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ExlService Holdings Inc (EXLS)
Buy: Management Meeting Supports Longer-Term Bullish View
EXLS should grow faster than the broader BPO space — EXLS believes that
it can grow constant-currency revenue organically in the 15-20% range per year
vs. NASSCOM’s BPO growth estimate of 14-15%. Why? There are still
significant opportunities in the verticals that it targets (Insurance, Utilities,
Financial Services and Transportation), etc. Investments in vertical specific
capabilities / expertise and solid client execution continue to drive wallet share
gains as 80% of EXLS’ growth comes from existing clients. Cross-sell of OPI's
acquired capabilities into the traditional vertical base continues. Analytics
business is still robust.
A big part of EXLS’ revenue is annuity-based — 85% of EXLS’ business is
annuity based, because 35% of transformation work is now annuity. This should
provide a relatively good level of stability to EXLS’ revenue streams.
Sales cycles/client transitions take time, but… — New client sales take 15-18
months. Sales to existing clients may take 6-12 months. Client relationships,
however, are quite sticky and years 2 through 4 of a relationship show the
highest growth. Note that EXLS has signed the contracts it needs to achieve the
promised level of growth in the near future.
Other takeaways — 25%-30% of EXLS’ work is transaction based and it would
like to see this expand to 40% over time. EXLS can deliver ~50 bps of adjusted
operating margin improvement per year. Reasons to outsource can change with
the economy — it may be cost containment or it may be responsiveness or
competitiveness. Bottom line, growth can come from several factors in good or
bad economic conditions.
Reiterate Buy rating and $33 target price — We continue to like EXLS’ strong
niche vertical focus where we believe it can continue to gain clients/wallet share,
while also driving its acquired OPI F&A business. The company’s
transformational BPO business is a key differentiator. Valuation looks quite
attractive when adjusted for growth rate and balance sheet strength. Buy EXLS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ExlService Holdings Inc (EXLS)
Buy: Management Meeting Supports Longer-Term Bullish View
EXLS should grow faster than the broader BPO space — EXLS believes that
it can grow constant-currency revenue organically in the 15-20% range per year
vs. NASSCOM’s BPO growth estimate of 14-15%. Why? There are still
significant opportunities in the verticals that it targets (Insurance, Utilities,
Financial Services and Transportation), etc. Investments in vertical specific
capabilities / expertise and solid client execution continue to drive wallet share
gains as 80% of EXLS’ growth comes from existing clients. Cross-sell of OPI's
acquired capabilities into the traditional vertical base continues. Analytics
business is still robust.
A big part of EXLS’ revenue is annuity-based — 85% of EXLS’ business is
annuity based, because 35% of transformation work is now annuity. This should
provide a relatively good level of stability to EXLS’ revenue streams.
Sales cycles/client transitions take time, but… — New client sales take 15-18
months. Sales to existing clients may take 6-12 months. Client relationships,
however, are quite sticky and years 2 through 4 of a relationship show the
highest growth. Note that EXLS has signed the contracts it needs to achieve the
promised level of growth in the near future.
Other takeaways — 25%-30% of EXLS’ work is transaction based and it would
like to see this expand to 40% over time. EXLS can deliver ~50 bps of adjusted
operating margin improvement per year. Reasons to outsource can change with
the economy — it may be cost containment or it may be responsiveness or
competitiveness. Bottom line, growth can come from several factors in good or
bad economic conditions.
Reiterate Buy rating and $33 target price — We continue to like EXLS’ strong
niche vertical focus where we believe it can continue to gain clients/wallet share,
while also driving its acquired OPI F&A business. The company’s
transformational BPO business is a key differentiator. Valuation looks quite
attractive when adjusted for growth rate and balance sheet strength. Buy EXLS.
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