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Nov 13, 2017 05:53 PM IST | Source:

Sell eClerx Services; target of Rs 1085: HDFC Securities

HDFC Securities is bearish on eClerx Services has recommended sell rating on the stock with a target price of Rs 1085 in its research report dated November 02, 2017.

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HDFC Securities' research report on eClerx Services

eClerx Services posted muted numbers, largely inline with our estimates. Revenue came in at USD 48.4mn, -1.8% QoQ CC (USD 47.8mn est.), as growth in the emerging accounts (USD 1.4mn QoQ) was offset by a decline in Top-10 accounts (USD 1.8mn QoQ). Top accounts’ growth was impacted by revenue decline in a large US client (within top-6 and at >USD 5mn annual rev rate). EBIT% was lower by 163bps QoQ at 25.2%, impacted by an increase in onshore delivery and lower offshore utilisation (-230bps impact).  While the decline in growth is behind the company, based on an improved pipeline and bottoming-out of large accounts, we believe that challenges persist in the form of (1) Operational re-calibration of business (onshore build-up), (2) Limited growth outlook with shorter project duration resulting in a churn in the portfolio, and (3) Continuity of automation impact, especially in financial services and the cable division. Management alluded to revenue growth in 2HFY18 over 1HFY18.


We expect revenue/EPS growth at 7/2.5% CAGR over FY17-20E, factoring USD revenue growth of 1.0/9.9/10.2% and EBIT% at 26.9/27.6/27.7% for FY18/19/20E, respectively. Our negative view on eClerx is substantiated by sub-par industry growth (EPS CAGR of 2.5% vs ~12%) and premium valuations (>10%). Maintain SELL with a TP of Rs 1,085, 12x Sep19E EPS.

For all recommendations report, click here

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