Mid-Cap Gem - Part II

Introduction:
This is the second post in the series - Hunting for Mid-Cap Gem's. 

Part I was posted on 12th July, in which i had mentioned that the post is a two part series. The first post was focused on Hinduja Global Solutions Ltd., the second post, i.e. today, my focus will be on Hinduja Ventures Ltd. (HVL). 

Hinduja Ventures Ltd. (henceforth will also be refereed as "HVL" or "the company") is part of Hinduja Group - for more information on Hinduja Group, please refer to my post dated 12th July, 2010.  
(http://wealthyopinions.blogspot.com/2010/07/mid-cap-gem-part-i.html)

About HVL:

HVL was was earlier known as Hinduja TMT, but was renamed  in the year 2006/07 when the BPO business (HGSL) was demerged.

It's the flagship company of diversified Hinduja Group. The company specializes in software development, technology, media, telecommunication and financial services industry. The company through its subsidiaries provides cellular services, cable television, e-commerce/internet services, corporate finance and asset management services, etc.

Financials:
The company has grown exceptionally well over the years. Since the year 2003, the sales have grown at  compounded annual growth rate of 19% p.a.

Data: Bloomberg; Wealthy Opinions

In the financial year 2010, total sales stood at Rs. 3,056 million, representing an increase by 9% growth on YoY basis. For the same period, EPS increased by 30% to Rs. 29.5 per share.

Data: Bloomberg; Wealthy Opinions

HVL's diversified business base helped to improve its returns from all fronts /sectors helping the company to boost its liquidity and the respective ratios. For the period from 2003 to 2010, the company has gained a solid footing and improved its working capital, which has grown (CAGR) by over 15%. In the last fiscal, the company's positive working capital increased by over 25% on a YoY basis.

For the same fiscal year (2009), the various liquidity ratios were well above the required standards. The cash ratio was at 2.26x, quick ratio at 2.73x and current ratio at 3.32x; indication that HVL will be well able to meet its short term obligations. 

Data: Bloomberg; Wealthy Opinions

On profitability front, the company has achieved high returns. Return on Assets (RoE), Return on Equity (RoCE) and Return on Capital (RoC), have all been well above the standard average. 

In last fiscal, the company achieved a RoA of 5.4%, RoCE of 8.1% and RoC of 7.9%.

Data: Bloomberg; Wealthy Opinions

Over the years, HVL has handsomely rewarded its share holders not only in terms of dividend payment, but also by increasing company's intrinsic and book value. 

Data: Bloomberg; Wealthy Opinions 

In the year 2009, the book value stood at Rs. 298, an increase by 12% on a YoY basis and an average increase by 8% p.a. since the year 2003.

Data: Bloomberg; Wealthy Opinions

The shareholders equity, has increased (CAGR) by over 9% since the year 2003 and the Assets have gone up by more than 10% for the same period.

Recent Developments:

The company management has recently announced that they expect to increase the revenue by investing heavily in power, infrastructure, real estate, oil & gas exploration, etc.

The Group recently acquired a Belgian private bank KBL for Rs. 7,776 crore.

Conclusion:

off late, the price has moved up since the start of June (a sort of re-rating), due to good quarterly results. HVL reported total income growth of 13.31% compared to the corresponding quarter and EBITDA increase of 34%.  

On PE basis, the company still look cheap (P/E of 16x - MRQ) compared to its peers who are trading well above 21x its earnings. 

On GGM basis, the price is close to be considered as fairly valued but the as per the current capex plan, the company will grow at tremendous rate going forward and hence can achieve higher growth rate and a  higher pay-out ratio. Based on these assumptions the price is modestly undervalued.

Happy Investing !!!