scorecardresearchBonanza Portfolio bullish on eClerx despite sharp fall in a year; sees 21% upside — key reasons

Bonanza Portfolio bullish on eClerx despite sharp fall in a year; sees 21% upside — key reasons

Updated: 06 Jan 2023, 07:12 PM IST
TL;DR.
The rapidly growing Indian KPO industry will boost eClerx's revenue, as the company is a niche player in the space and is well positioned to benefit from the growth.
Earlier, in November, another domestic brokerage firm, ICICI Securities, also maintained its buy call on the stock with a target price of  <span class='webrupee'>₹</span>1,640 apiece.

Earlier, in November, another domestic brokerage firm, ICICI Securities, also maintained its buy call on the stock with a target price of 1,640 apiece.

Shares of eClerx Services have dropped steadily from their 52-week high of 1,980 apiece to the current market price of 1,269, correcting by almost 35 percent. In the last one year, the stock has lost 31.14 percent of its value and in the December month alone, it was down 11.67 percent.

However, domestic brokerage firm Bonanza Portfolio is bullish on the stock, citing a strong deal pipeline. The brokerage initiated coverage on the stock with a target price of 1,540/share, which reflects a potential upside of 21.35 percent from the stock's previous closing price.

eClerx Services Limited provides critical business operations services to clients, including several of the world's leading companies across financial services, cable and telecommunications, and more.

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Stock price chart of eClerx Services.

The brokerage is positive on the stock due to a better outlook on growth rate, resilient profitability, undemanding valuation, and balance sheet strength. The company's growth momentum has returned in the last two years, it added.

The rapidly growing Indian KPO industry will boost eClerx's revenue, as the company is a niche player in the space and is well positioned to benefit from the growth, the brokerage stated.

eClerx helps clients solve business problems through a cost-effective combination of people, process, and technology. Domain expertise along with robust execution is eClerx’s unique value proposition, it highlighted. 

The company's cash generation has been very healthy over the years since CAPEX has been much lower compared to its cash flow from operations.

Based on its capital allocation policy, eClerx has been declaring healthy pay-outs (lower dividends in the years when it has the intention to do buybacks), according to the brokerage. 

The company reported flattish revenue growth through FY16–20 due to challenges in top accounts, increased automation, and the shift towards captive BPOs and KPOs.

Management has started with multiple revenue and profitability levers in the company over the last three years, such as focus on developing new platforms, new client wins, and plug-in acquisitions.

The management believes that the top 10 accounts have stabilized. The pipeline is strong, ensuring the company's medium- to long-term revenue growth, said the brokerage. 

Since FY17, the company has completed five buybacks, including the ongoing latest buyback announced in FY22, for a total of 3.6 billion (including taxes). The company has arrived at a final buyback price of Rs. 1,750 apiece.

Earlier, in November, another domestic brokerage firm, ICICI Securities, also maintained its "buy" call on the stock with a target price of 1,640 apiece.

The brokerage said that traction in customer care, RPA, analytics & content development, cross-sell and up-sell to Personiv clients will drive growth. It also said lower roll-offs, improving deal wins, and a revival in growth are expected to drive revenues.

However, ICICI outlined some of the key risks for the stock, including lower-than-expected revenues and lower-than-expected margins.

8 analysts polled by MintGenie on average have a 'strong buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 06 Jan 2023, 07:12 PM IST