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eClerx’s Q1FY26 operating performance was better than our estimates. Revenue grew 3.3% QoQ CC, ahead of our expectation of 3.0%. Growth was broad-based across verticals, led by BFSI, Hi-tech and M&D, CMT, while Fashion, Luxury, and Retail continue to remain soft due to underperformance in the US, weakness in China, and Euro appreciation. EBITM contracted 130bps QoQ to 20.0%, owing to wage hike and development of delivery centers. New deal ACV grew 20.4% YoY to USD32.3mn in Q1 (TTM ACV grew 43% YoY) and the pipeline remains healthy across geographies and verticals. The management expects deal momentum to sustain in FY26 with full-year ACV better than FY25. It has maintained an adjusted EBITDA margin guidance at 24-28%. We largely retain FY26-28E EPS estimates, factoring in the Q1 performance. We retain ADD with a TP of Rs3,950 at 24x Jun-27E EPS.

Results summary

Revenue grew 4.2%/17.1% QoQ/YoY to USD109.2mn in Q1 (3.3% CC QoQ), better than our expectations of USD108.9mn. Revenue growth was broad-based across industries: BFSI (3.0% QoQ in USD term), CMT (3.1%), Hitech and M&D (6.8%), Fashion, Luxury and Retail (5.6%), and emerging industries (8.2%). Automation and Analytics revenue increased 6.3% QoQ, stronger than firm’s growth rate, while BPaaS revenue increased 4.2%. EBITM declined by ~130bps QoQ to 20.0% though still ahead of our estimate of 18.3%. North America and Europe grew 4.8% and 12.0% QoQ, respectively, whereas ROW declined by 17.1% QoQ. The top 5/10 clients grew 3.8%/2.7% QoQ, while emerging clients grew 6.9%. Total headcount stands at 20,385, up 5.1% QoQ /14.9% YoY. Offshore voluntary attrition moderated to 17.6% vs 24.3% QoQ. What we like: Strong operating performance, broad-based revenue growth. What we did not like: Weak cash conversion (9% OCF/EBITDA), weakness in ROW.

Earnings call KTAs

1) Management remains cautiously optimistic, given the macro backdrop. 2) Clients are focused on cost control and operational efficiencies in the current environment. 3) In BFSI, there are broad opportunities across large and small clients, both new and existing. It is working on several interesting KYC client onboarding opportunities with new clients, as well as expansion and existing clients. These opportunities are a mix of tech, data, and operations. 4) High-tech and M&D grew strongly in Q1 with a positive outlook ahead. 5) Fashion and Luxury segment remains under pressure due to the US market underperformance and weakness in China. 6) In CMT, there is good traction in both new logo wins and cross-sell of services. 7) The management is hopeful that H2 will be stronger than H1 and is reasonably confident of sequential growth in Q2. 8) Growth in Emerging clients is driven by average deal size going up, ability to sell more services to existing clients, and cross-sell capabilities across client base 9) It plans to leverage new delivery centers to grow footprint with both existing and new clients. 10) EBITDAM declined 190bps QoQ due to wage hike (-250bps), new delivery centers (-20bps) partly negated by benefits accruing from strong revenue growth, particularly at offshore in BFSI and CMT, where the company is able to replace the bottom of the pyramid, resulting in a reduction in overall delivery cost. 11) OCF/EBITDA came in at 9% in Q1, essentially due to an increase in DSO (migration to new systems at few large clients) and a significant contribution to the gratuity fund (shifted fund from LIC to HDFC). DSO increased to 86 days vs 80 QoQ. The management expects DSO to stabilize between 80 to 82 days. 12) Launched its Lima operations this quarter, with Cairo operations set to go live in Q2. 13) The company is leveraging GenAI across multiple products and services, including KYC/compliance, customer care, and through the Roboworx platform integrated with the Agentic AI framework. 14) Around 8,000 employees (40% of the workforce) have been successfully upskilled in GenAI.

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