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eClerx came out with its Q4FY12 results, which were slightly below our estimates. The company has registered
a revenue growth of 0.4% QoQ to $25.5mn (SPAe: 26.1mn). The FY12 EPS of INR 54.9, however exceeded our
guidance on the back of improvement in margins from 39.3% to 40.1% due to INR depreciation. We expect
Agilyst to start adding to the topline from Q1FY13 with an annual revenue run-rate of $14mn. On the back of
inorganic growth push, we expect the company's FY14 EPS at INR 73.
Q4FY12 Revenue growth - sluggish
The company reported a moderate volume growth of 0.4% QoQ in
Q4FY12, with no change in pricing. The revenues for FY12 at
$97.5mn were slightly below our expectations of $98.1mn. This
could be attributed to the volatility in the top-5 clients spending,
which continues to contribute 85%+ to the company's topline.
However revenue at INR 4,728mn (SPAe: INR 4,650mn) grew at
38.2% helped by 7% dip in INR. eClerx has $94.3mn outstanding
hedges for FY13/14 at INR 49.1/$ and cash and equivalents of INR
2,686mn or INR 92.4/share.
Full Year Margin improvement
eClerx has improved its EBITDA Margins from 39.3% in FY11 to
40.1% in FY12 leading to an EPS growth of 34.9% to INR 54.9. The
margins for Q4FY12 however, declined sequentially by 600bps to
38.2% due to (i) One time G&A spike by 190bps on the back of M&A
transaction cost and decommissioning of an old facility (ii) ongoing
increase in S&M investments by 330bps and (iii) INR appreciation.
Growth Avenues
As the company continues to (i) increase its SG&A spend and (ii)
add to its onsite team (52 at present), it is trying to expand its
business outside its top-5 clients. It added 10 new clients in FY12
and its revenue from Non-Top-5 clients grew by 36% bringing them
at speed with that of Top-5 client's at 38%.
Inorganic Growth Push
eClerx recently acquired Agilyst (service provider for US telecom
and cable companies) for $15.75mn upfront payment and a
maximum of $13mn in payout by H1FY14 subject to business
performance. Agilyst since acquisition has won 1 big deal pushing
its standalone annual revenue run-rate to $14mn.
Outlook and Valuation
We expect the organic growth to be 6% in FY13 due to higher volatility
in Top 5 client's spending and slower pick up in non-top-5 clients
causing a lack of revenue generation opportunities. However with
Agilyst starting contribution by Q1FY13 we expect the company's
topline to grow by 30% & 18% in FY13 & FY14. On the margins front
we expect eClerx to come off a bit to 35.5% & 36.7% in FY13 & FY14
due to (i) Pricing pressure from top-5 clients and (ii) wage inflation
(10.5% offshore and 3% onsite) though partially offset by INR
depreciation in H1FY13. Thus, on the back of inorganic growth
coupled with lower margins, we expect EPS to grow at 15.2% CAGR
over FY12-14E vis-à-vis 37.5% CAGR over FY08-12.
The company had enjoyed premium valuation due to its higher
than industry margins, growth rates and being the only listed
Indian KPO; but with tapering growth we have risk-adjusted our
valuation multiple, lower by 15% to 12x, continuing to recommend
BUY for the stock, with a 2 year Target Price of INR 874.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
eClerx came out with its Q4FY12 results, which were slightly below our estimates. The company has registered
a revenue growth of 0.4% QoQ to $25.5mn (SPAe: 26.1mn). The FY12 EPS of INR 54.9, however exceeded our
guidance on the back of improvement in margins from 39.3% to 40.1% due to INR depreciation. We expect
Agilyst to start adding to the topline from Q1FY13 with an annual revenue run-rate of $14mn. On the back of
inorganic growth push, we expect the company's FY14 EPS at INR 73.
Q4FY12 Revenue growth - sluggish
The company reported a moderate volume growth of 0.4% QoQ in
Q4FY12, with no change in pricing. The revenues for FY12 at
$97.5mn were slightly below our expectations of $98.1mn. This
could be attributed to the volatility in the top-5 clients spending,
which continues to contribute 85%+ to the company's topline.
However revenue at INR 4,728mn (SPAe: INR 4,650mn) grew at
38.2% helped by 7% dip in INR. eClerx has $94.3mn outstanding
hedges for FY13/14 at INR 49.1/$ and cash and equivalents of INR
2,686mn or INR 92.4/share.
Full Year Margin improvement
eClerx has improved its EBITDA Margins from 39.3% in FY11 to
40.1% in FY12 leading to an EPS growth of 34.9% to INR 54.9. The
margins for Q4FY12 however, declined sequentially by 600bps to
38.2% due to (i) One time G&A spike by 190bps on the back of M&A
transaction cost and decommissioning of an old facility (ii) ongoing
increase in S&M investments by 330bps and (iii) INR appreciation.
Growth Avenues
As the company continues to (i) increase its SG&A spend and (ii)
add to its onsite team (52 at present), it is trying to expand its
business outside its top-5 clients. It added 10 new clients in FY12
and its revenue from Non-Top-5 clients grew by 36% bringing them
at speed with that of Top-5 client's at 38%.
Inorganic Growth Push
eClerx recently acquired Agilyst (service provider for US telecom
and cable companies) for $15.75mn upfront payment and a
maximum of $13mn in payout by H1FY14 subject to business
performance. Agilyst since acquisition has won 1 big deal pushing
its standalone annual revenue run-rate to $14mn.
Outlook and Valuation
We expect the organic growth to be 6% in FY13 due to higher volatility
in Top 5 client's spending and slower pick up in non-top-5 clients
causing a lack of revenue generation opportunities. However with
Agilyst starting contribution by Q1FY13 we expect the company's
topline to grow by 30% & 18% in FY13 & FY14. On the margins front
we expect eClerx to come off a bit to 35.5% & 36.7% in FY13 & FY14
due to (i) Pricing pressure from top-5 clients and (ii) wage inflation
(10.5% offshore and 3% onsite) though partially offset by INR
depreciation in H1FY13. Thus, on the back of inorganic growth
coupled with lower margins, we expect EPS to grow at 15.2% CAGR
over FY12-14E vis-à-vis 37.5% CAGR over FY08-12.
The company had enjoyed premium valuation due to its higher
than industry margins, growth rates and being the only listed
Indian KPO; but with tapering growth we have risk-adjusted our
valuation multiple, lower by 15% to 12x, continuing to recommend
BUY for the stock, with a 2 year Target Price of INR 874.
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