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May 19, 2011, 02.54 PM IST | Source: Moneycontrol.com

Accumulate eClerx Services; target of Rs 840: Emkay

Emkay Global Financial Services is bullish on eClerx Services and has recommended accumulate rating on the stock with a target price of Rs 840 in its May 18, 2011 research report.

Emkay Global Financial Services is bullish on eClerx Services and has recommended accumulate rating on the stock with a target price of Rs 840 in its May 18, 2011 research report.

“eClerx Services’ March’11 results yet again exhibit the consistent and impressive execution with USD  revenues up by ~7.7% QoQ and margins improving by ~230 bps on a like to like basis. Reported profits at Rs 295 million(-18%QoQ) below expectations impacted by goodwill write-off of ~Rs 103 million Adjusted profits at Rs 398, significantly beat expectations ( Rs 346 million). Tweak estimates for higher USD  revenues (31.7%/28.4% YoY growth V/s 28.3%/26% earlier) driving a 0.4%/7.3% raise in FY12/13E earnings to Rs 51.4/61.9”

“eClerx reported March’11 qtr revenues of USD  21.1 million (+7.7% QoQ) , marginally ahead of Emkay estimates of ~USD  20.8 million. Operating margins improved by ~30 bps sequentially on reported basis (note that margin expansion was higher at ~230 bps on a like to like basis given that Q3FY11 margins benefited from certain cost reversals) While reported profits at Rs 295 million (-18% QoQ) missed estimates, they were impacted by goodwill write-off of ~Rs 103 million. Net employee addition during the quarter was relatively soft at 131, taking the yr end headcount to 3,908 (+28% YoY). Revenue growth during the quarter was led by North America (+14% QoQ) with revenues from Europe and ROW flat on a QoQ basis. Company indicated that it was continuing to drive investments in the client facing role which should help reduce client concentration (given that 3-4 non top 5 clients are reaching inflection points with revenues inching towards USD  1 million +.”

“We tweak our earnings estimates for (1) higher USD  revenues (now build in ~ 32%/28% YoY revenue growth V/s 28%/26% earlier) and (2) higher tax rates in FY12 (V/s 12% earlier) thereby driving a 0.4%/7.3% raise in our FY12/13E earnings to Rs 51.4/61.9 respectively. We continue to like eClerx for it’s flawless and consistent execution, strong cash generation backed by high return ratios (ROE’s to be 50%+ over FY11-13E) despite increase in cash/share to Rs 90/share V/s ~Rs 60/share currently. Retain Accumulate with a revised March’12 terget price of Rs 840 implying ~13.5x March’12 earnings,” says Emkay Global Financial Services research report.

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