Emkay Global Financial's research report on eClerx Services
eClerx’s Q2 operating performance came well ahead of estimates. Revenue grew 4.4% QoQ to USD87.6mn, on the back of traction in financial markets and customer operations. EBITDAM expanded by 390bps QoQ to 28.4%, driven by revenue-growth-led operating leverage and stable delivery costs (on account of change in offshore employee mix and lower tech headcount). Subsequent to the impressive Q2 margin performance, the management now expects adjusted EBITDAM to register its targeted range of 28-32% for FY24; it had earlier estimated that Company will miss the target post Q1. Despite the macro headwinds, eClerx remains cautiously optimistic and expects to see sequential growth in Q3. The stock has rallied over 23%/59% in the last 3M/6M. While valuation is undemanding, the stock is likely to take some breather in the near term, as investors await clarity on the medium-term growth plan under the new CEO.
Outlook
We upgrade FY24E-FY26E EPS by 1.5%-7.2%, to factor-in the Q2 beat; we raise our target multiple to 18x (from 16x), considering the better earnings growth trajectory; retain BUY, with revised TP of Rs2,400 (18x Sep-25E EPS).
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