BUY CMP 1256.70 Target Price 1408.00 ECLERX SERVICES LIMITED CONSOLIDATED Result Update: Q1 FY15 AUGUST 20 th 2014 ISIN: INE738I01010 Index Details Stock Data Sector IT & ITes BSE Code 532927 Face Value 10.00 52wk. High / Low (Rs.) 1370.05/742.00 Volume (2wk. Avg. Q.) 3084 Market Cap (Rs. in mn.) 38062.93 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 8409.94 9839.63 11020.39 EBITDA 3645.98 3973.63 4389.97 Net Profit 2556.56 2773.94 3062.76 EPS 84.72 91.59 101.12 P/E 14.83 13.72 12.43 Shareholding Pattern (%) 1 Year Comparative Graph ECLERX SERVICES LIMITED BSE SENSEX SYNOPSIS Eclerx Services Ltd provides data analytics and customized process solutions to global enterprise clients from its offshore delivery centres in India. The company s net sales registered 14.46% increase and stood at Rs. 2173.81 million against Rs. 1899.18 million in the corresponding quarter last year. For Q1 FY15, the company s net profit stood at Rs. 534.01 million from Rs. 616.96 million for the Q1 FY14. Operating profit of the company declines to Rs. 808.97 million in Q1 FY15 from Rs. 898.41 million in Q1 FY14. eclerx Launches Digital Analytics & Reporting Solution, Allowing Marketers to Offload Time- Consuming Analytics to Focus on High-Value Insights. eclerx has been selected in the Best KYC & Client On-Boarding Solution category as a recognition of the outstanding services provided to clients. Total cash and cash equivalents of Rs. 3794.00 million before dividend as on 30 th June 2014 and is debt free company. Net Sales and PAT of the company are expected to grow at a CAGR of 19% and 21% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Eclerx Services Ltd 1256.70 38062.93 84.72 14.83 6.44 350.00 Vakrangee Software Ltd 130.10 65503.00 4.81 27.05 9.17 25.00 Hinduja Global Solutions Ltd 635.75 13112.10 66.58 9.55 1.71 200.00 Axis It &T Ltd 115.40 2303.40 6.29 18.35 4.72 0.00
Recommendation & Analysis - BUY For the 1 st quarter of FY15, the company s net sales was Rs 2173.81 million as against Rs. 1899.18 million over corresponding g quarter of previous year, YoY growth of 14.46%. Profit after tax for the Quarter ended 30 th June, 2014 was Rs 534.01 compared to Rs 616.96 million in the corresponding period of previous year. Operating profit for the quarter is Rs. 808.97 million compared to Rs. 898.41 million over the prior period of last year. The outlook for the company remains largely similar to FY2013-14. Total headcount as of March 31, 2013 stands at 6,836 a growth of 15% YoY. The company focuses on refining its services offerings every year and on making the requisite investments that will enable to continue its growth journey. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We expect the company to post a CAGR of 19% and 21% in its top-line and bottom-line respectively, over 2013-2016E. Hence, we recommend BUY for ECLERX SERVICES LIMITED with a target price of Rs. 1408.00 on the stock. QUARTERLY HIGHLIGHTS (CONSOLIDATED) Results updates- Q1 FY15, Eclerx Services Ltd. India s first publicly-listed KPO and a Forbes 200 Best under a Billion the company provides data analytics and customized process solutions to global enterprise clients from its offshore delivery centers in India, has reported its financial results for the quarter ended 30 th June, 2014. Rs. In million JUNE-14 JUNE-13 % Change Net Sales 2173.81 1899.18 14.46 PAT 534.01 616.96 (13.44) EPS 17.63 20.60 (14.42) EBITDA 808.97 898.41 (9.96) The company has achieved a turnover of Rs. 2173.81 million for the 1 st quarter of the current year 2013-14 as against Rs. 2173.81 million in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs. 808.97 million in Q1 FY15. Net profit of Rs. 534.01 million against Rs. 616.96 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 17.63 for the 1 st quarter as against an EPS of Rs. 20.60 in the corresponding quarter of the previous year.
Break up of Expenditure- Q1 FY15 During the quarter, total expenditure rose by 23 per cent, mainly increased on account of Employee Benefits Expenses along with other expenditure are primarily attributable for the growth of expenditure. Total expenditure in Q1 FY15 stood to Rs. 1479.41 million as against Rs. 1198.11 million in Q1 FY14. Employees benefits expenses incurred at Rs. 1006.32 million against Rs. 838.09 million in the corresponding period of the previous year. Depreciation & Amortization faced at Rs. 105.26 million against Rs. 89.51 million over corresponding quarter of previous year. Whereas in Q1 FY15, Other Expenditure was at Rs. 367.84 million as against Rs. 270.51 million in Q1 FY14. COMPANY PROFILE eclerx Services Limited ( eclerx ), founded in 2000 and publicly listed on both the Bombay and National Stock Exchanges in India since 2007, is a leading knowledge process outsourcing ( KPO ) company providing middle/back office operations support to over 30 Fortune 500 companies and headquartered in Mumbai, India. 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 and provides data analytics and customized process solutions to global enterprise clients from its offshore delivery centers in India. The company s five delivery centers across India support a diverse global client base, including the world s leading Financial Services, Broadband, Cable & Telco, ecommerce & Retail, High Tech, Industrial Manufacturing & Distribution, Software, Media & Entertainment and Travel companies and delivery centers based in Mumbai, Pune and Chandigarh. Client relationship offices are located in New York, San Francisco, Chicago, Austin, Philadelphia, London, Dublin and Singapore. PD and Anjan are majority shareholders in eclerx and are actively involved in the strategic direction of the Company along with the executive management team.
Awards & Accolades eclerx, has been nominated for the 2014 A-Team Group Data Management Summit (DMS) Awards. eclerx has been selected in the Best KYC & Client On-Boarding Solution category as a recognition of the outstanding services provided to clients. Business activities Retail & etail High Tech Travel & Leisure Software Industrial Manufacturing Broadband, Cable & Telco Retail Financial Services Financial Services Financial Services Reference Data Management Risk and Control Middle Office Services Back Office Services Finance and Accounting Ancillary Services Asset Class Coverage All Financial Services Sales & Marketing Services Commerce & Content Data Management Analytics, Insights & Reporting All Sales & Marketing Services Subsidiary Companies eclerx Investments Limited (BVI) eclerx LLC (USA) eclerx Limited (UK) eclerx Private Limited (Singapore) Agilyst Inc (USA) Agilyst Consulting Private Limited, (India)
FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2013-2016E ECLERX SERVICES LIMITED FY-13A FY-14A FY-15E FY-16E I. EQUITY AND LIABILITIES A) Shareholder's Funds: a) Share Capital 298.75 301.77 302.88 302.88 b) Reserves and Surplus 4084.55 5587.75 7375.83 9441.06 Sub -Total- Shareholder fund 4383.30 5889.52 7678.71 9743.94 B) Non Current Liabilities: a) Deferred Tax Liability 9.93 18.76 30.39 46.19 b) Long Term Provisions 0.00 0.00 0.00 0.00 Sub-Total Non Current Liabilities 9.93 18.76 30.39 46.19 C) Current Liabilities: a) Trade Payables 225.44 259.21 294.20 332.45 b) Other Current Liabilities 67.68 84.28 103.66 126.47 c) Short Term Provisions 1335.04 1661.99 2027.63 2433.15 Sub-Total - Current Liabilities 1628.16 2005.48 2425.50 2892.07 TOTAL EQUITY AND LIABILITIES (A+B+C) 6021.39 7913.76 10134.60 12682.21 II. ASSETS D) Non- Current Assets: Fixed Assets i. Tangible Assets 552.98 558.04 566.97 572.64 ii. Intangible Assets 794.91 989.61 1187.53 1401.29 iii. Capital work in Progress 7.35 11.84 15.98 20.14 a) Sub-Total - Fixed Assets 1355.24 1559.49 1770.48 1994.07 b) Non-Current Investment 0.30 0.00 0.00 0.00 c) Deferred Tax Assets 22.71 37.06 50.03 65.04 d) Long Term Loans & Advances 121.83 179.19 232.95 298.17 Sub -Total- Non- Current Assets 1500.08 1775.74 2053.46 2357.28 E) Current Assets: a) Current Investment 351.56 1154.79 1963.14 2878.16 b) Trade Receivables 654.77 996.30 1424.71 1994.59 c) Cash & Cash Equivalents 2348.53 2405.57 2579.62 2734.40 d) Short- Term Loans and Advances 451.48 573.30 722.54 881.50 e) Other Current Assets 714.97 1008.06 1391.12 1836.28 Sub -Total Current Assets 4521.31 6138.02 8081.13 10324.93 TOTAL ASSETS (D+E) 6021.39 7913.76 10134.60 12682.21
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 6605.34 8409.94 9839.63 11020.39 Other Income -181.78 110.20 77.14 81.00 Total Income 6423.56 8520.14 9916.77 11101.38 Expenditure -4037.65-4874.16-5943.14-6711.41 Operating Profit 2385.91 3645.98 3973.63 4389.97 Interest 0.00 0.00 0.00 0.00 Gross profit 2385.91 3645.98 3973.63 4389.97 Depreciation -255.35-330.28-389.73-448.19 Exceptional Items -21.17 0.00 0.00 0.00 Profit Before Tax 2109.39 3315.70 3583.90 3941.78 Tax -393.37-759.14-809.96-879.02 Net Profit 1716.02 2556.56 2773.94 3062.76 Equity capital 298.75 301.77 302.88 302.88 Reserves 4084.53 5587.75 7375.83 9441.06 Face value 10.00 10.00 10.00 10.00 EPS 57.44 84.72 91.59 101.12 Quarterly Profit & Loss Statement for the period of 31 DEC, 2013 to 30 SEP, 2014E Value(Rs.in.mn) 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14E Description 3m 3m 3m 3m Net sales 2195.27 2169.38 2173.81 2391.19 Other income 6.36-10.36 9.31 4.84 Total Income 2201.63 2159.02 2183.12 2396.03 Expenditure -1307.23-1240.14-1374.15-1504.06 Operating profit 894.40 918.88 808.97 891.97 Interest 0.00 0.00 0.00 0.00 Gross profit 894.40 918.88 808.97 891.97 Depreciation -82.90-83.55-105.26-92.63 Profit Before Tax 811.50 835.33 703.71 799.34 Tax -188.28-190.75-169.70-187.05 Net Profit 623.22 644.58 534.01 612.30 Equity capital 300.52 301.77 302.88 302.88 Face value 10.00 10.00 10.00 10.00 EPS 20.74 21.36 17.63 20.22
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 57.44 84.72 91.59 101.12 EBITDA Margin (%) 36.12 43.35 40.38 39.83 PBT Margin (%) 31.93 39.43 36.42 35.77 PAT Margin (%) 25.98 30.40 28.19 27.79 P/E Ratio (x) 21.88 14.83 13.72 12.43 ROE (%) 39.15 43.41 36.13 31.43 ROCE (%) 60.26 67.51 56.82 49.65 EV/EBITDA (x) 14.60 9.42 8.44 7.39 Book Value (Rs.) 146.72 195.17 253.52 321.71 P/BV 8.57 6.44 4.96 3.91 Charts:
OUTLOOK AND CONCLUSION At the current market price of Rs. 1256.70, the stock P/E ratio is at 13.72 x FY15E and 12.43 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.91.56 and Rs.101.12 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 19% and 21% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 8.44 x for FY15E and 7.39 x for FY16E. Price to Book Value of the stock is expected to be at 4.96 x and 3.91 x respectively for FY15E and FY16E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.1408.00 for Medium to Long term investment. INDUSTRY OVERVIEW The Indian Information Technology (IT) and Information Technology enabled Services (ITeS) sectors go hand-inhand in every aspect. The industry has not only transformed India s image on the global platform, but also fuelled economic growth by energising higher education sector (especially in engineering and computer science). The industry has employed almost 10 million Indians and hence, has contributed a lot to social transformation in the country. Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make their business processes efficient and streamlined. Indian manufacturing sector has the highest IT spending followed by automotive, chemicals and consumer products industries. Indian organisations are turning to IT to help them grow business in the current economic environment. IT is seen as a change enabler and a source of business value for organisations by 85 per cent of the respondents. Market Size India's IT-business process outsourcing (BPO) industry revenue is expected to cross US$ 225 billion mark by 2020, according to a Confederation of Indian Industry (CII) report, titled 'The SMAC Code-Embracing New Technologies for Future Business'. India is expected to become world's second-largest online community after China with 213 million internet users by December 2013 and 243 million by June 2014, according to Internet and Mobile Association of India (IAMAI) and IMRB International.
Technology firms in India are expected to reap the benefits of Internet of Things (IoT) data, considered to be a US$ 18 billion opportunity, to help clients improve productivity and asset utilisation as well as to enhance end-customer experience, as per networking firm Cisco. India s total IT industry s (including hardware) share in the global market stands at 7 per cent; in the IT segment the share is 4 per cent while in the ITeS space the share is 2 per cent. India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, according to Nasscom. Moreover, India plans to spend around US$ 3.9 billion on cloud services during 2013-2017, of which US$ 1.7 billion will be spent on software-as-a-service (SaaS), according the latest outlook of IT research and advisory company, Gartner Inc. The enterprise software market in India is expected to reach US$ 3.92 billion in 2013, registering a growth of 13.9 per cent over 2012 revenue of US$ 3.45 billion, according to Gartner. Mumbai with 12 million internet users has emerged as the top most cities in the country with highest penetration of internet users, followed by Delhi (8.1 million) and Hyderabad (4.7 million). Investments Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries. According to data released by the Department of Industrial Policy and Promotion (DIPP), the computer software and hardware sector has attracted foreign direct investment (FDI) worth Rs 543478.80 million (US$ 8.77 billion) between April 2000 and September 2013. Some of the major investments in Indian IT and ITeS sector: Wipro plans to acquire US-based mortgage due diligence and risk management service provider Opus Capital Markets Consultants (Opus CMC) for Rs 4650.00 million (US$ 75.07 million). Opus CMC provides comprehensive risk management solutions to the mortgage industry in the US. Infosys has opened a new centre in Sydney, Australia. This is its fourth development centre in Australia and has a capacity to seat 140 employees. Further, the company plans to hire 85 people in the region. Hitachi has acquired a foothold in India's payment space with the acquisition of Prizm Payment Services. The firm has entered into share transfer agreements with Prizm shareholders, including Winvest Holdings (India), Sequoia Capital and Axis Bank.
Dell has opened its India design centre for its storage technologies and has realigned its domestic research and development (R&D) unit. The facility will focus on developing software, integrating aspects involving back-up of emails and related storage. Tata Consultancy Services (TCS) has launched a software development facility in Ahmedabad, Gujarat. The facility will serve global customers across industry segments. Cognizant Technology Solutions has acquired ValueSource, a subsidiary of KBC Group, a Belgium-based multi-channel bank insurance group. Schneider Electric has commissioned a services bureau in Bengaluru as a nerve centre and a support facility for data centres in India and the Asia-Pacific region. Government Initiatives Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are: After a successful first-ever international delegation to Dubai, Gujarat-based small and medium enterprises (SMEs) in the IT sector plan to send similar business delegations to European and South East Asian countries. The Government of Karnataka plans to announce a new information technology (IT) policy to boost investments in state s tier-ii and tier-iii cities. The policy would enable the sector to employ about two million people in the state directly by 2020. The Government of India has fast tracked the process of setting up of centres of National Institute of Electronics and Information Technology (NIELIT) in Northeast India. The Government of Brazil has liberalised the issue of short term work visas, a move which will make it easier for Indian IT professionals to take up assignments in Brazil. India and Vietnam have signed two memorandums of understanding (MoU) for partnership in the field of information, communications and technology (ICT).
Road Ahead Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a sizeable chunk of the global market for technology sourcing and business services. Over the years the growth drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency and sustainable energy. Traditional business strongholds would make way for new geographies, there would be new customers and more and more of SMEs will go for IT application and services. Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also extended to IT sector for software technology parks of India (STPI) and special economic zones (SEZs). Further, the country is providing procedural ease and single window clearance for setting up facilities. The country s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be its USP in the global sourcing market. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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