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ExlServices Holdings (EXLS, Neutral, covered by Vincent Lin, CFA)
1) 2011 expectations remain unchanged and relatively insulated from current macro
trends – Management reiterated its confidence in this year’s guidance and specified
that macro concerns should not weigh on results in the near-term. Recent EXLS
discussions with clients continue to center on additional work rather than a pullback.
2) Labor dynamics including key attrition and hiring metrics still favorable – The
company indicated that supply of resources is healthy, especially for the 0-2 year band.
Our model currently assumes total headcount additions of 5,187 for 2011 (including
3,700 employees from the recent OPI acquisition) with total headcount expected to
finish at 17,873 (+41% yoy). The relatively higher attrition in campus recruits helps in
rationalizing costs, as new employees incur a lower base and therefore provide
benefits of the pyramid. For perspective, current attrition is running at 33% as of the
June-qtr, which is already down from a recent peak of 36% in the December-qtr.
3) Incremental growth expected to come from new verticals – Over the long-term,
EXLS sees significant scope for additional growth beyond the five verticals that they
are operating in currently. The company is targeting to achieve $1 bn in revenue
beyond which growth could slow from existing verticals given higher penetration and
more competition. Current revenue is currently dominated by Insurance at 51%,
Utilities at 17%, and Travel at 8% of revenues.
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