ICICIdirect.com has recommended a hold rating on eClerx Services with a target price of Rs 1122 per share in its May 23, 2014 research report.
"eClerx' Q4FY14 earnings were a mixed bag. Though reported margins were higher, dollar revenues declined sequentially and came in below our estimates. US$ revenues declined 0.4 percent QoQ (0.6 percent in constant currency) to $35.5 million and were below our 2.4 percent QoQ growth and $36.6 million estimate, led by client specific issues in the sales & marketing and cable business. EBITDA margins improved 236 bps QoQ to 42.8 percent (39.9 percent estimate) led by a decline in employee and sales & marketing expenses. The company announced annual dividend of Rs 35/share for FY14."
"During FY08-13, EBITDA margins declined 154 bps to 38.9 percent vs. 40.4 percent in FY08, primarily led by revenue deceleration, deteriorating utilisation (68.5 percent in FY13 vs. 70.5 percent in FY12) and increase in attrition (30.1 percent in FY14 vs. 26.8 percent in FY09). eClerx ended Q4 with margins of 42.8 percent while for FY14, they stood at 42 percent. FY14 margins improved 317 bps YoY primarily led by currency tailwinds, partially offset by wage hikes and increase in selling & distribution costs. We expect margins to decline 253 bps to 39.5 percent in FY15E led by 11 percent wage hikes (10 percent in FY14), salary increases across several levels including incremental incentives & bonuses and conversion of variable pays to fixed for some (overall impact of 200 bps)."
"We estimate eClerx will report revenue, earnings CAGR of 12 percent, 11 percent over FY14-16E (average 39.3 percent EBITDA margins in FY15-16E), vs. 34 percent, 33 percent reported during FY09-14 (average 40.1 percent). Growth deceleration could primarily be driven by weakness in top five accounts while increase in employee cost structure could impact margins. We continue to value eClerx at 11x its FY16E EPS of Rs 102 to arrive at our target price of Rs 1122 and maintain our HOLD rating," says ICICIdirect.com research report.
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