eClerx Services - Rating: BUY; Target Price: Rs1,260 - Centrum

We expect eClerx to lead our coverage universe with 4.1% QoQ growth this quarter. We continue to anticipate better traction for their services directed at the financial services industry over FY15.

Led by a slight 100bps improvement in utilization to 66% and marginal increase in overall billing realizations as financial services starts increasing its contribution to revenue, we expect eClerx to post improved EBITDA margins of 43.9%.

During the quarter, we expect eClerx to have made the final payment towards the Agilyst acquisition and expect that forex losses this quarter will increase QoQ without translation gains from the escrow amount towards Agilyst. We therefore anticipate a decrease of 3.7% QoQ in Net profit.

Earnings revised upwards slightly: We are decreasing our FY15E USD revenue estimates slightly to USD158.9 (Vs USD160.4 earlier) while increasing FY16E revenue growth estimates slightly to 12.2% growth (Vs 11.1% earlier). We increase our FY15E estimates for EBITDA and PAT by 5.2%/1.8% respectively (primarily due to currency assumptions) and note that there is room for further upside from improved utilization. With improved stability in the Global Financial Services sector and no evidence of a rush to start new captives, we think that earnings stability for eClerx has increased. With industry leading EBITDA margins and Return Ratios, we think that a re-rating is justified and increase our target multiple to 11x (earlier 10x) and introduce a new Dec'14 TP of Rs1,260 (11x 1-year Fwd EPS at Dec'14).

Source : Equity Bulls

Keywords