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India Discovery
eClerx Ltd.: Analyst meeting
takeaways
eClerx hosted its first analyst meeting today: Key
takeaways follow.
Management sees strong revenue growth
prospects… Currently eClerx has an annual revenue
run rate of ~US$80m and is growing at 30-35% yoy –
significantly higher than revenue growth for third-party
BPO companies. The key message from the analyst
meeting was that management remains confident of
maintaining its revenue growth trajectory.
…but believes margins could drift lower in the
medium to long term: eClerx had an operating margin
of ~36% during 9mFY11, comparable to the larger
vendors in IT services like Infosys, TCS etc.
Management believes that 33-35% operating margins
are sustainable.
Pricing environment remains stable: eClerx is able to
pass inflation-linked price hikes on to its key clients. The
pricing environment remains rational and its billing rates
lie in the range of US$26k to 45k per person p.a.
Management indicated that ~85-90% of its revenues are
FTE (full time equivalent) based and hence growth in
revenues would be directly linked to headcount growth.
Currently eClerx has a total headcount of 3,527.
Financials: eClerx posted revenue and PAT CAGRs of
51% and 32% respectively over FY06-10. Based on
Bloomberg consensus estimates from 10 sell-side firms,
the stock is trading at 14x FY12e EPS and 13x FY13e
EPS, relative to an earnings CAGR of ~15% over
FY11e-13e. It had a cash balance of Rs1.5bn/US$34m
as of December 2010, with cash per share at ~Rs52
(~7% of its current market price). Recently eClerx got
board approval to raise Rs10bn (Rs5bn equity and
Rs5bn of debt) to fund its acquisition plans.
Key Investor Concerns
High client concentration is a concern but management is
hopeful of continued growth: eClerx has a very high
concentration of revenues from its large clients. Management
believes that the company’s top five clients (86% of revenues in
3Q11) should remain be the growth driver. eClerx still has a lot
of scope for outsourcing processes, which would help it reduce
costs.
High attrition at entry level: Management believes that high
attrition is a part of the business model. eClerx's employee mix
is ~20% managers and 80% frontline associates. Management
indicated that attrition at the entry level remained high at
35-40% in 3Q11, but this helps to maintain the current mix of
employees and to keep overall costs under control. Employee
costs were equivalent to ~44% of the company’s revenues in
9mFY11.
Company Background
eClerx is a knowledge processing outsourcing company and
provides data and analytics related services to global financial
services clients (mainly in capital markets) and sales and
marketing support services to leading Fortune 500 clients. The
company was founded by Mr. PD Mundhra and Mr Anjan Malik
in 2000 and went public in 2007. The promoters currently hold
a 59% stake in the company and FIIs hold ~17% of shares
outstanding.
Currently eClerx has a market cap of ~US$450m with average
daily trading value of US$0.7m. Over the last 12 months, the
stock is up 108% and has outperformed the Sensex, which has
risen 9%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Discovery
eClerx Ltd.: Analyst meeting
takeaways
eClerx hosted its first analyst meeting today: Key
takeaways follow.
Management sees strong revenue growth
prospects… Currently eClerx has an annual revenue
run rate of ~US$80m and is growing at 30-35% yoy –
significantly higher than revenue growth for third-party
BPO companies. The key message from the analyst
meeting was that management remains confident of
maintaining its revenue growth trajectory.
…but believes margins could drift lower in the
medium to long term: eClerx had an operating margin
of ~36% during 9mFY11, comparable to the larger
vendors in IT services like Infosys, TCS etc.
Management believes that 33-35% operating margins
are sustainable.
Pricing environment remains stable: eClerx is able to
pass inflation-linked price hikes on to its key clients. The
pricing environment remains rational and its billing rates
lie in the range of US$26k to 45k per person p.a.
Management indicated that ~85-90% of its revenues are
FTE (full time equivalent) based and hence growth in
revenues would be directly linked to headcount growth.
Currently eClerx has a total headcount of 3,527.
Financials: eClerx posted revenue and PAT CAGRs of
51% and 32% respectively over FY06-10. Based on
Bloomberg consensus estimates from 10 sell-side firms,
the stock is trading at 14x FY12e EPS and 13x FY13e
EPS, relative to an earnings CAGR of ~15% over
FY11e-13e. It had a cash balance of Rs1.5bn/US$34m
as of December 2010, with cash per share at ~Rs52
(~7% of its current market price). Recently eClerx got
board approval to raise Rs10bn (Rs5bn equity and
Rs5bn of debt) to fund its acquisition plans.
Key Investor Concerns
High client concentration is a concern but management is
hopeful of continued growth: eClerx has a very high
concentration of revenues from its large clients. Management
believes that the company’s top five clients (86% of revenues in
3Q11) should remain be the growth driver. eClerx still has a lot
of scope for outsourcing processes, which would help it reduce
costs.
High attrition at entry level: Management believes that high
attrition is a part of the business model. eClerx's employee mix
is ~20% managers and 80% frontline associates. Management
indicated that attrition at the entry level remained high at
35-40% in 3Q11, but this helps to maintain the current mix of
employees and to keep overall costs under control. Employee
costs were equivalent to ~44% of the company’s revenues in
9mFY11.
Company Background
eClerx is a knowledge processing outsourcing company and
provides data and analytics related services to global financial
services clients (mainly in capital markets) and sales and
marketing support services to leading Fortune 500 clients. The
company was founded by Mr. PD Mundhra and Mr Anjan Malik
in 2000 and went public in 2007. The promoters currently hold
a 59% stake in the company and FIIs hold ~17% of shares
outstanding.
Currently eClerx has a market cap of ~US$450m with average
daily trading value of US$0.7m. Over the last 12 months, the
stock is up 108% and has outperformed the Sensex, which has
risen 9%.
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