Buy eClerx Services Ltd for the Target Rs.1,800 by Emkay Global Financial Services Ltd
eClerx posted soft operating performance in Q4. Revenue grew 0.5% QoQ CC, lower than our expectation. EBITM declined by ~40bps QoQ to 21.1%, largely owing to higher hiring and travel costs, partially offset by lower G&A and S&D expenses. New deal ACV remained healthy, at USD46.1mn, in Q4; on a TTM basis, ACV grew ~24% YoY. Automation and Analytics have scaled to ~USD90mn and is expected to outpace overall company growth, emerging as a key structural growth driver. The company secured its first large-scale agentic AI win in Q4, with deployment set to begin in Q1FY27. The company aspires for YoY growth in bookings for FY27. The management expects Q1FY27 to be sequentially better than Q4FY26 and aspires to deliver top-quartile revenue growth in FY27 on the back of order booking and pipeline strength. It has retained 24-28% EBITDAM guidance range for FY27, factoring in investments in tech, AI, and sales. We tweak FY27E/FY28E EPS by ~1%, factoring in Q4 performance. We retain BUY and TP of Rs1,800, at 18x Mar-28E EPS.
Results summary
Revenue grew 0.6%/16.8% QoQ/YoY, to USD122.4mn, in Q4 (0.5% CC QoQ). EBITM declined by ~40bps QoQ to 21.1%, below our estimate of 22%. Revenue growth was led by Emerging Industries (8.7% QoQ in USD terms) and CMT (7.1%), partially offset by BFSI (-2.8%), Hitech and M&D (-4.0%), and Fashion, Luxury, and Retail (-2.0%). Automation and Analytics revenue increased 2.5% QoQ, while BPaaS revenue declined by 4.7%. Europe grew 24.8% QoQ, whereas North America and RoW declined 2.5% and 11.6% QoQ, respectively. Top 5/10 clients declined by 1.2%/1.3% QoQ, while emerging clients grew 3.5%. Total headcount stood at 22,639, up 3.1% QoQ/16.8% YoY. Offshore voluntary attrition increased by 240bps QoQ to 21.7% vs 19.3% in Q3. What we liked: Steady deal ACV, strong cash conversion (83% OCF/EBITDA for FY26). What we did not like: Softness in North America, BFSI.
Earnings call KTAs
1) BFSI was soft in Q4 as a couple of consulting engagements were wound down, though the pipeline remains strong, especially in KYC and compliance.
2) Hi-tech continues to benefit from spending on transformation and automation.
3) Retail and M&D saw weak Q4, though the segments have strong pipeline across both new and existing accounts.
4) CLX is expected to return to growth in H1FY27, supported by new GenAI wins at key clients, with early green shoots in Fashion and Luxury.
5) Growth in Emerging was led by FAO (finance and accounting).
6) The management is cautiously optimistic on growth in all verticals.
7) The Adobe relationship is seeing solid expansion across Banking, Retail, and M&D clients, evolving into a meaningful growth engine.
8) eClerx has launched an agentic data sourcing platform, attracting strong interest from large banks.
9) AI is expected to enhance productivity, while medium-term roll-offs are likely to remain at ~15–20%.
10) It continues to focus on
i) expanding analytics and AI capabilities
ii) growing wallet share within existing clients; and iii) entering adjacent service areas and industries.
11) The impact of the wage hike in Q1 is expected to be ~300–350bps.
12) eClerx has hedged a significant portion of its FY27 FX exposure much lower than current spot rates, limiting realization gains from rupee depreciation in FY27.
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