Published on 22/02/2021 12:59:40 PM | Source: HDFC Securities Ltd

Update On eClerx Services Ltd By HDFC Securities

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Our Take:

Despite the modest performance in the recent past, eClerx is likely to witness a gradual recovery in growth on account of stable deal momentum, no client roll-offs and expanding delivery base which could boost the overall deal pipeline. Company expects growth momentum to pick up in H2FY21. While top 10 client’s growth is likely to improve from hereon, emerging accounts are likely to grow faster than the company’s average growth.

Deal pipeline is better YoY, with 50% deal in financial services and the remaining in Cable and Digital. In Financial services, management is seeing more and more projects moving to a managed services model, which should aid productivity. We expect FY22E & FY23E to witness healthy growth led by higher exposure to banking, telecom & hi-tech clients and revival in growth. eClerx had recently acquired Personiv through the purchase of Eclipse Global Holdings LLC. The firm provides services in the digital, creative, back office and customer contact segments, with offshore delivery centres in Manila, Coimbatore and Gurgaon. Last three-year average revenue stood at US$ 27.6mn. Revenue of Personiv for 8 days at $543K was in Q3FY21 numbers. It was less than usual runrate due to low volume during holidays. This acquisition could provide good synergies for eClerx.

Personiv’s client base provides an opportunity to cross-sell and up-sell automation, analytics and other managed services. eClerx digital business consists of creative production, digital operations like SEO, ERP, e-commerce website management and analytics.

This contributes ~40% of revenue and digital has seen some demand recovery. Also Company’s core focus continues to have a constant client engagement resulting in higher proportion of long gestation annuity based contracts which provides good visibility of earnings growth. Apart from this, the global digital transformation is expected to expand at a compound annual growth rate (CAGR) of 22.5% from 2020 to 2027. We expect more client acquisition from digital side going forward.


Valuations & Recommendation:

The evolutionary as well as transformation phases of the Indian KPO industry are very similar to that of the Indian IT industry and it is expected that in the coming years both the volume and complexity of the work being outsourced to Indian KPO players will increase. We expect that the Company could witness a gradual improvement in revenues mainly led by improved deal wins, traction in digital and CLX revenues in FY22E and FY23E. Better outlook on growth rate and stable profitability, reasonable valuation, healthy balance sheet and the company's aspiration to reach industry level growth makes us positive on the stock.


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