eClerx scouting for buys in US, Europe

Excerpts from Bazaar on CNBC-TV18 Watch the full show » eClerx Services BSE | NSE 10/02/12 Are Mutual Funds betting on eClerx Services?

eClerx Services , providing data analytics and customised process solutions to global enterprise clients, has listed at Rs 320 as against its issue price of Rs 315 per share. It touched a high of Rs 390 in early trade on buying interest.

PG Mundra , Executive Director of eClerx Services said they are looking at US and Europe for acquisitions, and the deal size is between USD 5-15 million, reports CNBC-TV18. eClerx will close the acquisition in the next financial year.

Excerpts from CNBC-TV18's exclusive interview with PG Mundra:

Q: Walk us through the plans that you have on the inorganic growth fund in terms of acquisitions that you are planning. We are given to understand that you haven't currently identified a target that you will be looking at one only in 2010?

A: We have actually closed one transaction in July this year when we bought a group of companies in the UK called Igentica. Going forward also, our strategy around acquisitions remains the same, which is to look for small strategic deals, which we can bolt on to our existing model. So they don't require a huge transformation on behalf of the company and they clearly identified either customer accounts or delivery capabilities. So the synergies are visible fairly quickly.

In terms of a timeframe, we have disclosed in the prospectus that we intend to close the deal no later than FY10, but it's quite possible that we might look at doing something even next year.

Q: Close to about 86% of your revenues are derived from your top five clients. Is that something that you will look to diversify and reduce, as time goes on? If so, how much will your top clientele will account for by the end of 2009?

A: The other side of it is demonstration of how successfully we been able to mind and grow the same accounts and add value to our strategic customers. Having said that, over a period of time we expect that concentration to reduce. We are hesitant to put a specific number on it for FY09, but directionally that number has been going down over the last few years and we expect that trend to continue.

Q: What would be your internal target for sales and profits by FY09?

A: As one would know, Sebi guidelines prohibits me from giving specific numbers, but if one looks directionally at the last three-four years the industry has been growing anywhere from 30-35% compounded and we been growing about 60%. If one looks at the industry projections for the next two-three years depending upon which report one would look at, the numbers are somewhat similar and I would hope that for us also. The future doesn't look very dramatically different from the past.

Q: Will you be reasonably doing over Rs 20 in terms of an EPS for FY08 - our estimation. Can you give us a sense of whether you will do more or less in that?

A: I think Rs 20 would probably be lower than what we did last year. So if we end up with that, we will probably be disappointed.

Q: Give us more details about the acquisition - which market are you evaluating at this point? Are you going to be looking at the US, UK markets and size?

A: The target markets that we are looking at are either the US or Western Europe, because those are the geographies where we already have a presence and a sales force. So it would be easiest for us to integrate and add value in those locations.

In terms of the size, we would be looking at deals that are accretive and we have the capability to integrate and absorb efficiently. So it's hard to pick a specific number, but in terms of deal values, it may be between USD 5-15 million. Having said that, it's more a target than a hard number. 

Q: With your revenue dependence on the US and so much talk of a US slowdown, how much of an impact has it had on your margins with the way the rupee has appreciated in 2007 and how do you see that part of the business panning out in 2008? Do you think a slowdown is imminent or are you immune from that?

A: I think the slowdown per se doesn't worry us so much, because the other side of cost pressures for our customers is that they look more aggressively at avenues of saving cost and moving activity to cheaper cost locations. So solution providers like us become an attractive opportunity for them in that context. Also from a more bottoms up approach, we have already had budgetary discussions with some of our large clients for the next year and the initial numbers or the targets that they share with us do not point to any huge slowdown. So from a slowdown perspective, I do not think we are looking too much sleep over it.

The rupee movement this year has been sharp. I think the rupee appreciated about 13-14% against the dollar in the first six months and obviously there was some impact on our margins as a result. Over a longer period of time, you try and counter that by diversifying your billing currencies, so a smaller proportion of our invoicing now comes from dollars than ever has been the case. Also by selectively raising prices in areas where one feels that opportunity exists. So those are the structural methods of handling the currency appreciation.