Dolat Capital is bearish on eClerx Services and has recommended reduce rating on the stock with a target of Rs 1111 in its May 20, 2014 research report.
"Eclerx reported results below expectations with a 0.6 percent revenue decline for the quarter at $35.5mn. Eclerx has reported flat constant currency revenue growth as it continues to witness weakness in SMS and Cable & Telecom business segments. The trend in the SMS segment is improving but deals are smaller and erratic leading to lumpiness in the revenue momentum. Cable & Telecom business is also witnessing due to regulatory hurdles and consolidation in some of the key clients accounts. OPM improved by 230bps QQ as it had lower variable linked compensation pay-offs during the quarter on sequential basis. The company has indicated low to mid thirties OPM for FY15 given the wage hike of 11 percent for its workforce and the current levels of USD/Rs versus the benefits of 11 percent Rs depreciation it gained from in FY14. We believe the margin maintenance would remain a key concern given the weak demand environment and several client specific challenges."
"Eclerx has reported Q4FY14 numbers lower than our estimates with a flat constant currency revenue growth as it continues to witness weakness in SMS and Cable & Telecom business segments. . It has indicated moderation in growth, no scanned inorganic opportunity and pressure in the OPM which would mean sustained challenges for FY15 on all fronts. We believe sustained uncertainty in the business along with, likely onsite delivery inclusion and sharp unfavorable Fx movement remains a risk and would restrict its financial performance. We maintain our Underperform rating on the stock with a TP of Rs 1111 (implying 12x FY16E)," says Dolat Capital research report.
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