eClerx Q4FY17 Concall Summary


Initiatives in FY17

  •  Implemented processes and systems to encourage cross-vertical selling to clients, which has started to show results with clients becoming buyers of multi-vertical services
  • Centralized client marketing and introduced targeted return metrics to drive better coordinated client outreach
  • Opened first US delivery center in North Carolina, office in Austin, a center for Analytics business and created Canadian subsidiary
  • Shifted focus from managing data to extracting value and insights for clients
  • Focused on Robotics Process Automation by training more than 1,500 of employees and implementation of Robotics platform with clients
  • Established an advisory group retaining key senior ex-clients as strategic advisors
  • Hired a new managing principal in US to run Financial Markets vertical

Financial highlights

eClerx Q4FY17 Financial Summary.png
  • INR Operating Revenue for Q4 FY17 increased by 2%
  • For FY17, USD Operating Revenues declined by 2.6% while INR Operating Revenue increased by 1% compared to FY16. However, new contracts and orders have remained similar to FY16
  • The decline in revenues was primarily due to:
    • Lower economic growth in client markets
    • Uncertain geopolitical climate in major client countries favoring anti-globalization
    • Weakening of few client currencies
    • Clients preferring cost reduction through automation instead of pure outsourcing
  • Although it was stated at the end of Q3 that there would be problems in Q1FY18 due to roll-off, now due to reshoring, the problems are expected to be there in Q2FY18 (0-5% q-o-q decline). And the company expects the growth in FY18 to be relatively soft
  • Forward hedge book stood at $132.5mn, maintained at 2.8x Revenue, with an average strike price of Rs.72.1/dollar(worsened by Rs.30ps/dollar) and the company expects to convert $104mn worth operating revenue at Rs.72/dollar in FY18
eClerx Q4FY17 Operational Performance.png

Sub segment trends

  • Digital is by far the biggest business for the compared followed by Financial Services at a distance and then Cables at a distance
  • Compared to Digital and Cables, Telecom, the new sales for FY17 have been the strongest in Financial Services segment, which is a very positive sign
  • The pipeline looks strongest in the last 4-5 quarters led by Financial Services and Digital Verticals.
  • Capital markets contributes a meaningful part of the revenue and FY17 has been a fairly good year in terms of growth.  The clients have started to move from pure headcount related activities to more managed service offerings. The company expects a good demand pickup compared to past 2 years
  • Within the digital, the company would focus on Analytics an Creative Production going forward
  • With lot of M&A action happening in the Cable industry, the growth might be slow in Q1FY18, however, in the longer term, the company expects to do well in Cables as well. The company sees demand in the industry due to these trends – optimizing customer experience, revenue assurance and technical operations
  • The geographical share of North America has remained steady at ~67%, but USD concentration is expected to increase in FY18 as one of the top 5 clients moved its payments from Euro to USD in Q4


  • The INR operating margin for FY17 stood at 31.4% declining by 90bps compared to FY16 on account of increased employee cost for delivery on a disproportionate basis
  • The company wishes to improve its on-shore delivery capabilities over next few quarters from a very small base currently, hence the employee costs may remain at an elevated level. Also, there would be regular wage hikes effective from April 1st in higher single digit for Indian employees and lower single digit for onshore staff. However, the company expects to maintain INR margin >30% in FY18
  • There was a minor decrease in Selling & Distribution cost due to realignment to variable pay structure, rest all the expense items have remained flat on q-o-q basis
  • Rs.6.4 crore was spent on CSR activities in FY17 and the allocation is likely to increase to Rs.7.4 crore in FY18
  • PAT for FY17 increased by 4% compared to FY16 primarily due to increase in deferred tax assets
  • Other income in FY17 has roughly halved compared to FY16 due to appreciation of INR against USD and Euro in the latter part of the year
  • Onsite revenues are in higher single digit percentage compared to total revenue and for every 1% movement in USD/INR rate, there would be a change of 20bps in margins
  • Capital Expenditure has declined for FY17, and is expected to decrease further in the next few quarter due to sufficient capacity in off-shore centers
  • Effective tax rate for FY17 was lower than usual level at ~19% mainly due to recognition of various tax credits. The effective tax rate is likely to go up to 25% in FY18 as the MAT balance has been exhausted

Business Metrics:

eClerx Q4FY17 Business Metrcis.png
  • Days of Sales Outstanding stood at 85 days at the end of FY17 due to one off factors, but it is expected to revert back to historical boundary of 80 days

Employee Metrics

  • Employee Strength has decreased marginally to 8,737 with major decrease coming from rationalization of support services
  • Sales and Business Development staff decreased marginally to 78
  • India attrition has increased by 110bps to 34.8% in FY17 compared to FY16, however the attrition was desirable due to decrease in revenues
  • Staff utilization stood at 78% which is highest in last 5 years due to scale and automation benefits achieved in customer operations in Cable vertical. The utilization is likely to be adversely impacted in FY 18 due to pending roll-offs in Q2

Clients Related

  • Top-5 clients contribute to ~60% of the revenue while Top-10 clients contribute to ~70% of the revenue
  • Client counts in the top two buckets have increased and decreased by 1 each due to downward movement of a top 10 client
  • The decline in half million clients bucket is due to completion of certain projects in digital vertical
  • The revenues from top-10 clients and emerging clients in FY17 have declined by 4.6% and increased by 8.5% respectively on an y-o-y constant currency basis
  • In FY18, the company expects to see better growth in revenue emerging clients than top-5 clients

About acquisitions

  • With many large players and a tough revenue environment, the company sees good opportunities to buy out small players in the $10mn, $20mn, $30mn revenue zone. However, there are no concrete plans as of now

Buyback and Dividends

  • The company, much ahead of its peers made its largest buyback in FY17  along with ~77,000 shares bought by ESOP trust, both of which contributed to y-o-y increase in EPS by ~70paise
  • With the cash and equivalent balance standing at Rs.606crore at the end of FY17, the company has recommended a token dividend of Rs.1/share for FY17 and will explore ways to maintain historical payout ratios(50% of cumulative PAT) over medium-term