eclerx Services Ltd Q3FY12 Result Update Enhancing investment decisions CRISIL Limited. All Rights Reserved.

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1 Q3FY12 Result Update Enhancing investment decisions CRISIL Limited. All Rights Reserved.

2 Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (1-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-1% from CMP) 2/5 Moderate fundamentals 2/5 Downside (- 1-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer: This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose. CRISIL Limited. All Rights Reserved.

3 Profitability boosted by rupee depreciation Fundamental Grade Valuation Grade Industry 4/5 (Superior fundamentals) 3/5 (CMP is aligned) IT Services eclerx Services Ltd s (eclerx s) Q3FY12 revenue in dollar terms was in line with CRISIL Research s expectations driven by sustained growth in both top five and non-top five clients. Revenue in rupee terms, operating profitability and PAT were better than expected due to rupee depreciation. We have revised FY12 and FY13 revenue and earnings estimates upwards mainly driven by the rupee-dollar exchange rate revision of 4.5% for FY12 and 7.9% for FY13. We maintain the fundamental grade of 4/5. Q3FY12 result analysis Q3FY12 revenue in US$ terms grew by 4.5% q-o-q (~3% y-o-y) to US$ 25.4 mn driven by 4.5% q-o-q growth in revenue from both top five and non-top five clients. Revenue in rupee terms grew by 16% q-o-q (up 51.3% y-o-y) to Rs 1.3 bn due to depreciation of the rupee against the US$. Employee cost as a percent of sales declined by 444 bps q-o-q (272 bps y-o-y) to 39.3% and other expenses as a percent of sales declined by 191 bps q-o-q (76 bps y-o-y) to 15.4% mainly due to rupee depreciation. As a result, EBITDA increased by 35% q-o-q (64% y-o-y) to Rs 597 mn. EBITDA margin improved by 635 bps q-o-q (349 bps y-o-y) to 45.2%. This quarter, the company added 116 employees compared to 14 in Q2FY12 and 196 in Q3FY11 as the attrition declined to 26.3% from 38.7% in Q2FY12 and 37% in Q3FY11, and employee utilisation improved 1 bps q-o-q (2 bps y-o-y) to 72%. Forex loss incurred on derivative contracts due to weaker rupee reduced other income by ~55% q-o-q. As a result, PAT increased by ~13% q-o-q (~39% y-o-y) to Rs 499 mn despite stronger growth in EBITDA. Q3FY12 EPS was Rs The company was able to sharply reduce debtor days to 52 from 76 days in Q2FY12 as the company focussed on collections but is expected to return to long-term average of 6-7 days. Rupee depreciated by ~14% in Q3FY12. Valuation: Current market price is aligned We continue to use the price to earnings ratio (PER) method to value eclerx. Since earnings have been revised only due to revision in the exchange rate, we maintain the fair value of Rs 76 per share. At this value, the implied P/E multiple is 11.5x FY13 EPS (ex-hedging gains) of Rs At the current market price of Rs 716, the valuation grade is 3/5. KEY FORECAST (Rs mn) FY9 FY1 FY11 FY12E FY13E Operating income 1,973 2,57 3,421 4,774 6,88 EBITDA 815 1,4 1,345 1,928 2,447 Adj PAT ,327 1,669 1,984 Adj EPS-Rs EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) NM: Not meaningful; CMP: Current market price estimate February 1, 212 Fair Value Rs 76 CMP Rs 716 CFV MATRIX KEY STOCK STATISTICS NIFTY 5236 NSE ticker ECLERX Face value (Rs per share) 1 Shares outstanding (mn) 29 Market cap (Rs mn)/(us$ mn) 2,781/42 Enterprise value (Rs mn) /(US$ mn) 18,87/ week range (Rs) (H/L) 875/577 Beta.97 Free float (%) 45.2 Avg daily volumes (3-days) 21,568 Avg daily value (3-days) (Rs mn) 15.3 SHAREHOLDING PATTERN 1% Excellent Fundamentals Fundamental Grade PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m ECLERX 4% -4% -11% 9% NIFTY 13% % -5% -3% ANALYTICAL CONTACT Chetan Majithia (Head) Chinmay Sapre Suresh Guruprasad Poor Fundamentals 9% 8% 7% 6% 5% 4% 3% 2% 1% % 59.3% Strong Downside Valuation Grade 12.5% 11.3% 11.2% 11.2% 8.2% 9.1% 9.5% 1.5% 2.% 24.5% 24.5% 23.5% 55.1% 54.8% 54.8% chetanmajithia@crisil.com csapre@crisil.com Strong Upside Promoter FII DII Others sguruprasad@crisil.com Client servicing desk clientservicing@crisil.com CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 1

4 Q3FY12 Result Summary (Rs mn) Q3FY12 Q2FY12 Q3FY11 q-o-q (%) y-o-y (%) 9MFY12 9MFY12 y-o-y (%) Net sales 1,32 1, ,453 2, Employee cost ,463 1, Employee cost (% of net sales) 39.3% 43.8% 42.% -444bps -272bps 91.5% 133.6% -425bps Administration and other expenses EBITDA , EBITDA margin 45.2% 38.9% 41.8% 635bps 349bps 41.4% 38.3% 31bps Depreciation EBIT , Interest and finance charges Operating PBT , Other Income (14.3) Forex gain/(loss) (69.5) (26.7) PBT ,616 1, Tax PAT , Adj PAT , Adj PAT margin 37.8% 38.9% 41.3% -15bps -342bps 37.5% 37.7% -23bps No of equity shares (mn) Adj EPS (Rs) Contribution from US increased due to strong US$ High dependence on top five clients continues 1% 9% 8% 6% 7% 7% 8% 7% 8% 9% 6% 24% 31% 3% 33% 34% 32% 31% 26% 9% 88% 7% 86% 6% 5% 84% 4% 3% 2% 63% 63% 6% 58% 61% 61% 65% 7% 82% 8% 84% 88% 87% 86% 86% 88% 86% 86% 1% % 78% North America Europe Rest of the world 76% Revenues from top five and non-top five clients grew at 4.5% in US$ terms (US$ mn) % 12% (US$ mn) 4. 27% 3% % 7.6% 8.2% 7.8% 6.3% 4.5% 5.9% % 8% 6% 4% 2% % % 17% 8% 5% -.2% -1% -2% % 1% % -1% -2% -3% Revenues from top 5 clients growth (RHS) Revenues from non-top five clients growth (RHS) CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 2

5 Debtor days declined sharply Employee addition remained low (Days) ,4 3,9 3,4 2,9 2,4 1,9 1, ,15 4,155 4,271 2,577 2,863 3,124 3,331 3,527 3, Dec-9 Net additions Ending employees EBITDA margin improved due to weak rupee PAT margin declined due to low forex gains (Rs mn) 1,4 1,2 1, % 36.7% 36.2% 41.8% 42.% 39.2% 38.9% 45.2% 48% 45% 42% 39% (Rs mn) % % 33.6% 41.3% 41.7% 35.3% 38.9% 37.8% 45% 4% 35% 3% 25% 2% ,137 1,32 36% 33% 3% % 1% 5% % Revenue EBITDA margin (RHS) PAT PAT margin (RHS) Share price movement Fair value movement since initiation 1,6 (Rs) (') 1,4 1,2 1, ,6 1,4 1,2 1, Jan-9 Apr-9 Jun-9 Aug-9 Nov-9 Jan-1 Apr-1 Aug-1 Nov-1 Jan-11 Aug-11 6 Apr-11 May-11 Jul-11 Aug-11 Oct indexed to 1 eclerx NIFTY Total Traded Quantity (RHS) CRISIL Fair Value eclerx CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 3

6 EARNINGS ESTIMATES REVISED UPWARDS FY12E FY13E Particulars Unit Old New % change Old New % change Revenue (US$ mn) % % Exchange rate Rs % % Revenue (Rs mn) 4,613 4, % 5,644 6,88 7.9% Employee cost (Rs mn) 1, % 2, % SG&A (Rs mn) % 1, % EBITDA (Rs mn) 1,796 1, % 2,52 2, % EBITDA margin (%) 39% 4% 145bps 36% 4% 384bps Depreciation (Rs mn) % % Other income (Rs mn) % % PAT (Rs mn) 1,483 1, % 1,83 1, % PAT margin (%) 32.1% 35.% 28bps 31.9% 32.6% 65bps No of shares no % % EPS (ex-hedging gains) (Rs) % % EPS (Rs) % % Source: CRISIL Research Reasons for changes in estimates Line item FY12 FY13 Revenues Marginal downward revision in US$ revenue due to uncertain macro environment Rupee depreciation EBITDA margins Higher revenue and US$ denominated costs due to rupee depreciation PAT margins Higher EBITDA due to rupee depreciation Higher other income due to higher yields Lower-than-expected depreciation Rupee depreciation Higher revenue and US$ denominated costs due to rupee depreciation Higher EBITDA due to rupee depreciation Higher other income due to existing hedge positions As on December 31, 211, the company had outstanding hedges of US$ 19.5 mn at an average US$/rupee rate of Rs 48.3 for Q4FY12. Based on this position, we expect the company to incur forex losses in the next quarter. Hence, we have assumed lower profitability in Q4FY12. Our full-year PAT estimate is Rs 1.7 mn while the company has already done PAT of Rs 1.3 bn in 9MFY12. CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 4

7 VALUATION We continue to use the price-to-earnings method to value eclerx. Since earnings have been revised only due to revision in the rupee-dollar exchange rate, we maintain the fair value of Rs 76 per share. At this value, the implied P/E multiple is 11.5x FY13E EPS (ex-hedging gains) of Rs At the current market price of Rs 716, the valuation grade is 3/5. One-year forward P/E band (Rs) Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 May-1 Jul-1 Nov-1 Jan-11 May-11 Jul-11 eclerx Services 4x 7x 1x 13x 16x One-year forward EV/EBITDA band (Rs mn) 16, 14, 12, 1, 8, 6, 4, 2, Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 May-1 Jul-1 Nov-1 Jan-11 May-11 Jul-11 EV 2x 4x 6x 8x P/E premium/discount to NIFTY 6% 4% 2% % -2% -4% -6% -8% -1% Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 May-1 Jul-1 Nov-1 Jan-11 May-11 Jul-11 P/E movement (Times) std dev std dev 2 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 May-1 Jul-1 Nov-1 Jan-11 May-11 Jul-11 Premium/Discount to NIFTY Median of premium discount to NIFTY 1yr Fwd PE (x) Average PE CRISIL IER reports released on eclerx Services Ltd Fundamental Valuation CMP Date Nature of report grade Fair value grade (on the date of report) 28- Initiating coverage* 4/5 Rs 692 3/5 Rs May-11 Q4FY11 result update 4/5 Rs 692 3/5 Rs Jul-11 Q1FY12 result update 4/5 Rs 714 2/5 Rs Oct-11 Q2FY12 result update 4/5 Rs 76 3/5 Rs Feb-12 Q3FY12 result update 4/5 Rs 76 3/5 Rs 716 * For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters. CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 5

8 FINANCIALS Income statement Balance Sheet (Rs mn) FY9 FY1 FY11 FY12E FY13E (Rs mn) FY9 FY1 FY11 FY12E FY13E Operating income 1,973 2,57 3,421 4,774 6,88 Liabilities EBITDA 815 1,4 1,345 1,928 2,447 Equity share capital EBITDA margin 41.3% 39.1% 39.3% 4.4% 4.2% Reserves 1,467 1,89 2,95 2,844 3,737 Depreciation Minorities EBIT ,254 1,89 2,324 Net worth 1,657 1,999 2,384 3,135 4,28 Interest (165) - - Convertible debt Operating PBT ,419 1,89 2,324 Other debt Other income Total debt Exceptional inc/(exp) - - (12) - - Deferred tax liability (net) (7) (7) (7) (7) (7) PBT ,392 2,6 2,512 Total liabilities 1,649 1,992 2,377 3,127 4,2 Tax provision Assets Minority interest Net fixed assets PAT (Reported) ,224 1,669 1,984 Capital WIP Less: Exceptionals - - (12) - - Total fixed assets Adjusted PAT ,327 1,669 1,984 Investments Current assets Ratios Inventory FY9 FY1 FY11 FY12E FY13E Sundry debtors ,84 Growth Loans and advances Operating income (%) Cash & bank balance ,515 1,627 2,514 EBITDA (%) Marketable securities Adj PAT (%) Total current assets 1,84 2,132 3,143 3,52 4,79 Adj EPS (%) Total current liabilities , ,117 Net current assets 1,339 1,669 2,7 2,662 3,673 Profitability Intangibles/Misc. expenditure EBITDA margin (%) Total assets 1,649 1,992 2,377 3,127 4,2 Adj PAT Margin (%) RoE (%) Cash flow RoCE (%) (Rs mn) FY9 FY1 FY11 FY12E FY13E RoIC (%) Pre-tax profit ,494 2,6 2,512 Total tax paid (81) (93) (167) (392) (528) Valuations Depreciation Price-earnings (x) Working capital changes (5) (147) 29 (544) (124) Price-book (x) Net cash from operations ,627 1,244 1,983 EV/EBITDA (x) Cash from investments EV/Sales (x) Capital expenditure (127) (82) (139) (214) (5) Dividend payout ratio (%) Investments and others (197) Dividend yield (%) Net cash from investments (324) (6) 357 (214) (5) Cash from financing B/S ratios Equity raised/(repaid) Inventory days Debt raised/(repaid) (4) Creditors days Dividend (incl. tax) (277) (39) (755) (918) (1,91) Debtor days Others (incl extraordinaries) (13) (9) (212) - - Working capital days Net cash from financing (329) (393) (942) (918) (1,91) Gross asset turnover (x) Change in cash position (11) 259 1, Net asset turnover (x) Closing cash ,515 1,627 2,514 Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) (Rs mn) Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Net debt/equity (x) (.6) (.6) (.8) (.6) (.7) Net Sales ,137 1,32 Interest coverage NM NM NM Change (q-o-q) 6% 1% 4% 14% 16% EBITDA Per share Change (q-o-q) 22% 1% -3% 13% 35% FY9 FY1 FY11 FY12E FY13E EBITDA margin 41.8% 42.% 39.2% 38.9% 45.2% Adj EPS (Rs) PAT CEPS Adj PAT Book value Change (q-o-q) 3% 11% -12% 26% 13% Dividend (Rs) Adj PAT margin 41.3% 41.7% 35.3% 38.9% 37.8% Actual o/s shares (mn) Adj EPS Note: All ratios are computed on Adj PAT estimate CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 6

9 CRISIL Research Team Senior Director Mukesh Agarwal +91 (22) Analytical Contacts Tarun Bhatia Director, Capital Markets +91 (22) Prasad Koparkar Head, Industry & Customised Research +91 (22) Chetan Majithia Head, Equities +91 (22) Jiju Vidyadharan Head, Funds & Fixed Income Research +91 (22) Ajay D'Souza Head, Industry Research +91 (22) Ajay Srinivasan Head, Industry Research +91 (22) Sridhar C Head, Industry Research +91 (22) sridharc@crisil.com Manoj Mohta Head, Customised Research +91 (22) mmohta@crisil.com Sudhir Nair Head, Customised Research +91 (22) snair@crisil.com Business Development Vinaya Dongre Head, Industry & Customised Research +91 (22) vdongre@crisil.com Ashish Sethi Head, Capital Markets +91 (22) asethi@crisil.com CRISIL s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate Other services by the Research group include Funds & Fixed Income Research Mutual fund rankings Wealth Tracking and Financial Planning tools for asset managers, wealth managers and IFAs Valuation for all debt instruments Developing and maintaining debt and hybrid indices Consultancy and research support to retirement funds Industry & Customized Research Provide comprehensive research coverage across 65 sectors Customised research on market sizing, demand modelling and entry strategies Customised research content for Information Memorandum and Offer Documents CRISIL Limited. All Rights Reserved.

10 About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is the country s largest independent and integrated research house with strong domain expertise on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to deliver superior perspectives and insights to over 12 domestic and global clients, through a range of research reports, analytical tools, subscription products and customised solutions. To know more about CRISIL IER, please contact our team members: Vinaya Ashish Sethi Dongre Head, Head, Business Development vdongre@crisil.com asethi@crisil.com I I Phone : : Ashish Sagar Sawarkar Sethi Head, Senior Business Manager, Development Business Development ssawarkar@crisil.com asethi@crisil.com I Phone I Phone : : Sagar Sawarkar Senior Manager, Business Development ssawarkar@crisil.com I Phone : Regional Contacts: Ahmedabad / Mumbai Vishal Shah - Manager, Business Development vishah@crisil.com I Phone : Bengaluru Gayathri Ananth Senior Manager, Business Development gs@crisil.com I Phone : Chennai / Hyderabad Kaliprasad Ponnuru - Manager, Business Development kponnuru@crisil.com I Phone : Delhi Arjun Gopalkrishnan - Manager, Business Development agopalakrishnan@crisil.com I Phone : Kolkata Priyanka Agarwal - Manager, Business Development priyagarwal@crisil.com I Phone : Mumbai / Pune Vivek Tandon - Manager, Business Development vtandon@crisil.com I Phone : Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai Phone : CRISIL Limited. All Rights Reserved. Web: Download reports from: