IGI Logo

eClerx reported mixed operating performance in Q3 with in-line revenue, while margin missed expectations. Revenue grew 3.3% QoQ to USD90.5mn (3.5% CC), driven by traction in customer operations and financial markets. EBITDAM declined 90bps QoQ to 27.5%. Management highlighted that conversations within the digital segment show optimism and they expect growth to pick up in next couple of quarters. Within the digital segment, Company witnessed healthy demand in industrials and sees green shoots in Hi-Tech, with fashion and luxury showing signs of recovery. Despite the planned 400-500 employees transfer to a client effective Q4, the company remains confident of achieving modest sequential growth, factoring-in momentum in customer operations and financial markets. Management reiterated that its adjusted EBITDAM for FY24 will be within the guided range of 28-32%. We broadly retain our FY24-26E EPS post Q3. We await clarity on the medium-term growth plan under the new CEO, and his plan to balance revenue growth aspirations and margin trade-off. We retain REDUCE with TP of Rs2,750/share at 20x Dec-25E EPS.

Result summary

eClerx’s revenue grew 3.3% QoQ to USD90.5mn (3.5% CC), in line with our estimates. BPaaS revenue grew 3.3% QoQ in Q3. EBITDAM declined 90bps QoQ to 27.5%, below our estimate of 28.2%. Adjusted EBITDAM (incl. other income) fell 20bps QoQ to 29.5%. Geography-wise, North America and RoW grew 4.7% and 4.2% QoQ, respectively, whereas Europe declined 2.5% QoQ. Offshore voluntary attrition moderated to 16.6% vs 23.8% in Q2. Total headcount was up 743 QoQ (4.5% QoQ) to 17,076 employees. Top5 clients grew 7.0% QoQ, while Top 6-10 clients declined 4.2% QoQ. Emerging clients’ revenue grew 3.0% sequentially. Onshore and offshore revenue grew 2.9% and 3.4% QoQ, respectively. Staff utilization (delivery) declined 150bps QoQ to 73.9%. What we like: Continued revenue growth momentum, steady cash conversion (OCF/EBITDA at ~88%), and modest revenue growth in Q4, despite client-specific insourcing impact. What we do not like: Margin miss, continued softness in Europe (-2.5% QoQ).

Earnings call KTAs

i) The company’s subsidiary – Personiv Contact Centers Private Limited, entered into an agreement with one of its clients (largest client served from Gurugram facility of Personiv; outbound sales work) to transfer its 400-500 employees (~20% of Personiv headcount) to the client’s subsidiary effective January. This will lead to USD7-8mn annual revenue run-rate loss effective Q4. ii) In financial markets, the management is cautiously optimistic on the back of healthy demand in KYC, compliance-related work, loans, buyside firms (both on tech and ops), and domain-led tech ops. iii) On customer operations, it continues to witness demand from existing customers (due to seasonality), as well as from net-new addition. iv) Europe remained soft in 9MFY24 due to continued weakness in digital. It expects some softness in the near term, however, some green shoots in HiTech, fashion, and luxury segments should augur well for growth recovery. v) G&A inched up 90bps QoQ to 9.3% of revenues in Q3, driven by higher recruitment fees (40-50bps impact; one-off), higher costs due to work from office, and costs associated with go-live of a small facility (200-300 seats) in Chandigarh. vi) S&M costs inched up 110bps QoQ to 13.4% of Q3 revenues due to reclassification from delivery to sales (prior quarters impact felt in Q3), BD hiring, and uptick in the travel cost. Excluding it, S&M costs would have been similar to that in Q2 (~12.5% of revenues). vii) Attrition in Q3 stood at 16.6%, which is the lowest company has seen, including the COVID year. Management expects it to inch up in the coming quarters. viii) Utilization moderated 150bps QoQ to 73.9% with the management considering range within 74-76% to be optimal. ix) Company issued notice to vacate one of their premises in Gurugram, resulting in a one-time lease modification gain of Rs69mn, included as part of other income.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf &

SEBI Registration number is INH000000354