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eCLERX
UNRATED (RS610, MCAP: RS8.1BN / US$179MN)
• Incorporated in 2000, eClerx is a leading player in India’s growing Knowledge Process Outsourcing (KPO) space. The
company enjoys a strong position in certain high-opportunity segments like data analytics, data management and
customized process improvement solutions. It provides business solutions to global enterprise clients by leveraging its
cost-effective combination of people, process and technology. eClerx’s growth has been aided by its ability to forge
multi-year relationships with marquee clients.
• Business units: eClerx provides service offerings in two key business units: a) Financial Services, and b) Sales and
Marketing Support.
• Size, employee strength and infrastructure: eClerx clocked revenues of Rs2.6bn in FY10. It has 3,600 employees
working across five delivery centers in Mumbai and Pune, of which 600 are sales and management personnel and the
rest execution resources (equally split between the two business units). Attrition rate has been 30-35% over the past
several years, helping the company keep average wage costs low. eClerx has 3,200 seats which can accommodate 4,800
employees. About 60% of its revenues are delivered from SEZ and the rest from STPI locations.
• Clients and related details: The company has 50 active clients, with 15-20 in financial services and 30-35 in sales and
marketing support business unit. It has ~500 engagements across its clientele, which includes more than 20 Fortune
500 companies. The top5 clients accounted for ~86% of revenues in Q3FY11.
• Client contacts and business model: Most of eClerx’s client relationships are governed by MSA (master service
agreements). About 80% of the company’s contracts are 2-3 year rolling contracts (usually extended at the end of the
contract life) and have a largely fixed billing rate of ~US$30,000pa. The billing rate has historically been revised only
for a few key customers, led by inflation and forex changes. About 90% of the engagements are time and material
based, with the rest being fixed-price projects.
• Cost structure and EBIT margins: Employee cost is a major cost component for eClerx, accounting for ~44% of
revenues (including ~14% onsite wage bill). G&A expenses (ex employee costs) form ~13% of revenues, while S&M (ex
employee costs) expenses account for ~5%. Depreciation is ~3% of revenues, leading to recurring EBIT margin of 32-
35%.
• M&A: eClerx acquired Ingentica Group in 2007 for US$3m. Target company had revenue run rate of ~US$2m and the
key driver for acquisition was company’s seven blue-chip clients. eClerx has not acquired any other company since
then, but plans to do so in the coming 12-18 months. It is looking to acquire non-voice BPO companies, with revenues
in the range of US$15m-40m. The company recently got Board approval to raise Rs10bn mainly for funding
acquisition.
• Hedge: 75% of company’s revenues are US$ denominated, with a 10-15% natural hedge from USD denominated costs.
eClerx employs 18-month rolling hedges.
• Key differentiators: eClerx provides highly specialized services based on deep domain expertise in target industries.
Its strength lies in technology and knowledge management, with a focus on simplifying the processes thereby
reducing people dependency and the average employee cost for moderately complex activities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
eCLERX
UNRATED (RS610, MCAP: RS8.1BN / US$179MN)
• Incorporated in 2000, eClerx is a leading player in India’s growing Knowledge Process Outsourcing (KPO) space. The
company enjoys a strong position in certain high-opportunity segments like data analytics, data management and
customized process improvement solutions. It provides business solutions to global enterprise clients by leveraging its
cost-effective combination of people, process and technology. eClerx’s growth has been aided by its ability to forge
multi-year relationships with marquee clients.
• Business units: eClerx provides service offerings in two key business units: a) Financial Services, and b) Sales and
Marketing Support.
• Size, employee strength and infrastructure: eClerx clocked revenues of Rs2.6bn in FY10. It has 3,600 employees
working across five delivery centers in Mumbai and Pune, of which 600 are sales and management personnel and the
rest execution resources (equally split between the two business units). Attrition rate has been 30-35% over the past
several years, helping the company keep average wage costs low. eClerx has 3,200 seats which can accommodate 4,800
employees. About 60% of its revenues are delivered from SEZ and the rest from STPI locations.
• Clients and related details: The company has 50 active clients, with 15-20 in financial services and 30-35 in sales and
marketing support business unit. It has ~500 engagements across its clientele, which includes more than 20 Fortune
500 companies. The top5 clients accounted for ~86% of revenues in Q3FY11.
• Client contacts and business model: Most of eClerx’s client relationships are governed by MSA (master service
agreements). About 80% of the company’s contracts are 2-3 year rolling contracts (usually extended at the end of the
contract life) and have a largely fixed billing rate of ~US$30,000pa. The billing rate has historically been revised only
for a few key customers, led by inflation and forex changes. About 90% of the engagements are time and material
based, with the rest being fixed-price projects.
• Cost structure and EBIT margins: Employee cost is a major cost component for eClerx, accounting for ~44% of
revenues (including ~14% onsite wage bill). G&A expenses (ex employee costs) form ~13% of revenues, while S&M (ex
employee costs) expenses account for ~5%. Depreciation is ~3% of revenues, leading to recurring EBIT margin of 32-
35%.
• M&A: eClerx acquired Ingentica Group in 2007 for US$3m. Target company had revenue run rate of ~US$2m and the
key driver for acquisition was company’s seven blue-chip clients. eClerx has not acquired any other company since
then, but plans to do so in the coming 12-18 months. It is looking to acquire non-voice BPO companies, with revenues
in the range of US$15m-40m. The company recently got Board approval to raise Rs10bn mainly for funding
acquisition.
• Hedge: 75% of company’s revenues are US$ denominated, with a 10-15% natural hedge from USD denominated costs.
eClerx employs 18-month rolling hedges.
• Key differentiators: eClerx provides highly specialized services based on deep domain expertise in target industries.
Its strength lies in technology and knowledge management, with a focus on simplifying the processes thereby
reducing people dependency and the average employee cost for moderately complex activities.
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