Accumulate Eclerx Services - Motilal Oswal

Motilal Oswal had initiated coverage on Eclerx Services Limited with a BUY rating at Rs.478.

• Scalable business model within KPO/BPO and high growth momentum.
• High operating margins, return ratios and high payout ratios.
• Better fundamental performance should deserve better valution to Mid Cap IT peers. At the time of recommendation stock was trading at 11x/10x of FY11E/FY12E earnings, which was at similar valuation to other mid cap companies.
• The stock witnessed a run-up of more than 25% during two months after our recommendation. Therefore, we issued a recommendation to Book Partial Profits at Rs.610 on 7th October 2010.

We continue to remain positive on the stock with its growth potential and fundamental performance. Investors with long term horizon of more than 3 years should remain invested as it is a potential large cap in future. In the near to medium term, we believe that the current valuation of 14x/13x of FY11E/FY12E should rollover to the next financial year, which will provide an upside of around 7-10% from current levels. Therefore, we are changing our rating to ACCUMULATE with 6 month target price of Rs 660.

Source : Equity Bulls

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