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Outperformance on all counts

eClerx reported robust revenue of INR5.6bn in Q3FY22, beating our and Street’s estimates—both INR5.3bn. EBITDA margin edged up 60bp YoY to 32.3%, outpacing our and Street’s estimate of 30.7% and 30.5%, respectively. PAT at INR1,066mn, up 5.8% QoQ, too came in higher than our estimate of INR993mn and Street’s INR1,010mn.

Management believes demand environment remains healthy and that it is expected to remain robust in the near future. Margins were strong too, benefitting primarily from operating leverage. All in all, we are maintaining ‘BUY’ and increasing the TP to INR3,069 (from INR2,950) while rolling forward the valuation to Q1FY24E.

Strong growth across board

Reported revenue grew 5.9% QoQ/40.4% YoY in CC. Emerging clients (USD0.5mm+) and Emerging (others) contributed USD23.1mn and USD5.8mn, respectively, taking the total to USD28.9mn. DSO stood at 66 days versus 65 days in Q2FY22. Mr Pradeep Kapoor has resigned as Chairman and Independent Director due to his advancing age. Mr Aneesh Goshal, who has been Independent Director at the firm for 17 years, will replace him. Additionally, Mr. Rohitash Gupta has stepped down as CFO due to personal reasons and he will be replaced by Mr. Srinivasan Nadadhur, who has been with eClerx since 2009.

Margin on high end of guidance range

EBITDA margin came in at 32.3%, higher than its preferred range of 28-32%. The margin benefitted from operating leverage, which was partially offset by headwinds from unfavourable offshore-onshore mix and higher SG&A expense. Margin is expected to be steady in the next quarter, however, wage hike in Q1FY23 would be higher this time than the previous period due to high demand for talent. Offshore voluntary attrition for the quarter stood at 37.3% lower than last quarter’s attrition of 41.3%. eClerx believes attrition will moderate little, but going forward as well. Utilization inched up to 82.6% from 81.8% last quarter. eClerx reported strong

Outlook and valuation: Strong demand; retain ‘BUY’

eClerx has been witnessing strong demand for the last few quarters along with stable pricing. Management is confident of a robust deal pipeline in the short-to-medium term. The stock is trading at 20.3x FY23E. Retain ‘BUY/SO’ with a TP to INR3,069 (25x Q1FY24E; up from INR2,950) as we roll forward to Q1FY24E

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