In Q1FY17, eClerx’ operating performance was below our expectation while net income came in marginally below our expectation due to higher other income .US$ revenues declined 1.1% QoQ to $50.2 million, below our 2.5% QoQ growth and $52.1 million estimate. Constant currency (CC) revenues declined 0.6% QoQ .Rupee revenues declined 0.8% QoQ at | 340.3 crore below our 1.5% growth and | 348 crore estimate . At 37%, EBITDA margins declined ~400 bps QoQ and were below our 38.9% and 210 bps decline estimate. Reported PAT of | 95.9 crore was marginally below our | 96.7 crore estimate led by the revenue and margin miss. eClerx approved the proposal for a buyback of equity shares for | 234 crore that is expected to be completed in Q3FY17.

Valuation: The stock is currently trading at expensive valuations of 16.2x FY18E EPS, i.e. at ~30% premium to its FY11-16 average of 12.6x despite a subdued financial performance. Hence, they maintain SELL rating on eClerx with a revised target price of | 1412 (14x FY18 EPS).