Reduce eClerx Services Ltd for the Target Rs 1,700 by Emkay Global Financial Services Ltd
eClerx posted softer-than-expected operating performance in 1Q. Revenue grew 2.9% qoq CC, lower than our expectation of 3.4% CC. EBITM declined by 240bps qoq to 18.7%, largely owing to wage hikes and higher G&A spending, partially offset by operating leverage and FX movement. New deal ACV stood at $40.8mn in 1Q; on a TTM basis, ACV grew ~25% yoy. Automation and Analytics have scaled to ~$100mn and have been growing faster than company average. The management intends to steadily increase the contribution of tech-led services to overall revenue mix. It targets FY27 ACV to match or exceed the ~$170mn achieved in FY26, supporting a stronger revenue tailwind into FY28. The management guides for sequential revenue growth in 2Q and retained 24- 28% EBITDAM guidance for FY27, despite higher investments in AI and sales, increasing contribution from international delivery locations, and higher tech infra costs. We trim our FY27-29E EPS by ~2-6%, factoring in 1Q performance, the expected change in business mix, and near-term margin pressure. While we remain constructive on its execution capabilities and growth trajectory, we downgrade eClerx to REDUCE from Buy, following a 25%/19% rally in the stock over the last 1M/3M. We maintain our TP of Rs1,700, on 16x Jun-28E EPS.
Results summary
Revenue grew 2.8%/15.2% qoq/yoy to $125.9mn in 1Q (2.9% CC qoq). EBITM declined by 240bps qoq to 18.7%, below our estimate of 20.1%. Revenue growth was led by Emerging Industries (17.6% qoq in $ terms), Hi-tech and M&D (4.2%), and CMT (1.3%), while BFSI (soft for second quarter in a row, leading to flattish yoy growth) and Fashion, Luxury, and Retail remained flat. Automation and Analytics revenue increased 7.0% qoq, while BPaaS revenue rose 8.5%. Europe declined 3.4% qoq, whereas North America and RoW increased 2.9% and 20.6% qoq, respectively. Top-5/10 clients increased by 0.3%/3.9% qoq and Emerging clients grew 1.1%. Total headcount stood at 22,449, down 0.6% qoq and up 10.4% yoy. Offshore voluntary attrition decreased by 360bps qoq to 18.1% vs 21.7% in 4QFY26. What we liked: Steady deal ACV. What we did not like: Margin miss, softness in Europe, BFSI
Scaling growth through new logos, cross-sell, and capacity expansion
Growth strategy is anchored on i) winning new logos; ii) expanding existing clients outside the top-10; and iii) increasing wallet share through cross-selling within existing accounts. eClerx is adding capacity across Mumbai, Pune, Chandigarh, Mohali, and Coimbatore, with ~1.6k additional seats expected to become operational over the next 3-4 months. Cairo and Lima—established ~12–15 months ago—are scaling well, while Manila headcount has doubled over the past 15 months. As these lower-margin international centers increase their revenue contribution, some margin dilution can play out. The management remains confident to deliver top-quartile growth in FY27
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