We recently interacted with eClerx Services’ (eClerx) management to get
a business update and outlook going forward. Our key inference was that
demand is on an uptick and the pipeline is better than it was a quarter
ago; hence, the company expects growth to pick up in the organic
business in Q2FY13, and expects H2FY13 to be better than H1FY13. The
improving outlook and robust growth from Agilyst give us the confidence
to build in 24%/22% USD revenue growth for FY13E/FY14E, respectively.
At 12x FY14E EPS we maintain ‘BUY’ with a revised TP of INR915.
Initial signs of demand pick up
Management reiterated that macro economic uncertainty and downsizing on the client
front continues to impact demand as clients are unwilling to commit. However, it
stated that the demand scenario has picked up and eClerx expects Q2FY13 to be better
than Q1FY13, and maintained its stance of H2FY13 to be better than H1FY13. For FY13,
the company expects growth in high single digit or low double digits on organic basis.
We have built in organic growth of 9% and 15% growth from Agilyst leading to an
overall growth of 24% for FY13E and 22% growth in FY14E.
Agilyst margin only a tad lower than eClerx: A positive
Post the acquisition of Agilyst, the Street was concerned as it had expected the
company’s margin to be half of eClerx, which could have diluted overall margin.
However, Q1FY13 numbers laid to rest these concerns as Agilyst’s OPM is ~30%+, only
marginally lower than eClerx’s (35%-37%). We expect the margin to improve as
consolidation will lead to operating leverage playing out.
Outlook and valuations: Gearing up for growth; maintain ‘BUY’
With margin concerns abating, the stock has run up 20% post Q1FY13 result. This,
coupled with an improved demand outlook in the organic business makes us confident
of eClerx posting robust growth. We value the company at 12x our FY14E EPS of
INR76.1, and hence we maintain ‘BUY/SO’ recommendation/ rating with a revised
target price of INR915
No comments:
Post a Comment