eClerx is a Knowledge and Business Process Outsourcing (“KPO”/”BPO”) company providing operational support, data management, and analytics solutions to over 50 Global Fortune 1000 clients, including many of the world’s leading Financial Services, E-commerce, Retail and Distribution, Broadcast, Cable and Telco, Interactive Media and Entertainment, Travel and Leisure, and Software Vendor companies.
Incorporated in 2000, eClerx is India’s first publicly listed KPO Company. The company provides its services across 3 segments – cable and telecommunication, financial services, and sales and marketing services.
The company has been continuously working on expanding its customer base and as a result its dependence on its top 5 clients has declined steadily over the last few years, though still high. Top 5 clients now account for 79% of the company’s overall revenues compared with nearly 90% a couple of years ago.
In order to expand its domain of services and expand client base, the company acquired Agilyst Inc in April 2012 and with the same has set its footprint in the U.S. cable and telecom industry. For FY 13, North America contributed 74% to eClerx’s overall revenues, Europe pitched in 20% and rest of the world 6%. US is still the largest market for outsourcing of BPO and KPO services, while an under-penetrated Europe market continues to grow at a healthy pace.
As far as financial performance of the company is concerned, the snapshot of the same is as below:
As can be observed from the above illustration, the performance of eClerx has been exceptional. Since listing, the company has grown revenues at an annualized rate of 32% and operating profit at about 39%.
eClerx is debt free and has strong free cash flow generation. The company paid for Agilyst’s acquisition out of internal accruals and still has more than 200 crores surplus cash on the books.
Valuations – At current market cap of 3,290 crores, eClerx is trading at 13.71 times trailing twelve months earnings and considering the growth momentum probably 12.90 times FY 14 earnings. Recently, TCS and Infosys gave marginally lower guidance for Q4 of FY 14 and IT stocks are in correction mode. Though valuations of eClerx look reasonable, the short-term down trend can take the stock to around 1000 odd levels.
Risks/concerns – The Company derives more than 90% of its revenues in Dollars and Euros and thus appreciation of INR against the two currencies will negatively impact the company. Another major concern is the fact that top 5 clients still account for ~80% of the revenues of the company.