n eClerx’s Dec’12 qtr operating performance was inline with
expectations with a 5% QoQ US$ rev growth and ~190 bps
sequential increase in EBITDA margins to 39.1%
n Profits at Rs 490 mn (+94% QoQ) beat exp a tad (Emkay est
of Rs 464 mn) led by lower taxes. Strong traction in emerging
accounts continues, albeit on a low base
n Management indicates softness in co wide revenue growth
as client concentration related sluggishness continues to
daunt overall performance
n Moderate our rev est (16% growth V/s 19% earlier for FY14),
FY13/14E EPS remain unchanged. Inexpensive valuations at
~11/9x FY13/14E P/E drive ratings upgrade albeit BUY case
remains contingent on uptick in revenue growth trajectory
Inline operating performance, profit beat driven by lower taxes
eClerx reported revenues at US$ 31.3 mn (+5%QoQ) , inline with est (Emkay est US$
31.1 mn) with margins expanding by ~190 bps sequentially to 39.1% (V/s est of ~140
bps increase). However profits at Rs 490 mn (+94% QoQ) beat expectations (Emkay est
Rs 464 mn) driven largely by lower than expected taxes (16% V/s est of 22%).
Management indicated that strong revenue growth during the qtr was aided by certain
short term projects during the quarter with emerging accounts growing strongly by ~10%
QoQ (albeit on a low base). Headcount addition was weak at a net addition of 77 people
during the quarter and the lowest since Mar’09 quarter.
Management cites softness in revenue growth in near/medium term, high
client concentration/ challenges in some top clients impacting co
performance
eClerx management continues to guide for a soft revenue growth in the
near/medium term driven by challenges in at least a couple of top 5 clients in our
view. While eClerx has made the necessary sales investments through the past 12-
18 months to drive greater traction in the emerging accounts which has yielded
some positive results, the high client concentration and the related sluggishness
continues to impact overall revenue growth. In this context, it is worth highlighting
that the top 5 clients have grown by ~12% YoY in Dec’12 qtr V/s an impressive
30%+ until Dec’11 qtr.
Moderate FY14 rev est, inexpensive valuations drive ratings upgrade
While we moderate our revenue estimates for FY14 (build in a 16% US$ revenue growth
V/s 19% earlier), our FY13/14E earnings remain largely unchanged at ~Rs 56/69 driven
by Dec’12 qtr beat and higher other income in FY14. While an up tick in revenue
growth trajectory remains paramount to building in a strong BUY case,
inexpensive valuations at 11.4x/9.2x FY13/14E P/E along with 4% dividend yield
limit any case for sharp absolute downside in our view. Thereby, we upgrade our
ratings to ACCUMULATE (V/s HOLD earlier) with an unchanged TP of Rs 720 and
would recommend buying into any further stock weakness.
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