SPA Securities has come out with report on eClerx Services IPO. The firm has advised to subscribe to the issue.
eClerx Services, which provides data analytics and customised process solutions to global enterprise clients, is entering the capital market with its IPO of equity shares of Rs 10 each for cash, at a price to be decided through a 100% book building process and aggregating to Rs 1,010 million.
The issue will open on December 4, 2007, and will close on December 7, 2007. The price band has been fixed between Rs 270 and Rs 315 per Equity Share.
SPA Securities report on eClerx Services IPO
Investment Highlights
* ESL has shown a CAGR of 59% in the topline; 120% in OPM & 131% in the bottomline in the last three years.
* Investment Rationale: Good growth in terms of revenues is seen since inception along with exceptional margins; ESL has the ability to originate & grow existing client relationship; Strong focus on knowledge management; Rapid expansion has been seen through acquisitions which shows the growth intention of the management; The list of active clients has grown from 2 in FY 04 to 21 in FY 07; ESL is planning to expand out of the American markets to European countries & India.
* Concerns are: Heavy client concentration; Unlikely continuity of higher margins enjoyed in the past; Currency exchange rate risk; Rising wage inflation.
* CRISIL has been assigned an “IPO Grade 3/5”indicating average fundamentals.
* Business strategies are: Growing the existing client relationships; Develop new client relationships; Add to the productized service offerings; Invest in people & delivery process; Strengthen capabilities through selective acquisitions.
* There has been a clear shift from the early days of outsourcing to India, when most of the offerings were low-end services, while over the years the industry has started offering higher end, customized services to clients.
Valuation
The stock is available at a P/E of 8x & 9x on the lower & upper price band respectively of its FY 08E EPS of Rs.36. The growths in revenues & margins have been outstanding. ESL has recently started acquiring businesses for its growth & expansion. Its P/E is one on the lower side while comparing it with industry & with the peers. The margins are likely to be impacted due to the increase in competition from large third party players in India, exchange rate movement & wage pressure.
ESL has plans of considering acquisitions in the medium term & will primarily look at companies having a strong client base or having specific domain expertise operating in US or West Europe, where they can further reduce cost by migrating service delivery offshore. Hence, we recommend “Subscribe” to the issue.
Source: Moneycontrol.com
Monday, December 3, 2007
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment