ECLERX - eClerx Services Limited Share Price

Management's outlook for eClerx reflects cautious optimism, emphasizing growth drivers, strategic investments, and margin stability. Key highlights include:

Growth Drivers:

• Digital & Financial Markets: Sequential revenue growth (1.8% QoQ) driven by Analytics & Automation (A&A, up 9% QoQ), non-top 10 client expansion, and recovery in fashion/luxury sectors.
• Customer Operations: Momentum in new client acquisition and cross-selling Care services across verticals.
• Geo-Diversification: Launching operations in Peru (Q4) and expanding Manila delivery to mitigate concentration risks and capture new markets.

Strategic Initiatives:

• Technology & AI: Continued traction in GenAI, data engineering, and productized services, with ISO 42001 certification highlighting AI governance strengths.
• Deal Pipeline: ACV of $33 million (multi-quarter high), supported by discretionary spending recovery and cross-selling efforts.

Margins & Costs:

• EBITDA Guidance: Maintained at 24"“28%, balancing new facility costs (Mohali, Pune, Mumbai) and lower utilization. Q4 margins may face ~50 bps pressure from facility rollouts.
• Investments: Ongoing in sales, delivery capacity, and technology, offsetting temporary cost impacts.

Sector-Specific Trends:

• Challenges: Telecom/cable sector pressure (subscriber retention focus) and soft discretionary spending in some verticals.
• Strength: Banking, hi-tech, and retail sectors show resilience, with compliance, onshore delivery, and transformation work driving Financial Markets growth.

Operational Metrics:

• Headcount: Increased by 400 (18,642 total), with attrition at 19%.
• Utilization: Normalized to long-term averages post-Q2 one-offs.

Management remains focused on scaling technology-integrated services, leveraging cross-selling, and sustaining growth while managing macroeconomic and sectoral headwinds.

Question 1:
Sandeep Shah (Equirus Securities): "In last conference call we said that the roll-offs have started in Q2 which will have a full impact in Q3. So, can you give us some update whether this roll-offs may continue in Q4 at a higher or lower level? And that may give us confidence in terms of fourth quarter growth could be better because the ACV deals as well as employee addition has been good?"

Answer Summary:
Roll-offs decreased in Q3 compared to Q2, leading to expectations of improved Q4 performance. Employee additions and deal momentum (ACV of $33 million) support growth confidence.

Question 2:
Sandeep Shah (Equirus Securities): "Do you expect a further margin downside because of the new facility which has been commenced... And when do you believe those costs would normalize?"

Answer Summary:
Margins may face a slight G&A increase (10"“20 bps) in Q4 due to new facilities, offset by reduced temporary facility costs. Full normalization depends on revenue growth, likely 1"“2 quarters away. Depreciation impact (~50 bps) will persist below EBITDA.

Question 3:
Sandeep Shah (Equirus Securities): "Kapil sir... what is our experience [with GenAI]? And is it possible to quantify GenAI related revenue scale up...?"

Answer Summary:
GenAI is integrated into services to enhance efficiency and client value but hasn't directly driven significant monetization. Focus remains on combining domain expertise with technology for pipeline growth.

Question 4:
Shradha Agrawal (AMSEC): "If I look at the growth, the growth has come through largely from the non-top 10 clients... Was the roll-offs impact felt higher in these top 5, top10 accounts?"

Answer Summary:
No client-specific weakness in top 10. Growth variations reflect portfolio dynamics and cross-sell efforts. Non-top 10 growth aligns with strategic investments and market resonance.

Question 5:
Shradha Agrawal (AMSEC): "On the ACV of new deals... what drove this strong ACV win? What is the pipeline looking like...?"

Answer Summary:
ACV growth ($33 million) driven by discretionary spend recovery, cross-industry wins (Financial Markets, Digital), and technology-enabled solutions. Pipeline remains healthy, with cautious optimism.

Question 6:
Sandeep Shah (Equirus Securities): "Do you believe this trend [ACV growth] may continue... till we hit the peak?"

Answer Summary:
Cautious optimism due to healthy pipeline, tech-integrated services, and cross-sell progress. Investments in geo-diversification (Peru, Manila) and leadership hiring aim to sustain momentum.

Question 7:
Sandeep Shah (Equirus Securities): "DSO has increased... Do you believe it may normalize in Q4?"

Answer Summary:
DSO (83 days) impacted by manual invoicing processes. Efforts to strengthen governance and automation aim to reduce it, though consistency is uncertain.

Question 8:
Jasdeep Walia (Svan Investments): "How has GenAI impacted productivity...? What deflationary impact will AI have on sales?"

Answer Summary:
GenAI enhances service relevance and client value through efficiency and risk reduction, not direct productivity cuts. Focus on business outcomes (e.g., compliance, sales growth) offsets deflationary risks.

Question 9:
Rahul Jain (Dolat Capital): "How does onshore delivery mix reconcile with revenue contribution?"

Answer Summary:
Onshore staff (consulting roles) command higher billing rates versus offshore. Subcontracting is used judiciously for urgent needs, balancing costs and skill requirements.

Question 10:
Nitish Rege (Chryscapital): "Should we expect EBITDA margin improvement post-investment phase?"

Answer Summary:
Investments (new facilities, geo-expansion) will continue, keeping margins in the 24"“28% range. Operating leverage benefits may emerge medium-term but depend on growth sustainability.

Question 11:
Girish Pai (BOB Capital Markets): "Are clients' 2025 budgets showing optimism?"

Answer Summary:
Neutral-to-positive budget sentiment, with Financial Markets clients buoyed by strong results but cautious on policy shifts. GCC collaboration remains minimal but strategic.

Question 12:
Jalaj Manocha (Svan Investments): "Utilization has declined despite hiring. Is bench strength increasing?"

Answer Summary:
Q3 utilization aligns with long-term averages. Hiring ahead of demand aims to prevent growth cannibalization, not indicative of excess bench capacity.