Expanding services & increasing penetration across verticals

Moneylife Digital Team

Mumbai-based eClerx Services provides outsourced solutions to global enterprise clients (knowledge process outsourcing or KPO) from its offshore delivery centres in India. Its services comprise data analytics, operations management, data audits, metrics management and reporting services. It offers services to clients in the financial services, retail and manufacturing industries.  

For FY10-11, the company’s consolidated net profit increased to Rs122.43 crore from Rs73.53 crore, registering a year-on-year (Y-o-Y) leap of 66.50% while net revenues jumped 33% to Rs342.10 crore. Its operating profit zoomed 76.5% to Rs15.85 crore. For the financial year ended 31 March 2011, the company’s standalone net profit was sharply up 63.32% to Rs118.56 crore, while its net revenues gained 33%. eClerx recommended a dividend of 225% (Rs22.50) per equity share of Rs10 for FY10-11. For the June 2011 quarter, the company’s consolidated net profit rose 19.95% to Rs35.16 crore, while net revenues increased 29.23% to Rs99.60 crore. Its operating profit for the quarter was Rs36.70 crore, a growth of 37% Y-o-Y. The total headcount in Q1 FY11-12 stood at 4,015—a growth of 29% Y-o-Y. In the June 2011 quarter, the company added four new clients. Standalone net profit increased 20.56% to Rs35 crore backed by a 29% rise in net revenues to Rs99.43 crore from Rs77.07 crore. 

Rohitash Gupta, chief financial officer, eClerx Services, says, “The long-term outlook for the KPO industry remains largely positive. The recent NASSCOM report on the Indian ITeS industry predicts 20%+ CAGR for the KPO sector over the next four years. To be successful, KPO companies will have to offer domain-specific expertise to their clients.” He adds, “The key challenges for eClerx are much the same as those faced by the KPO/BPO industry as a whole, namely, currency fluctuation, as this is quite volatile and movements are somewhat difficult to predict. The second concern from both—company and industry—perspective would be the attrition issue. Particularly in the KPO space, loss of key domain experts is a potential risk. Third, the current global environment is also a cause for concern, given the European situation and continued employment pressure in the US. This uncertain economic environment, if sustained, might cause delay in decision making by clients for larger outsourcing projects. Lastly, high client concentration remains a potential risk for business. The company has been making investments in growing business with a few non-top five clients and we hope it will show results in the medium term.” However, sustained business growth would also depend on India’s education system. 

Over the past five quarters, eClerx has reported an average growth in revenues and operating profit of 33% and 37%, respectively. Its average operating margin is 39% and return on net worth is 51%. Its market-cap to revenues is 5.23, while its market-cap to operating profit is 13.50 times. The stock has a short history, has been on a major run since March 2009 (up 10 times) and has barely corrected from its all-time high of Rs874 hit in July. It will be an attractive buy if and when there is a market panic.