eClerx Stock Hits Upper Circuit After Q4 Results
Employees work on their laptops in an office. (Photographer: Dhiraj Singh/Bloomberg)

eClerx Stock Hits Upper Circuit After Q4 Results

ICICI SecuritiesEdelweiss

Shares of eClerx Services Ltd. hit an upper circuit as analysts remained bullish on the IT consulting and outsourcing company after its fourth-quarter results, citing improving demand and healthy deal pipeline, among others.

The company saw its revenue rise 19.3% sequentially to Rs 472.8 crore in the three months ended March. Its profit increased to Rs 98.83 crore, up nearly 40% over the preceding quarter.

eClerx’s operating margin expanded by 300 basis points sequentially in the reported quarter. That, according to analysts, was mainly led by an improving demand for its services, especially from large clients and its acquisition of U.S.-based digital marketing firm Personiv for Rs 250.5 crore.

The company has also proposed a dividend of Re 1 per share.

Shares of eClerx rallied 20%, the most in nearly 14 years, to Rs 1,613.20 apiece in early trade on Friday. Of the seven analysts tracking the stock, six have a ‘buy’ rating and one recommends a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 6.9%.

Here’s what analysts made of eClerx’s Q4 performance:

  • Maintains ‘buy’ rating on the stock with a target price of Rs 1,640 apiece, implying a potential upside of 22%.
  • The company reported healthy growth in the quarter, mainly led by lower roll offs, acquisition, healthy demand in analytics in customer & financial operations and improving demand from large clients.
  • eClerx is seeing healthy growth in financial operations and offshore digital care business in top 10 clients. In addition, the company may benefit from cross-sell and upsell to Personiv clients.
  • Although the brokerage expects certain short-term projects to get ramped down in near term, improving growth in customer experience business, healthy deal wins, acquisition of Personiv and growth in non-top 10 clients would drive long-term growth.
  • Healthy deal pipeline, lower roll offs from one-off client specific event, higher exposure to banking, telecom, hi-tech clients (70% of top line) and revival in growth are expected to further boost revenues in coming years.
  • Wage hikes, coupled with resumption of travel and increase in facility cost may act as a headwind to margins.
  • Key risks: Higher-than-expected roll offs could adversely impact revenue. If Personiv’s acquisition does not pan out as per expectations, it could also adversely impact financials.
  • Maintains ‘buy’ rating at a target price of Rs 1,640 apiece.
  • eClerx turned around its business in FY21 by posting revenue growth of 5% after reporting broadly flat revenue growth for the last three-four years.
  • The company aims to deliver double-digit revenue growth in FY22 though it does not have clear visibility yet.
  • The company is able to find talent at same cost levels, but replacing niche skills/areas talent takes longer and has constraints.
  • Ebitda margin expanded by 300 basis points in Q4FY21, benefitting from operating leverage and lower variable pay, which was partially offset by higher administrative and sales costs due to acquisition of Personiv.
  • eClerx will continue to deliver strong revenue growth, driven by strong demand environment and robust deal pipeline.

(Corrects an earlier version that misstated the revenue number.)

Watch | eClerx CFO On Growth Strategy For FY22

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