eClerx Services Ltd. share price target

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...

eClerx has posted 4.8% QoQ and 42.5% YoY INR revenue growth and 3.2% growth in US$ terms in Q3FY16. Rollover of one short term project and some extensions during Q3 have driven the growth. Q4 revenue growth would largely remain flat versus Q2FY16 due to roll-off of short term projects in due course.

eClerx reported strong USD revenue growth (3.2% QoQ USD, 4.2% CC). Top-5 client revenue was the highest in five years (since 3QFY11) at 7.9% QoQ; YoY growth (17.5%), too, was the highest since 4QFY12. Non-top-5 clients, however, recorded a decline of 2.7% QoQ, the first since 4QFY12, as some top clients of similar size displayed divergent growth, leading to a change in classification. Higher onsite wage and delivery cost reduced EBIT margin (-115bps QoQ).

eClerx posted result that came slightly ahead on revenue while operating performance was nearly in-line. 3Q performance was driven by sharp acceleration in top-5 accounts while emerging accounts declined sequentially. Increase in shorterduration contracts, divergent growth trends in top-5 accounts and completion of projects in the near-term is expected to keep near-term growth/margin volatile, however, cable business is expected to remain strong ahead. We maintain our BUY...