See 10% plus growth in FY16; CLX to give booster: eClerx

Recently acquired CLX Europe contributed USD 4.5 million or roughly 10 percent of eClerx’s June quarter revenues of USD 46.4 million, Rohitash Gupta, CFO, eClerx tells CNBC-TV18. Gupta says eClerx's revenues grew 14.2 percent quarter-on-quarter. He believes the organic growth will be over 10 percent and CLX addition will boost overall growth this fiscal.Below is transcript of Rohitash Gupta’s interview with Ekta Batra and Anuj Singhal.Anuj: The company reported revenue growth of 14 percent, can you break this into CLX contribution and organic growth?A: We had USD 46.4 million worth of revenue in Q1 out of which around USD 4.5 million came through CLX integration. Just keep in mind that CLX got added into our revenue starting April 22, so it is not a full quarter revenue. If you look at the sequential growth in dollar terms, it was about 14. 2 percent, out of which around 11 percent was contributed by CLX addition as I just explained.Anuj: So is it safe to assume that the revenue rate of 13-14 percent will continue as CLX is not integrated fully?A: The overall soft guidance we have provided for Eclerx without CLX this year was very similar to last year which is roughly around 10-12 percent organic growth. Now, on to that you can assume that roughly about USD 20 million will be added for the year on account of CLX.Ekta: What is the outlook on organic growth, can it cross 10 percent?A: Yes, absolutely. The total growth will definitely be much more than 10 percent because of CLX effect but the organic itself we expect to be above 10 percent for FY’16 versus FY’15.Ekta: Can you throw some light on the operating profit margins and break it into CLX contribution as well as organic growth?A: Our operating margins for this quarter were very strong at about 30 percent for the consolidated business. The eClerx native business came in at 31 percent for this quarter at operating margin whereas CLX contributed 19 percent on its revenue. Just again keep in mind that we have had a change in accounting policy towards goodwill amortization since this quarter, so that has added one percent to our operating margin which otherwise would have been 29 percent on a consolidated basis. Anuj: Any deal wins in the last quarter?A: We normally don’t talk in terms of deal wins or pipeline because our business is made up of a folio of very small and fragmented processes across the three businesses. Most of our growth comes from our existing clients and that too our million dollar plus clients typically and we see a good traction in most of those clients simply because we have become very widespread among those clients and we have a great footprint and we are the first port of call for most of their knowledge process needs.Ekta: How was pricing last quarter? A: Pricing has been largely stable I would say because the way the currency is playing in a narrow band of USD 60-64 with a slight tendency of gravitating towards Rs 64, pricing will remain very stable for this year and for Q1 also it has been very similar to what it has been in the last year. Ekta: Can the company in fact continue to report over 30 percent margins going forward according to you?A: 30 percent is what we told last quarter as well for FY’16 and we would like to maintain that, 30 percent operating margin on a consolidated basis is somewhat achievable definitely for this year.Anuj: Any other inorganic opportunity in terms of any other acquisition that is lined up?A: We are in the process of full integrating CLX both on the sales as well as on the delivery capabilities side and it will take little bit more time to make it fully work as we anticipated. So, I would say that we will be lying little low on the acquisition front through this year probably.Anuj: Can CLX Earnings before interest, tax, depreciation and amortization (EBITDA) margins improve from 19 percent to somewhere in the mid 20s over the next one or two years?A: CLX operating model is primarily delivery close to customers or as well call it, onshore delivery. So, it is very unlikely that margins will expand in that business. Keep in mind that CLX has been an existence for 40 plus years, so it is not a nascent business where you can pull in some levers to increase or decrease the margin, so I would assume that margins will remain in somewhat this range. Obviously Q1 may have been a little bit of misnomer because it is not full quarter reporting but you will see more steady margins for CLX as we progress through the quarters after having fully integrated it.