eClerx has witnessed three consecutive years of USD revenue stagnation with declining profitability & cash generation. Return ratios have stumbled, RoE is at 18% (vs. >30% in FY17). The structural change in eClerx' operating model (shift to onshore) has resulted in EBIT margin contraction from 31% to 18.5% with onshore rev% increasing from 13% to 22% in the last two years. We reckon that the shift to onshore will continue given the on-site heavy (North Carolina center expansion) digital projects coupled with low demand for traditional KPO services which are at risk of getting automated. We remain cautious on high concentration (68% of rev from T-10 accounts), shorter duration projects providing limited visibility, lower quality of revenue mix and growth lag to onsite investments. We factor USD rev growth of 7.9/8.6% with stable EBIT% at 18.8/19.2% for FY20/21E. We believe revenue growth assumptions are optimistic given the limited visibility and challenging macro environment. Risks to our thesis include traction in digital portfolio and increased offshoring. We maintain SELL on eClerx post an in-line 4Q on revenues and better operating performance. We cut P/E multiple to 11x (vs. 13x) amid near term headwind to margins and lesser visibility on revenue growth.

eClerx (ECLX) reported an above-expected operating performance in the Mar'19 quarter on the back of in-line revenues and an operating margin beat. A combination of offshore revenue growth and onsite revenue decline aided margins, though this trend is unlikely to continue, in our view. Management was noncommittal on FY20 revenue growth and margins, citing uncertainty led by short-tenured contracts and a changing business mix. We maintain...

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India's US$ 160bn logistics industry is amidst a much-needed transformation led by (1) structural reforms (GST, e-way bill) and the government's infrastructure thrust (DFC, Sagarmala), (2) the emergence of new-age, service-oriented businesses versus asset-heavy models, and (3) growing formalisation of the sector, propelling organised players to the fore. We prefer the emerging 3PL and express segments for long-term value creation. Among...

Announces Rs 2.6bn buyback a transient trigger Event: eClerx (ECLX) has announced a buyback worth Rs 2.6bn through the tender offer route at a maximum price of Rs 1,600/sh (39.6% premium over...

Maintain NEUTRAL with TP of Rs 1,035, 13x Dec-20E EPS. eClerx posted in-line revenue and weak operating performance. Revenue stood at USD 50mn, 0.7/3.3% QoQ/YoY in CC terms. EBIT% contracted sharply by 514bps QoQ to 15.3% impacted by higher employee cost (-260bps impact) and higher SG&A; (-200bps impact). Operating performance impacted by investments in onshore delivery (-250bps impact) and facility expansion (Pune center). APAT was lower at Rs 0.39bn on forex loss impact and higher ETR.

Reported PAT of | 39 crore was below our expectation of | 64.6 crore on account of a sharp margin decline and lower other income Pressure in emerging clients to continue in near term The company posted a marginal increase of 0.4% QoQ led by 4.3% growth in managed services and 5% in onsite revenue. This was offset by 0.9% decline in offshore revenue and 2.6% drop in revenue from emerging clients (non top 10 clients). Decline in emerging clients was mainly on account of two clients in $1-5 million revenue category...

Refer to important disclosures at the end of this report Challenges to turn into opportunities profitability in FY16-18. The key factors affected the performance were: 1) being on the wrong-side of the actions at the client's end; and 2) a mix change toward onsite, with low gross margins (onsite now accounts for 22% of revenues versus 1% in FY15). Despite the modest performance in the recent past, we are certain about a gradual recovery in growth on account of: 1) stable deal momentum (adding about USD40-50mn in new TCV); 2) no client roll-offs (witnessed no adverse case in the last six quarters); 3)...

eClerx (ECLX), in a recent management meet, reiterated its strategy of onsite presence ramp-up in a bid to move closer to clients. Management indicated possible double-digit growth in FY20 on receding client-specific challenges and healthy deal wins. Operating margin uncertainty persists despite levers such as potential price hikes in top 10 accounts and favourable hedge positions (from H2FY20). Given the clouded margin outlook, we reiterate REDUCE with an unchanged Sep'19 target price of Rs 1,080....

EBITDA margin expanded 110 bps QoQ mainly led by lower selling & distribution expenses (down 5.4% QoQ) and one-time gain of | 3.1 crore in rent cost due to Pune facility consolidation. Adjusting for one time gain, the margin was at 22.5% (below our estimate of 23.8%)...

At a broader level, eClerx continues to face revenue growth headwinds owing to issues such as project roll offs. This is being witnessed in legacy projects (>5 year old projects), where roll offs in the near-term will continue to pressurise offshore revenue, which will be offset by robust onshore revenue growth led by managed services, analytics and RPA. Outlook remains healthy in these areas, with client demand strong and focus on cost cutting. However, from a margin perspective, new business in these areas comes at lower margins initially, and higher share of this business along with higher onshore revenue is likely to pressurise the margin profile in the short-term, till such time as offshore revenue sees a revival. INR depreciation is the biggest...

Maintain NEUTRAL with TP of Rs 1,140, 13x Sep-FY20E-EPS as valuation support on payout yield (~4%) and >6% FCF yield. eClerx posted in-line set of numbers, both at revenue and operating level. Revenue came at USD 50mn, 1.6% QoQ and 3.4% YoY (USD 50mn est) with 2.2% QoQ in CC terms. EBIT margin came at 20.5%, +87bps QoQ (25.7% est) as lower delivery cost and sales & development expenses (lower travelling cost) offset G&A; increase. APAT was higher at Rs 0.70bn supported by lower ETR.

Maintain NEUTRAL with TP of Rs 1,190, 14x FY20E-EPS as valuation support on payout yield (~4%) and >5% FCF yield. eClerx posted muted 1Q with revenue at USD 49.2mn, -6.4/+0.8 QoQ/YoY impacted by volatility in digital segment (Europe-CLX). EBIT% came at 19.6%, +87bps QoQ impacted by wage increase. APAT was lower at Rs 0.60bn also impacted by higher ETR at 31.3% (24.3% in 4Q).

Project Roll-offs, Lack of Backfill Pressurise Revenue eClerx Services (eClerx) has reported a poor performance in 1QFY19 with its revenue declining by a steep 6.3% QoQ (-6.5% QoQ in CC terms) to US$49.2mn (7.2% below our estimate) led by lack of backfill for short-term projects that winded down during the quarter and project roll-offs. In INR terms, revenue declined by 2.5% QoQ to Rs3.52bn (2.5% below our estimate). Despite multiple headwinds on margin front i.e. poor top-line performance, wage hike, higher SG&A; cost and lower utilisation, its EBIT margin expanded by 25bps QoQ to 19.2% owing to cost optimisation efforts and lower depreciation led by annual WDV reinstatement impact. Notwithstanding higher...

ICICI Securities Ltd | Retail Equity Research US$ revenues declined 6.3% QoQ to $49.2 million, below our 1.7% de-growth and $51.6 million estimate. Constant currency revenues fell 5.7% QoQ. Revenue decline was mainly on account of tapering of exceptional revenue from short-term specific projects in Q4FY18...

At 22.3%, EBITDA margins declined ~430 bps QoQ, much below our estimate of 26.9%, expansion of 30 bps. The EBITDA margin decline was on the back of increasing contribution of onshore revenues (23% to revenues in Q4FY18 vs. 4% in Q4FY17) and higher expenses Reported PAT of | 64.4 crore was below our expectation of | 66.1 crore mainly on account of lower-than-expected EBITDA margin partly offset by higher-than-expected other income Strong growth of 7% QoQ due to specific projects, Q1FY19E to be soft...

Maintain NEUTRAL on eClerx with TP of Rs 1,285, 14x FY20E. eClerx posted strong revenue and sub-par operating performance. Revenue came at USD 53mn, 7.4% QoQ (6.5% CC) and FY18 revenue stood at USD 199mn, 2.3% YoY (vs. 2.5% decline in FY17). EBIT% came at 18.7%, -417bps QoQ (impacted by non-recurring items -270bps impact). FY18 EBIT% stood at 23.3%, -800bps YoY impacted by increase in delivery cost with onshore expansion (-560bps YoY impact) and S&M; impact of -240bps (increase in senior management hires and higher travel expense). 4Q APAT stood at Rs 0.64bn, 11.5% QoQ.

eClerx's business outlook on the revenue front has improved, and we expect double digit revenue growth from FY19E onward. However, owing to margin pressures, EPS growth has been poor (-18.1% in FY18). Nonetheless, we expect margin stability from FY19E onward, which along with 12.3% USD revenue CAGR, is expected to drive >14% adjusted EPS CAGR over FY18FY20E. Thus, given an improving outlook, we upgrade eClerx from REDUCE to HOLD, with...

eClerx' Q3 revenue grew 1% QoQ, in line with our estimate. However, EBIT margin declined 230 bps QoQ to ~23% (vs. our estimate of 25%) on higher business development expenses, increase in onsite delivery staff and higher G&A; expenses.