eClerx Services Ltd. share price target

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).

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...