eClerx Services Ltd. share price target

eClerxs 4Q performance was soft, in-line with our expectations. Revenue came in at USD 47.9mn, up 1.6% QoQ, led by growth in emerging accounts. These grew 10% QoQ, following two consecutive quarters of sequential decline. EBIT% came in at 29.5%, and mgt guided for margins at ~30, going ahead.

Eclerx has been grappling with headwinds over past 4 quarters, posting sequential decline in growth. Further, the management expects these headwinds to continue till Q1FY18.

ICICI Securities Ltd | Retail Equity Research eClerx Services (eClerx) reported its Q3FY17 earnings where US$ revenue and EBITDA margin both surprised us on the downside US$ revenues declined 3.5% QoQ to $47.2 million, below our 2.5% QoQ decline and $47.7 million estimate. Rupee revenues declined...

We lower FY17/18E EPS est. by 1.5/4.5% largely on revenue slowdown. Revenue growth deceleration (7% revenue CAGR over FY16-19E) and expectations of steady margin profile of 32.9/32.7/33.7% EBIT% for FY17/18/19E are incidental to FY16-19E EPS CAGR of 9%; Maintain NEUTRAL with TP of Rs 1,400, 13x Sep-18E EPS.

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).

eClerx’ growth metrics will continue to be skewed towards cable business (lower margin) and digital business (smaller-sized projects) as the financial vertical is expected to constrict growth, impacted by higher in-sourcing and automation. High revenue concentration in the financial business (top-10 contributes 74% of 1Q total revenue) and volatility in project cycles is expected to be offset by higher mix of shorter duration projects and faster growth in the emerging accounts (26% YoY growth in 1Q).

Valuation: With mid-single digit revenue growth (vs 19% organic growth in FY16) and decelerating margin in FY17E leading to protracted recovery, we believe that valuations (almost 16x FY18e EPS) are ample. We expect US$ revenue/EPS to grow at 9/8% CAGR over FY16-18E. Maintain NEUTRAL with a TP of Rs 1,465 based on 14x FY18E earnings.

Revenue Challenges Abound; Buy-back could Support Stock 1QFY17 financials of eClerx Services (eClerx) reflect major revenue challenges led by automation, in-sourcing initiatives and project roll offs. USD revenue fell 1.2% qoq (-0.6% in CC terms) to US$50.2mn, while yoy revenue grew by single digit (8.2%) for the first time since 3QFY15. It disappointed on EBIT margin also, which came in 147bps below our estimate (33.5% vs. 35% estimated) owing to pay hikes and reversal of gratuity write-backs. Notably, automation has impacted all its verticals Cable, Digital Marketing Financial Services to varying degrees. 2QFY17E revenue will be flattish, with possible...

ICICI Securities Ltd | Retail Equity Research eClerx reported a mixed set of Q4FY16 numbers as though revenues were below our estimates, EBITDA and PAT were above estimates...

eClerx has posted revenue of US$50.8mn on 2.5% qoq decline in cc terms. FY16 revenue stood at US$199.2mn, registering 34% growth in cc terms with 18.8% organic cc growth. Growth decline in 4Q was due to 3.9% sequential decline in top-10 accounts, impacted by project completion largely in financial services vertical. Among geos, RoW had the highest contribution towards growth decline and non top-10 (emerging accounts) grew 4.7% qoq. Its Management expects flat 1HFY17E with subsequent pick-up in growth based on project schedules. Pipeline of Cable Division as well as Digital Business remains healthy. While Financial Services is expected to be volatile, Cable Division is expected to drive growth...