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Eclerx Fundamental Analysis

eClerx provides business process outsourcing services to Fortune 2000 companies globally. It has over 12,000 employees across 11 countries. The company has experienced steady revenue growth higher than its industry average in recent years. However, its net income and free cash flow growth has lagged the industry. While the company is currently trading at a premium, the analyst recommends that investors book profits and wait for a better entry point given expectations of further appreciation of the Indian rupee against the US dollar.

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78 views10 pages

Eclerx Fundamental Analysis

eClerx provides business process outsourcing services to Fortune 2000 companies globally. It has over 12,000 employees across 11 countries. The company has experienced steady revenue growth higher than its industry average in recent years. However, its net income and free cash flow growth has lagged the industry. While the company is currently trading at a premium, the analyst recommends that investors book profits and wait for a better entry point given expectations of further appreciation of the Indian rupee against the US dollar.

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© © All Rights Reserved
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Sector: IT-Software

Industry: Computers – Software – Medium/Small

About: eClerx provides business process management, automation


and analytics services to several Fortune 2000 enterprises, including
some of the world’s leading financial services, communications, retail,
fashion, media & entertainment, manufacturing, travel & leisure, and
technology companies. Incorporated in 2000, eClerx is today traded on
both the Bombay and National Stock Exchanges of India. The firm
employs 12,000 people across Australia, Canada, Germany, India, Italy,
Netherlands, Philippines, Singapore, Thailand, UK, and the USA.
PROMOTERS of eClerx Services Limited
• Anjan Malik
• PD Mundhra

Chairman
• Pradeep Kumar

Number of Executive Directors – 2

Number of Independent Directors – 7

Locations - An MNC with its presence over North America, Europe, Asia and
Australia

Registered Office - Sonawala Building, 1st Floor, 29 Bank Street, Fort,


Mumbai – 400 023, Maharashtra, India
• Sales Growth Rate - 11.17% CAGR (March 2013 - TTM)
• Sales Growth Trend - As we can clearly see in below mentioned graph, the Top
Line growth of the company is in upward trend since last 10 Years.

Chart Title
1800
1600
Sales (in crores)
1400
1200
1000
800
600
400
200
0
1 2 3 4 5 6 7 8 9 10

Time Period
• Revenue Growth – Higher than Industry Revenue Growth, over the last
5 years, revenue has grown at a yearly rate of 3.42%, vs industry avg
of 2.88%

• Operating Profit Growth - 07.96% CAGR (March 2013 – TTM)

• Net Income Growth – Lower than Industry Net Income, over the last 5
years, net income has grown at a yearly rate of -3.72%, vs industry
avg of 5%

• Market Share – Increasing market share, over the last 5 years, market
share increased from 11.17% to 11.47%
• Debt to Equity Ratio - 0.11 i.e., Company is less leveraged and a
lower debt to equity ratio usually implies a more financially
stable business.
Lower than Industry Debt to Equity Ratio, over the last 5 years,
debt to equity ratio has been 4.87%, vs industry avg of 20.32%

• Interest Coverage Ratio – 21.7 times


Generally, an interest coverage ratio of at least two (2) is
considered the minimum acceptable amount for a company that
has solid, consistent revenues.
Higher Interest Coverage Ratio means company has more
capability of meeting its obligations from operating earnings
and it indicates better and solid financial health of the company.
• Average Return on capital employed 10years - 42%
Higher the better, ROCE of 42% means that the company generates
Rs. 42 for every Rs. 100 of capital employed.

• Average return on equity 10 years - 26%


ROE is essentially a measure of the return generated on the net
assets of the company.

• Current Ratio - Higher than Industry Current Ratio, over the last 5
years, current ratio has been 619.3%, vs industry avg of 256.93%

• Free Cash Flow Growth – Lower than Industry FCF Growth,


over the last 5 years, free cash flow growth has been -2.23%, vs
industry avg of 17.49%
• Management Lifestyle – Management keep themselves away from unnecessary
media coverage which is a good sign as they keep working for their set vision and
organization goals, though we haven’t queried management people personally.
• Auditor Fees – Observing the auditor fee pay trend over the last year, there has
been a 24.4% rise in the audit fee whereas, if we compare it with one of the
prominent peer i.e., L&T Technology Services Ltd., there has been no change in
the audit fee payment. Also, going through the current year’s Independent
Auditor’s Report, we can clearly read that the auditors have not observed
anything material misstatement in the financial statements prepared as per AFRF.
• Promoter’s Holding – Promoter’s holdings has been consistent since last few
years indicating the confidence of promoters in their own company.
• Managerial Renumeration – Managers have been withdrawing the remuneration
right within as per the provisions set under the Companies Act, 2013. They have
been paid par to their performance. As per our understanding, we find Managerial
Remuneration to be perfectly in line with the trend.
• ESG Involvement – Management are also striving to be ESG Leader in the
segment by consistently working in line with above parameters i.e., Environment,
Social & Governance and this we can well observe by looking into the Annual
Reports of the Company.
• Compliances – Management have been complying with all the requirements of
the Companies Act, 2013 and other applicable laws as we don’t observe any
significant litigations under the books of accounts.
• Price to Earnings Ratio (P/E) – 24.2
• Industry P/E Ratio – 29.8
Stock P/E Ratio < Industry P/E, which means that
company’s stock price is trading cheaply in the
market.
• Intrinsic Value - Current price is more than the
intrinsic value.
• EV/EBIDTA – Price currently trading at a premium of
122%
• EV/Sales - Price currently trading at a premium of
12%
• Price/Sales - Price currently trading at a premium of
13%
OUR OPINION
Overall, eClerx Services Limited shareholder’s have a Higher Return
Expectation i.e., Expected return of 23.77% from current price level is more
than last 3-year CAGR of 20.38%.
We opine that currently the Company is being trading at an overvalued
premiums, we would suggest our clients holding the positions in the company
to book profits as of now and wait for right levels to enter again in this
counter. Meanwhile, investors can consider to look for better play in the same
industry as we see furthermore rise in INR/USD which is anyhow better for
IT Industry catering mostly to USA.

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