eClerx Services Ltd. share price target

ECLX reported Q4FY21 revenue growth of 19.3% CC QoQ, including 6.3% organic growth and the balance from its Personiv acquisition

Growth momentum resumes | outlook healthy

The company reported healthy growth in the current quarter mainly led by improving demand, especially in CLX business, lower roll offs, acquisition and improving demand. eClerx, over the years, has seen roll offs due to client specific issue, insourcing, ramp down of short-term projects and automation. However, with anticipated lower roll offs from one-off client specific event (accounting for one-third of new sales of ~US$40- 50 million) will help the company to boost revenues. Going forward, although we expect certain short-term projects to get ramped down in the near term, we...

eClerx (ECLX) has acquired Personiv an IT services firm with capabilities in the digital, back office and customer contact domains for a cash consideration of US$ 34mn.

eClerx (ECLX) reported a surprising growth and margin beat in Q2FY21 backed by CLX recovery and aggressive cost cuts.

In the current quarter, eClerx witnessed demand and supply side challenges. However, we believe the company could see improving revenue growth in coming quarters led by receding supply side challenges and improving demand. eClerx also witnessed healthy deal wins upwards of quarter million dollars. A few deal wins include a Nordic banking client, food business client and higher wins from existing clients. In addition, the company expects CLX business (that we believe contributes 18% to topline) to see improvement in coming quarters. Hence, we expect eClerx to witness a gradual...

eClerx (ECLX) reported a surprising operating margin beat in Q1FY21 backed by aggressive cost cuts.

In the near term, the company is expected to face a significant revenue impact due to some supply side challenges, lower demand, impact in voice and exposure to retail & travel vertical (that we believe together may account for 10% of revenues). As a result, we expect a sharp fall in Q1FY21E revenues. We expect the company to witness a marginal improvement from Q2FY21E onwards and to reach Q4FY20 revenues in Q4FY21E (as indicated by management). Based on our assumptions, we expect dollar revenues to decline 8.4% YoY in FY21E. However, we expect the company to witness an...

eClerx's (ECLX) Q4FY20 dollar revenue declined by a sharp 7.9% QoQ owing to onsite revenue contraction of 15%.

Revival in revenue growth key thing to watch Dollar revenues grew 3.4% sequentially after two consecutive quarters of decline. The growth was aided by one-off projects in the CLX business and milestone accruals. The management said the soft Q4FY20E was on account of one-off gains in Q3 and delay in ramp up of projects. Taking into consideration the weak performance in H1FY20 and a softer Q4FY20E, we expect mere 2.2% YoY revenue growth in FY20E. The company has faced certain client specific issues in the past and pressure in legacy business. In...

A mix of favourable yet transient dynamics saw eClerx (ECLX) staging a surprising operational beat in Q3FY20 (revenue up 3% QoQ, EBIT margin up 590bps).

eClerx (ECLX) reported a margin beat for Q2FY20 (EBIT margin at 16.9%), albeit backed largely by marketing cuts, while dollar revenue was a miss (1.6% QoQ).

Lower our revenue assumption due to near term concerns We believe the company is facing client specific issues that have impacted its growth in top 10 clients (declined 3.5% QoQ). Further, higher short-term projects (~15-20% of revenues), pressure in legacy business and inability of new deals to replace de-growth in legacy business are further hampering revenue growth. In addition, we believe automation, delay in client spending in the UK and pricing pressure in onshore projects may have also impacted revenue growth. Going forward, we expect a similar trend in revenues to...

eClerx has witnessed USD revenue stagnation (+0.1% 12-qtr-CQGR) coupled with a structural swing in operating model (shift to onshore) resulting in EBIT margin plummet from 33.5% to 13.8% in the past 12 qtrs. We reckon that the shift to onshore will continue given the on-site heavy digital projects coupled with low demand for traditional KPO services. We remain cautious on high concentration and stagnation of T-10 accounts, shorter duration projects providing limited visibility and lower quality of revenue mix. We factor USD rev/EPS CAGR of 5.5/-2.3% over FY19-22E. High cash (~25% of Mcap) and dividend yield (4%) will provide some cushion. Company will maintain payout of ~50% of PAT but recent tax on buybacks has curbed the value arbitrage. Risks to our thesis include traction in digital portfolio and increased off shoring. We downgrade eClerx to SELL following margin washout and limited growth visibility. eClerx has lost the plot, we cut EPS est. by ~16% and P/E to 9x (vs. 11x) Jun-21E EPS to arrive at TP of Rs 505.

eClerx (ECLX) underperformed sharply in the Jun'19 quarter as operating margins continued to sink well below estimates.

India's consumption demand remained subdued with continued decline in auto sales and non-oil-non-gold imports. Monsoon rains have improved lately. But the sowing activity is behind last year's levels and will impact rural incomes and demand. Services sector too has slowed down as government spending has moderated. Manufacturing activity remains muted as well. With fiscal prudence being the underlying theme of the Budget and government looking at overseas issuances, Indian yields are expected to come down further. A benign inflation...

Our interaction with the eClerx Services (ECLX) management suggests emerging margin stability post-Q1FY20 and easing operational stress, but we continue to see risks from poor offshore growth, low revenue productivity, structurally weaker margins and dim business visibility. Amid softer profit and return ratios, we now find ECLX's business aligned closer to that of BPOs we thus reset our multiple to 9x Jun'21E EPS (vs. 11.5x), in line with consensus valuations for BPO peer...

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...