Jan 28, 2013, 11.47 AM | Source: Moneycontrol.com
Dolat Capital is bullish on Eclerx Services and has recommended buy rating on the stock with a target price of Rs 770 in its January 25, 2013 research report.
, Dolat Capital |
"Eclerx Services has reported Q3FY13 numbers slightly better than our estimates but the growth in the revenues were largely driven by strong momentum in short term projects. Weak rampup in the BFS segment (as indicated in commentary), likely onsite delivery inclusion and unfavorable captive-third party business preposition remains a risk and would result in revenue/earnings growth moderation in FY14/15.
Financial Services to remain volatile: It expect volatility in the BFS revenues as the regulatory driven demand (Dodd Frank, Anti-money laundering, Capital Adequacy and others approaching deadline) are getting fragmented to small size projects as clients are nervous on their mid-to-long term plans and are thus restricting on co-processing on RTB opportunity.
Cable & Telco to drive traction: It expects sustained growth moderation in its traditional business lines (both in Financial and S&M services) and is relying heavily on the acquired business line in the Cable & Telco segment. It is expecting strong growth over its USD 15mn revenue run rate of CY12. We anticipates risk here owing to weak spending patterns in this verticals and incremental spend to be largely dependent on RTB (cost cutting) opportunities.
Contemplating onsite: It is also contemplating a thought of an onsite delivery presence in anticipation of pooling of demand for near-shore delivery by the clients to avert on country risk. The demand currently is very soft (10-12 seat) but would change the overall operating metrics is view of lower onsite margins and the transition/setting up costs, and thus remains the risk to the stock.
Q3 results - What has changed?: We largely maintain our estimates with Sales/EBIT CAGR of about 18%/13% over FY13-15E modeling for lower revenue growth anticipation owing to challenging captive/third party business preposition and likely OPM dilution due to changed revenue mix post inclusion of new Telecom & Cable business segment (OPM in mid 20% versus over 35% overall).
Valuation: Eclerx has reported Q3FY13 numbers slightly better than our estimates but the growth in the revenues were largely driven by strong momentum in short term projects. Weak rampup in the Financial services segment (as indicated in commentary), likely onsite delivery inclusion and unfavorable captive-third party business preposition remains would result in revenue/earnings growth moderation in FY14/15. The stock has corrected by about 11% YTD and is now appears attractive at 8x FY15E earnings, thus we revise our rating upward to Buy with a target price of Rs 770 (earlier Underperformer) valuing stock at 10x FY15E earnings," says Dolat Capital research report.
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