HOV Services Target Price Rs.127

BUY Recommendation on HOV Services

By Equinomics Research & Advisory Pvt Ltd

HOV Services (HOV) has 27.2% equity stake in Source HOV and the rest by Citi Bank group. SourceHOV was formed when India-based HOV Services acquired US-headquartered SourceCorp in 2010.

Further on March 19, 2013, Citi Venture Capital International (“CVCI Private Equity”) invested in the SourceHOV as a new equity partner wherein CVCI Private Equity purchased all of the ownership interests of affiliates of Apollo Global Management, LLC (“Apollo”) and certain minority holders’ in SourceHOV. SourceHOV, with approximately $525 million in revenue last year, is one of the largest pure play BPO and KPO companies in the industry, serving customers in more than half of the Fortune 100 with deep domain expertise.

The company’s global workforce is more than 12,600 employees operating from over 80 delivery centres in 6 countries including the U.S., Mexico, Canada, India, China and the Philippines.

Already the media had speculated that some of the private equity majors like Apax Partners, Carlyle Group and Baring Asia are bidding for SourceHOV at $1bn. If we value the company at about 75% of revenues, it is worth about $393 million and 27% stake of HOV would be worth about $106 million – ie about Rs.636 crore. Whereas this zero-debt company (HOV) trades at a marketcap of about Rs.100 crore.

Even if we give 70% discount to the possible investment value (in case of any possible deal happening), the valuation per share could be Rs.190 per share. To be conservative, we assign 75% discount to its possible investment value and arrive at a target price of Rs.127 per share which is a return of 57% from the current market price of Rs.81.

Disclosure: I, G.Chokkalingam, do not hold HOV Services directly or indirectly through friends, relatives or any proxies.

G.Chokkalingam

Founder & Managing Director

Equinomics Research & Advisory Pvt Ltd

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Filmcity Road, Malad (East), Mumbai - 400 097

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chokka.g@equinomics.in

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