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4QFY11 results
4QFY11 continued a series of robust quarters from eClerx. Revenue at
US$21.1m was up 7.7%QQ and is the best revenue performance in the
Indian IT/BPO space in Mar-11 quarter. Margin improvement of over
250bpsQQ (ex one-time benefits in Dec-10) was a positive surprise and
driven by reducing per capita salary cost. With external demand
environment happily favourable and a more benign supply-side situation,
we expect eClerx to build-on to these gains in FY12 and expect. Premium
valuation to sector peers should sustain. Maintain BUY.
Another strong quarter delivered; 60% dividend pay-out in FY11
7.7%QQ growth in $-revenues in 4QFY11 came at the top end of all
companies in the Indian IT-BPO space and comprehensively beat street
expectations. Ebitda margin of 42% was up 20bpsQQ and aided by reduced
per capita salary costs. Note that 3QFY11 had some one-time provision
reversals and adjusted for those, 4QFY11 margins are up ~250bpsQQ.
Rs103m of goodwill write-off from its Igentica acquisition (made in 2007) did
impair net profit. However, despite this hit, net margin remained above 30%.
For FY11, eClerx reported a solid 37.3%YY growth in $-revenues and QQ
trends suggest that this momentum is likely to continue in FY12 as well.
Dividend pay-out of Rs22.5 (60% pay-out for FY11) is reflective of eClerx’s
discipline in channelling excess cash back to shareholders.
The year ahead
The year ahead holds a lot of promise for eClerx. We expect the current
revenue momentum to sustain and are building in a 33% growth in $-
revenues for FY12. eClerx already has excess capacity of around 1,000 seats
which should be sufficient to service this growth. 11-12% offshore wage hikes
and increased investment in sales and marketing could hurt margins a tad in
FY12 but YY decline should be contained within 100bps. eClerx’s hedging
policy has ensured that it has locked in a US$/INR rate of 47.92 and EUR/INR
rate of 61.86 for FY12. This keeps it well-positioned to handle any currency
volatility. Imposition of MAT on SEZ (62% of revenues) profits will push the
tax rate to 20% in FY12 but we expect net margin of over 30% to sustain.
Reiterate our BUY stance, Target price of Rs880
eClerx faces risks from high client concentration (87% revenues from top-5
clients) which could cause volatility in earnings. But its steady financial
performance extracts a benefit of doubt on this front. An industry-leading
operating margin, 50%+ ROE and high dividend pay-out justifies its valuation
premium to sector peers. With these standards of fiscal discipline, we believe
its acquisition plans (if any) should not hold back stock performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4QFY11 results
4QFY11 continued a series of robust quarters from eClerx. Revenue at
US$21.1m was up 7.7%QQ and is the best revenue performance in the
Indian IT/BPO space in Mar-11 quarter. Margin improvement of over
250bpsQQ (ex one-time benefits in Dec-10) was a positive surprise and
driven by reducing per capita salary cost. With external demand
environment happily favourable and a more benign supply-side situation,
we expect eClerx to build-on to these gains in FY12 and expect. Premium
valuation to sector peers should sustain. Maintain BUY.
Another strong quarter delivered; 60% dividend pay-out in FY11
7.7%QQ growth in $-revenues in 4QFY11 came at the top end of all
companies in the Indian IT-BPO space and comprehensively beat street
expectations. Ebitda margin of 42% was up 20bpsQQ and aided by reduced
per capita salary costs. Note that 3QFY11 had some one-time provision
reversals and adjusted for those, 4QFY11 margins are up ~250bpsQQ.
Rs103m of goodwill write-off from its Igentica acquisition (made in 2007) did
impair net profit. However, despite this hit, net margin remained above 30%.
For FY11, eClerx reported a solid 37.3%YY growth in $-revenues and QQ
trends suggest that this momentum is likely to continue in FY12 as well.
Dividend pay-out of Rs22.5 (60% pay-out for FY11) is reflective of eClerx’s
discipline in channelling excess cash back to shareholders.
The year ahead
The year ahead holds a lot of promise for eClerx. We expect the current
revenue momentum to sustain and are building in a 33% growth in $-
revenues for FY12. eClerx already has excess capacity of around 1,000 seats
which should be sufficient to service this growth. 11-12% offshore wage hikes
and increased investment in sales and marketing could hurt margins a tad in
FY12 but YY decline should be contained within 100bps. eClerx’s hedging
policy has ensured that it has locked in a US$/INR rate of 47.92 and EUR/INR
rate of 61.86 for FY12. This keeps it well-positioned to handle any currency
volatility. Imposition of MAT on SEZ (62% of revenues) profits will push the
tax rate to 20% in FY12 but we expect net margin of over 30% to sustain.
Reiterate our BUY stance, Target price of Rs880
eClerx faces risks from high client concentration (87% revenues from top-5
clients) which could cause volatility in earnings. But its steady financial
performance extracts a benefit of doubt on this front. An industry-leading
operating margin, 50%+ ROE and high dividend pay-out justifies its valuation
premium to sector peers. With these standards of fiscal discipline, we believe
its acquisition plans (if any) should not hold back stock performance.
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