eClerx Services does not see growth improving significantly in FY14, says PD Mundhra, executive director of the company.
eClerx Services does not see growth improving significantly in FY14, says PD Mundhra, executive director of the company. "The business environment has not changed materially for us in the last six months. We continue to see tepid growth. There is growth, but it is slow and we do not expect things to change materially in FY14," he told in an interview to CNBC-TV18.
On the company's buy-back plans, Mundhra says it gives 50 percent of net income as dividend to its investors every year. Its plan to buy back 10 percent shares may help the company in returning a mix of buybacks and dividends to its investors.
Below is the verbatim transcript of PD Mundhra’s interview on CNBC-TV18
Q: Can you give us more details on how much the company plans to buy back from the market and what cash position is currently on the books?
A: The plan will seek an enabling resolution from the shareholders so that whenever the board considers it appropriate, can launch a buyback. At the moment there is no specific plan to conduct any buyback eminently but enabling a resolution that we are taking. Currently, we distribute back about 50 percent of our net income as dividends every year which is not very tax efficient, given dividend distribution tax (DDT) position. Therefore, we also want to add buyback as an instrument of returning cash to shareholders.
Q: How much are you planning to return?
A: There is no specific plan but, every year we give about 50 percent of net income back to shareholders. So far it has been 100 percent dividends. In the future, we might use a mix of buybacks and dividends.
Q: Within this calendar year, is there anything planned?
A: No, there is nothing planned eminently. The whole postal ballot process takes about two months. Once that is complete, the board will meet and take a call.
Q: Will this be a buyback from the market?
A: Yes, because that is my understanding of the regulation.
Q: Will you make an offer where your investors post in their preference to you?
A: If the board decides to go ahead and conduct a buyback, at that stage we will invite a few merchant bankers to come in and share ideas and suggestions. Securities and Exchange Board of India (Sebi) allows two or three modes of conducting a buyback. The choice of which one to use is a function of market conditions at that point in time.
Q: Will you need money for expansion?
A: We continue expanding, but for business like ours growth is not capital intensive. If I look at our capital expenditure in FY13, it has been about USD 4-5 million compared to a net income of maybe USD 35-40 million. So, from that perspective there is substantial excess cash that we have been returning as dividends.
Q: What is the cash currently?
A: The cash position as of last quarter end December 31 would have been about USD 35 million or so.
Q: Can you update us on how the business is shaping up because some analysts are concerned that the legacy business continues to remain under pressure?
A: The business environment has not changed materially for us in the last six months. We continue to see tepid growth. There is growth, but it is slow and we do not expect things to change materially in FY14.
Q: When you say not materially, are you expecting a low single digit growth in revenues or high single digit revenue growth? How would you look at FY14 broadly at this point?
A: We do not give any numeric guidance. But if I look at what FY13 has been for the nine months ending December, our organic growth has been for the nine months ending December has been around 10 percent. In FY14, we will be in similar environment, so unless there is some swing event, I would expect growth to be somewhere in that order of magnitude.
Q: Now that your integration with Agilyst is on track, what kind of revenue momentum are you expecting to see on that front?
A: On our cable business, we had stronger traction over the last few months because that is a more niche business. It has also been under penetrated in terms of outsourcing and off shoring. When we bought the company, it was worth USD 15 million revenue and we are up to USD 120 million in the fourth quarter of this year. So from that perspective, we hope that in FY14 also we can maintain good growth momentum in that business.
eClerx Services stock price
On July 28, 2014, eClerx Services closed at Rs 1221.30, down Rs 13, or 1.05 percent. The 52-week high of the share was Rs 1370.05 and the 52-week low was Rs 695.65.
The company's trailing 12-month (TTM) EPS was at Rs 81.42 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 15. The latest book value of the company is Rs 177.86 per share. At current value, the price-to-book value of the company is 6.87.
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