eClerx: Growth momentum to slow as clients are taking longer to finalise deals

MUMBAI: Mumbai headquartered knowledge process outsourcing player eClerx has demonstrated a strong double-digit revenue growth over the last six quarters. Retaining the momentum will however not be easy as the company has started facing delays in decision making from clients.

EClerx offers services to financial and capital market clients in the US and Europe. Some of these clients are under stress due to sluggish economic scenario in these regions over the past four years. “Cost reduction is the consistent theme across our businesses. Specialisation and speed are in demand along with offshore low cost execution,” noted the company in its latest quarterly report for investors.

As much as 93% of the company’s business is concentrated in the US and Europe. In addition, over three-fourth of the revenue comes from the top five accounts, which makes its growth vulnerable to the business situation of these clients.

“Most of our clients relationships are long term in nature. What we are witnessing for some time is that conversion of proposals into business is taking longer,” said PD Mundhra, executive director.

According to him the organic growth of the company has been slowing down over the past few quarters and is likely to remain sluggish for some more time. Nevertheless, the company added seven new clients in the December 2012 quarter on top of four additions in the previous quarter.

The company has also been keen on reducing client concentration. It fell to 78% in the December 2012 quarter from 86% a year ago. At the Thursday’s close of Rs 649.4, the company’s stock is valued at a trailing P/E of 12.5. This is on a higher side considering a P/E range of 8-10 for mid-tier IT players. The stock may face downward pressure in the near term until the company reports a better growth traction.