Emkay Global

eClerx Services (Buy)

Target: ₹2,700

CMP: ₹2,261.25

After five years of muted performance, the post-FY20 recovery in eClerx's revenue growth appears sustainable, in our view. The recovery is driven by a healthy demand environment, lower roll-offs, stability at top clients and continued growth in emerging clients. We forecast a about 15 per cent revenue CAGR (organic nearly 11.4 per cent) over FY21-24.

EBITM rebounded strongly by 690 bps/340 bps y-o-y in FY21/H1-FY22 after a 1560 bps fall in FY16-20. EBITM growth was aided by revenue acceleration, WFH savings and other operating efficiencies. We expect WFH-related opex savings to partly normalise. We expect EBITM to moderate during FY22-24 but remain higher than the FY20 level.

eClerx has been successful in acquiring digital capabilities, broadening its portfolio and integrating those capabilities with its business, culminating in good upsell and cross-sell opportunities. The Personiv acquisition will add SMB sector clients and offer opportunities to cross-sell automation, analytics and other managed services to SMB clients.

We initiate with Buy and a TP of ₹2,700 at 20x on Dec'23 EPS, considering near-term demand tailwinds, overall execution capabilities of the company, steady cash generation and prospects of a 16.6 per cent profit CAGR over FY21-24.

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