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In-line Q3; optimistic H2 outlook

Inline revenue with strong seasonality led growth in Top accounts.

eClerx (ECLX IN) reported 3.5% QoQ CC revenue growth and is in line with our estimates. Revenue at USD 90.5mn was up 3.3% QoQ. The key contributors to growth were financial markets (compliance and KYC regulation-led business) and customer operations businesses (seasonality from existing customers). The Top 10 clients continue to drive major growth, up 7.4% QoQ vs non-Top 10 clients growth of 1.0% QoQ. Revenue from managed services declined 1.8% YoY, forming 24% of revenue. Q3 was the third quarter of such negative YoY growth for the past 11 quarters. The deal pipeline remains healthy to drive demand, which may result in top-line growth from H2.

Margin slightly below our estimates; attrition at a historical low

EBIT margin missed our estimates by 90bp at 23.1%, down 110bp QoQ. This was on account of higher payment toward the hiring agency, citing the company’s investment toward sales personnel, reclassification of sales personnel, and uptick in travel cost. It added 743 employees QoQ of which 400-500 were transferred from the subsidiary; hence, net headcount addition is much lower. Attrition came in at an all-time low of 16.6%, up by 720bp QoQ. Utilization dropped 150bp QoQ to 73.9%.

Valuation: retain Accumulate with a higher TP of INR 2,841

We prefer ECLERX for its business expansion under the new leadership, strong margin profile and business offerings. We retain Accumulate, led by in-line Q3 and margin resilience backed by healthy orderbook pipeline. However, margin is set to stay range-bound, as the company will be investing toward sales & delivery, facility and gAI. We factor in Q3 performance and roll forward to December 2025E. We trim our EPS by ~2% each for FY25E and FY26E. We expect a USD sales CAGR of 11%, an EBIT CAGR of 13% and a PAT CAGR of 14% during FY23-26E. We raise our TP to INR 2,841 from INR 2,500 based on 16.5x (unchanged) December 2025E earnings at a five-year mean +1 SD.

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SEBI Registration number is INH000000933