ExlService Holdings Inc (EXLS) Buy: Management Meeting Supports Longer-Term Bullish View  Citi Research

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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.

ExlServices Holdings (EXLS, Neutral) :: Goldman Sachs:: Second Annual IT Services Trip

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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.

for details of remaining company see link

Goldman Sachs:: Second Annual IT Services Trip: LT drivers exist, 2012 outlook hazy

Goldman Sachs: India IT: ExlService (EXLS, Neutral, $21.60)

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ExlService (EXLS, Neutral, $21.60) 
 Balanced revenue strength driven by Outsourcing and Transformation – EXLS
highlighted that the company has registered positive sequential revenue growth over
the last six quarters, driven by growth in BPO and the Transformation segments. For
2010, the company continues to expect to finish at the top-end of its upwardly revised
guidance for revenue and margins. Into 2011 and longer term, it is targeting total
revenue growth of 25%-30% (15%-20% organic) and annual operating margin
expansion of 50 bp, driven by stable gross margins and increased SG&A leverage.