Looking for fundamental growth story? Pay attention to Eclerx Services

27-05-2014 • About Eclerx Services ($ECLERX) • By InTwits

Eclerx Services is an attractive growth stock in BPO/KPO industry. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.

Growth story

Eclerx Services showed fast growth in the last financial year. Eclerx Services's revenue surged on 27.3% in FY2014. In addition to revenue Eclerx Services also keeps delivering EBITDA growth. It was 38.3% in FY2014

In the last 3 years the company showed fast revenue growth of 35.0% from FY2011 to FY2014 annually. EBITDA surged on 22.7% from FY2011 to FY2014 annually.

Eclerx Services ($ECLERX) financials for the last 5 years

mln. INR	FY2010	FY2011	FY2012	FY2013	FY2014
Revenue	11,065	3,421	4,729	6,605	8,410
Revenue growth, %		-69.1%	38.2%	39.7%	27.3%
SG&A, %
EBITDA	1,007	1,913	1,909	2,557	3,536
EBITDA growth, %		89.9%	-0.2%	33.9%	38.3%
EBITDA margin, %	9.10%	55.9%	40.4%	38.7%	42.0%
Net Income	735	1,224	1,598	1,716	2,557
Net Income margin, %	6.65%	35.8%	33.8%	26.0%	30.4%

CAPEX	90	240	251	267	214
CAPEX/Revenue, %	0.809%	7.02%	5.31%	4.05%	2.55%
Debt	0	0	0	0	0
Cash	321	186	1,348	1,209	2,387
Net Debt/EBITDA	-0.3x	-0.1x	-0.7x	-0.5x	-0.7x

ROIC, %	51.4%	83.3%	61.1%	58.7%	62.4%
ROE, %	40.2%	55.9%	55.0%	43.9%	49.8%

Profitability and return on investment

Margin expansion supported EBITDA growth. Eclerx Services showed EBITDA margin growth of 3.30 pp from 38.7% to 42% in FY2014. In the longer period Eclerx Services's EBITDA margin dropped on 13.9 pp from 55.9% in FY2011 to 42% in FY2014.

Eclerx Services shows attractive ROIC at 62.4% for the last 12 months which assumes stable development model. Three years ago it was considerably higher at 83.3%. It's average ROIC for the last three years was 60.8%.

Net Income margin surged on 4.40 pp from 26% to 30.4% in FY2014. In the last 3 years the company showed big decline in Net Income margin of 5.40 pp from 35.8% in FY2011 to 30.4% in FY2014.

Eclerx Services operates at ROE of 49.8%. For the last three years the average ROE was 49.6%.

Capital expenditures (CAPEX)

In FY2014 the company had CAPEX/Revenue of 2.55%. Eclerx Services's CAPEX/Revenue dropped on 4.47 pp from 7.02% in FY2011 to 2.55% in FY2014. It's average level of CAPEX/Revenue for the last three years was 3.97%.

Leverage (Debt)

The company has negative net debt at -0.7x Net Debt/EBITDA - at the same time with high growth. In the last 3 years Eclerx Services's leverage surged on 0.58x from -0.10x in FY2011 to -0.67x in FY2014.

Valuation vs. comparable companies

The market closed today at 8.4x EV/EBITDA for Eclerx Services which is 47.2% lower than 16.0x BPO/KPO peer group avearge calculated on the basis of 18 companies. The company trades at 12.6x P/E which is 28.9% lower than 17.7x BPO/KPO industry avearge calculated based on 3 companies.

For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. At the end of trading day today Eclerx Services traded at 9.0x EV/(EBITDA-CAPEX) which is 628% higher than 1.2x BPO/KPO peer group avearge calculated on the basis of 3 companies.

Peers in BPO/KPO

Below we provide Eclerx Services benchmarking against other companies in BPO/KPO industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Firstsource Solutions ($FSL)		-42.4%	12.1%	25.0%	10.2%

Median (1 company)		-42.4%	12.1%	25.0%	10.2%
Eclerx Services ($ECLERX)		-69.1%	38.2%	39.7%	27.3%

Top companies by EBITDA margin, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Firstsource Solutions ($FSL)	8.0%	14.5%	8.7%	9.9%	11.7%

Median (1 company)	34.4%	14.5%	8.7%	9.9%	11.7%
Eclerx Services ($ECLERX)	9.1%	55.9%	40.4%	38.7%	42.0%

Top companies by CAPEX/Revenue, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Firstsource Solutions ($FSL)	1.6%	2.1%	2.3%	1.4%	1.2%

Median (1 company)	59.2%	2.1%	2.3%	1.4%	1.2%
Eclerx Services ($ECLERX)	0.8%	7.0%	5.3%	4.0%	2.5%

Top companies by ROIC, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Firstsource Solutions ($FSL)	6.8%	7.0%	4.0%	7.0%	9.0%
Excel Infoways ($EXCELINFO)	18.7%	11.9%	1.7%	2.6%

Median (2 companies)	12.8%	9.5%	2.8%	4.8%	9.0%
Eclerx Services ($ECLERX)	51.4%	83.3%	61.1%	58.7%	62.4%

Top companies by Net Debt / EBITDA

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Firstsource Solutions ($FSL)	4.5x	4.3x	4.2x	4.2x	2.8x
Excel Infoways ($EXCELINFO)	-0.1x	-0.0x	-0.2x	1.3x

Median (2 companies)	2.2x	2.1x	2.0x	2.8x	2.8x
Eclerx Services ($ECLERX)	-0.3x	-0.1x	-0.7x	-0.5x	-0.7x

Eclerx Services stock price chart

Eclerx Services financials

mln.	FY2010	FY2011	FY2012

Revenue	11,065	3,421	4,729
EBITDA	1,007	1,913	1,909
Net income	735.4	1,224	1,598
CAPEX	89.510	240.0	251.3
Debt	0.000	0.000	0.000
Cash	320.6	185.7	1,348

About Eclerx Services

eClerx Services Limited provides data analytics and process outsourcing services in the Asia Pacific, the United Kingdom, the United States, and Europe. The company offers reference data management services, such as product reference data, client on-boarding and data management, taxonomy data, and know your customer services; and risk and control services, including document risk review, operational risk reporting, and reconciliation services. It also provides middle office services, such as trade support, trade affirmation and validation, position reconciliation, and reporting and control services; back office services, including confirmations, settlements, asset servicing, tax operations, and performance reporting services; and finance and accounting services comprising product and expense line control, billing and brokerage, and support services. In addition, the company provides ancillary services, such as systems and data migration, technical fund on-boarding, regulatory and compliance support, and research and analysis services; and supports various asset class coverage services, including cash securities, listed and OTC derivatives, foreign exchange, and commodities. Further, it offers commerce and content services comprising content and digital asset management, search services and demand generation, content migration, and customer experience and quality assurance services; data management services, such as customer and product data, supplier and partner data, sales and customer care data, data integration, data stewardship/data quality/data governance, and master data management services; analytics, insights, and reporting services; and quality and monitoring, technical, and work order accuracy services. It serves financial services, broadband, cable and telecom, ecommerce and retail, high tech, industrial manufacturing and distribution, software, media and entertainment, and travel companies. The company was founded in 2000 and is based in Mumbai, India.