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Consistent revenue growth…

About the stock: eClerx Services (eClerx) provides business process management, automation and analytics services

* It caters to financial services, communications, retail, media, manufacturing, travel and technology companies

* OCF to EBITDA of >80%, debt free and RoCE of >20%

Rationale:

* Revenues in the past four to five years were subdued due to three to four large roll-offs, which took place during 2016-19. However, the company has been reporting strong growth in recent quarters and guided for 20%+ growth in FY22

* The company recently acquired personiv, an outsourcing provider with over 35+ years of experience with offices in US, India and Philippines. The acquisition would leverage synergies in digital and customer experience services. It wold add ~US$32 million annual revenues to eClerx

* Overall revenue mix has been inching towards offshoring as in the last four quarters, onshore revenue mix has come down from 23% to 20%, which is a tailwind to margin. The management do not expect materially different mix going forward; guided for healthy EBITDA margin band of 28-32%

What should investors do? eClerx' share price has grown by ~1.8x over the past five years (from ~| 1,357 in December 2016 to ~| 2,419 levels in December 2021).

* We remain positive on the stock and maintain BUY rating

Target Price and Valuation: We roll over valuations to FY24E and value eClerx at | 2900 i.e. 21x P/E on FY24E EPS

Key triggers for future price performance:

* Traction in customer care, RPA, analytics & content development, cross sell and up sell to Personiv clients to drive growth

* Lower roll-offs from one off client specific event, improving deal wins and revival in growth are expected to drive revenues

* Expect revenue CAGR of 16.7% over FY21-24E

Alternate Stock Idea: Apart from eClerx, in our IT coverage we also like Infosys

* Key beneficiary of improved digital demand, industry leading revenue growth and healthy capital allocation prompt us to be positive

* BUY with a target price of | 2,060

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