>ECLERX LIMITED: Revenue Momentum continues (EMKAY)

Revenues at US$ 15.8 mn (+6% QoQ) beat expectations ( Emkay est. of US$ 15.5 mn). However operating margins at 36.6% were down by ~370 bps sequentially on a/c of significant hiring ( co hired 286 employees at a net level during Q4FY10). Profits at Rs 242 mn (+13.5% QoQ,+50% YoY) were lower than expectations driven by lower margin performance and lower than estimated forex gains. Co continues to hire aggressively driven by up tick in revenue/demands (note that co’s increased headcount by ~45% over the year) with further beef up in sales team abroad. It is worth noting that revenue momentum at eClerx continues to pick up with YoY revenue growth continuing to see improvement over the year (refer chart below).

eClerx continues to deliver in line with our positive thesis. We tweak our FY11E/12E earnings upwards marginally to Rs 51.5/Rs 61.5 (V/s Rs 51.3/Rs 60.4 earlier). Maintain BUY with an unchanged March’11 price target of Rs 540.

Revenue growth momentum continues to pick up
eClerx reported March’10 revenues at US$ 15.8 mn (+6% QoQ) ahead of Emkay est. We note that given the improving demand environment, YoY revenue growth momentum at eClerx continues to pick up with YoY revenue growth accelerating to ~48% YoY in March’10 quarter V/s ~13% YoY revenue growth in June’09 quarter ( refer chart below). Operating profits at Rs 261 mn (-6.4% QoQ) were marginally lower than est on a/c of significant hiring during the quarter (net addition at 286, taking overall employee count to 2,863), with overall employee count up by ~45% over FY10. Profits came in at Rs 242 mn(+13.5% QoQ,+50% YoY).

Hiring remains aggressive, does well on reducing debtor days
eClerx continued to ramp up headcount on a/c of the improving macro environment with the overall headcount up by ~45% during the year. Further the company expects the 1st phase of it’s newly acquired Airoli facility (44,000 sq ft) to come on-stream from June’10 onwards. We highlight that co management deserves appreciation in terms of bringing down debtors days to 56 in FY10 (V/s 83 in FY09)

Maintain BUY with an unchanged price target of Rs 540
eClerx continues to deliver in line with our positive thesis driven by improving macro environment. We tweak our FY11E/FY12E earnings upwards to Rs 51.5/Rs 61.5 (V/s Rs 51.3/Rs 60.4 earlier) (our estimates based at US$/INR of Rs 45/$). Co has paid a final dividend of Rs 10/share, taking full year dividend paid to Rs 17.5/share (dividend payout ratio at ~46%). Maintain BUY with an unchanged March’11 price target of Rs540.

To read the full report: ECLERX