Aug 01, 2011, 03.23 PM IST | Source: Moneycontrol.com

Accumulate eClerx Services; target of Rs 885: Emkay

Emkay Global Financial Services is bullish on eClerx Services and has recommended accumulate rating on the stock with a target of Rs 885 in its July 28, 2011 research report.

Emkay Global Financial Services is bullish on eClerx Services and has recommended accumulate rating on the stock with a target of Rs 885 in its July 28, 2011 research report.

eClerx continues to deliver consistently along our investm ent thesis with revenues up 5.7% QoQ to US$ 22.3 mn. EBITDA margins declined by ~280 bps sequentially to 39.2% impacted largely by wage increments implemented during the quarter ( co hiked salaries by ~14% at qtr start) as well as strong hiring (+10% QoQ with company hiring ~357 people during the quarter to take the total HC to 4,015). Top 5 clients grew by ~8% QoQ with company remaining confident of demand within the client base (citing atleast 2-3 large deal opportunities) despite the recent negative macro news flow. Profits at Rs 351 mn were marginally ahead of estimates aided by higher than expected other income. While DSO increased to 67 days (V/s 59 days at Q4FY11 end), co management indicated that it was on account of some collections delays which has been addressed at Q2FY12 start.

Investors (as well as us) have been worried about eClerxs high client concentration (with top 5 clients contributing ~85%+ of revenues). Although we do not see it changing for the better in the near term, managements focus on driving revenue diversification remains high with steps in the form of (1) increasing the size of onshore sales staff (increased from 21 to 30 over the past 4 quarters) with ~50% of sales staff actively focused on growing business outside the top 5 clients, (2) intent to increase onshore spends (plan to increase onshore spends further by ~1.5-2% of revenues going forward) as well as realignments of senior managers ESOP compensations to achieving set targets (Larger ESOPs vest of growth targets achieved/exceeded and vice versa)

We have tweaked our FY12/13E earnings up by ~1.6%/3.2% to Rs 52.2/63.9 driven by incorporation of higher hedging gains although operating performance estimates remain unchanged. We retain ACCUMULATE with a revised March12 TP of Rs 885(V/s Rs 840 earlier), says Emkay Global Financial Services research report.    

Institutional holding more than 40% in Indian cos

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