Emkay Global Financial Services has retained `Accumulate` on eClerx Services with a price target of Rs 800 as against the current market price (CMP) of Rs 717 in its report dated Jan. 24, 2012. The broking house gave the following rationale:
Yet another consistent performance:
eClerx reported inline revenue performance with revenues at USD 25.4 million (+4.5% QoQ, +6.7% QoQ in constant currency terms). Op margins improved by 640 bps to 45.1%,highest since March`09 levels aided largely by lower currency (gross margins improved by 450 bps QoQ with SG&A expenses down by 190 bps QoQ). Profits at Rs 499 million (+13% QoQ) beat expectations driven by better than expected margin performance. Growth was similar across both the top 5 clients (+4.5% QoQ) and the emerging accounts (+4.5% QoQ) with sequential headcount addition at 116 taking the total count to 4,271. Amongst geographies, growth was led by US (+12.6% QoQ) for the 2nd quarter in a row. DSO declined sharply to 52 days as on Dec`11 qtr end (V/s 7 on Sep`11 qtr end) after increasing sharply over the past 2 quarters.
Company remains focused on driving growth within emerging accounts:
After a sharp 27% sequential increase in revenues from emerging accounts in Sep`11 qtr, the revenues from non top 5 clients grew by 4.5% QoQ, in line with co average (albeit all on a low base). Company management remains committed to driving growth outside of top 5 clients and has increased the onshore sales and account team further
Tweak FY12/13E up by 4%/2% respectively, Retain Accumulate:
We tweak our earnings estimates driven largely by currency resets to Rs 49.5/$ for
FY13 (V/s Rs 48/USD earlier) which drives a 4%/2% raise in our FY12/13E earnings to Rs 57.4/64.2 (V/s Rs 55.4/62.9 earlier) as we leave our USD revenue estimates largely unchanged. Valuations at 12.5x/11.2x FY12/13E P/E appear expensive relative to mid tier peers, however we find them attractive and reasonable for the consistent execution. eClerx continues to deliver along our investment prognosis and remains amongst our top picks apart from Hexaware and MindTree in the Tier II coverage on account of (1) superior cash generation , (2) high return ratios backed with strong dividend payout policy and (3) consistent delivery and Dec`11 performance validates that. Retain Accumulate with an unchanged target price of Rs 800.
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