Accumulate eClerx Services; target of Rs 800: P Lilladher

“eClerx Services reported Q4FY11 revenue growth of 9.6% QoQ to Rs 955m (PLe: Rs 914m, Cons: Rs 940m) and 7.7% QoQ growth in USD terms to USD 21.1m. EBITDA margins expanded by 23bps (Q3FY11: 556bp) QoQ to 42% (PLe: 42.2%), due to currency. EPS de-grew by 18% QoQ to Rs 9.8 (PLe: Rs 12.2), largely due to amortization write-off (Rs102.75m), excluding exceptional PAT grew by 10.6% QoQ (PLe: 3%).”

“The management highlighted that new engagement will contribute to growth from the existing clients. Despite an increase in sales force by 33% QoQ to ~33 professionals, the company still has total engagement static at 50 clients. We believe that the underinvestment in the business is getting reflected in muted new logo addition. We believe that the company has exploited their top clients to the fullest with new engagements. According to the management, FY12 would witness higher investment in the business with more aggressive marketing strategy. We expect the aggression to dent the margins in the near term. Also, attrition is tapering down, which would push employee cost higher, post wage hike of 11-11.5% (executed in Q1FY12).”

“According to the management, the company has hired a banker to look out for strategic M&A target. We expect the revenue momentum to continue, but stretched margin lever and higher tax rate in FY12 are likely to translate decelerated growth at bottom-line. We revise our multiple to 12x in-line with industry; however, retain ‘Accumulate’ rating, with a revised target price of Rs 800 (from Rs 850), 12x FY13E earnings estimates,” says Prabhudas Lilladher research report.

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