eClerx Services hits 20% upper circuit as Q1 net rises 30% YoY to Rs 52 cr

Analysts at ICICI Securities expect the company to witness a gradual improvement in revenues in the coming quarters.
Shares of eClerx Services were frozen at 20 per cent upper circuit band of Rs 620.50 apiece on the BSE on Thursday after the company reported steady numbers for the quarter ended June 2020 (Q1FY21). The firm posted a 30 per cent year-on-year (YoY) rise in its consolidated net profit at Rs 51.8 crore against Rs 39.8 crore in the corresponding quarter of the previous fiscal. 

Operating revenue for the quarter ended June 30, 2020, was Rs 336.6 crore, down 5.1 per cent YoY against Rs 354.7 crore in the corresponding period last year. In US dollar terms, operating revenue decreased by 11.9 per cent to $44.8 million as compared to $50.9 million in the corresponding period last year. Total revenue including other income for the period came in at Rs 348.1 crore, down 4.1 per cent YoY. 

Earnings before interest and taxes (EBIT) for the quarter under review increased by 35.5 per cent YoY. Further, the total delivery headcount as of June 30, 2020 stood at 8,510 – a decrease of 8 per cent YoY, the company said in its press release

 
Analysts at ICICI Securities expect the company to witness a gradual improvement in revenues in the coming quarters mainly led by improved deal wins and stabilisation of CLX revenues. 

"In addition, despite cost pressure, we expect margins to improve in FY21E led by cost rationalisation and improved revenue growth. However, revenues have been volatile in the past due to project roll offs and automation of business. Further, eClerx’ exposure to travel, retail, and luxury retail segment keep us cautious on the stock. Hence, we maintain our HOLD rating with a revised target price of Rs 570 (9x FY22E EPS)," the brokerage said in a result review note. 

Edelweiss Securities, on the other hand, notes that eClerx is one of the few companies to have gone ahead with wage hikes and performance bonuses despite revenue contraction. This along with the return-to-office costs may keep margins remain volatile over the next couple of quarters, although it would improve over the medium term. 

"Besides, the improving environment is likely to drive up revenue going ahead while continued cost control would assist earnings growth," it said. The brokerage has maintained a "BUY" rating on the stock with the revised target price of Rs 1,075 from Rs 767 earlier. 


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