eClerx Services: Weak numbers

The stock price of business process management firm, eClerx Services, has fallen by over 12 per cent in the last month.

After the company’s June quarter results were announced, the stock started correcting, as the numbers were disappointing. During the first quarter of FY19, eClerx’s revenues from operations fell by 3 per cent Q-o-Q, while net profits declined 7 per cent. The numbers looked a tad better on a Y-o-Y basis though. EBITDA and net margins too dipped.

Of course, the company is witnessing a fair degree of traction with clients, as far as automation of processes goes. But as automation gathers pace, the management has indicated that the need for offshore manpower would come down. The traditional BPO business would face considerable challenges.

Though not strictly comparable, mid-tier IT services players have had a great run over the past one year.

Most stocks in the software space have been re-rated, as stock prices soared. In many cases earnings have revived considerably.

At more than 16 times its trailing 12-months earnings, eClerx trades at a PE multiple that is not inexpensive.

Given the tepid growth trajectory of its financials, the company would need substantial earnings growth to justify even present valuations.

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