverage on HOV Services Ltd as the company boasts of growth on the back of its broad based service offerings and mining of recently acquired Lason’s large client pool. The investment rational rests on a great degree of visibility due to long term contracts, geographical spread, and seating capacity well poised to deal with increase in demand.

The company has reported strong consolidated financial results for the second fiscal quarter ended September 30, 2007. The has been a 686% increase in its consolidated Operating Income for the quarter to Rs. 55.43 crore from Rs. 7.06 crore for the corresponding period last fiscal year. The Consolidated Total Income for the quarter climbed 455% to Rs.246.86 crore against Rs. 44.5 crore last year. HOV has also witnessed an increase of 803% in its consolidated Net Profit to Rs. 39.5 crore from Rs. 4.38 crore for the corresponding period last fiscal year.

Investment Rationale

-- HOVS's business model offers a great deal of visibility as a large component of its contracts is long term, for which, hiring plans during FY08 and FY09 have already been firmed.

-- Well positioned to face an adverse INR: USD environment, as only about 15 % of its costs are expected to be in INR terms, while it also has the ability to offer best shore options to clients from its delivery centers in India, US, Canada, China and Mexico, which provide a range of services.

-- Its current seating capacity is well suited for utilization ramp up in FY08 and FY09, thus negating the need for additional capex. This has the potential to improve free cash flows going forward.

-- Steep discount of 274 % between the FY09 P/E multiples of HOVS and its closer peer, Firstsource Solutions (FSL) is not justified considering the improvement in performance metrics such as revenue/headcount and PAT/headcount combined with a significant earnings growth expected in FY09.

About HOV Services Limited:

HOV Services Limited, a BPO company headquartered in Pune, India provides services to the Finance and Accounting business segment. Its clients include some of the largest companies in the healthcare, telecommunications, banking, finance, and insurance industries. The Company’s business sector encompasses activities including accounts receivable management, transaction, compliance, accounting, finance, treasury, and risk and tax management.

Pioneer Group:

PINC is a boutique banker in the Indian capital markets, PINC offers a slew of financial services that cover Investment Banking, Research for Equity markets, Broking for Debt, Equity & Derivative markets, Portfolio Management Services (PMS), Insurance & Risk Management Services and Commodities Trading.

Source: HOV Services Limited (Business Wire India)

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