Why eClerx Services is a company pick

In a people-centric business, client retention is very important. For companies in the Knowledge Process Outsourcing and Business Process Outsourcing segments this is bread and butter. Therefore, it is imperative that companies in this space have clients with long-term business contracts so as to maintain growth in revenue.

Founded in 2000 by PD Mundhra, Executive Director, eClerx is the first KPO firm to be listed on the Bombay Stock Exchange in 2007. A majority stake of 59.3% is held by the promoters, and the major venture capital stakeholder is Sequoia Capital that has a 9.59% stake through Nambe Investments Holdings.

For the year ended March 2011, eClerx reported revenue of Rs 342 crore against Rs 257 crore in the year-ago period. Operating profit rose 65% to Rs 149 crore.

eClerx Services, a Rs 2,226-crore listed BPO company, is also hungry for acquisitions. According to Rohitash Gupta, CFO at eClerx, the company is looking for targets with revenue up to $40 million in India or overseas.

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The company recently hired Mumbai-basedAvendus Capital to find a suitable target. "We are looking at targets with BPO or knowledge process outsourcing (KPO) companies in verticals like publishing, travel accounting, healthcare, LPO and hedge funds," he told Firstpost.

[caption id="attachment_15024" align="alignleft" width="380" caption="The company is looking at targets with BPO or KPO companies in publishing, travel accounting, healthcare, LPO and hedge funds.Getty Images"][/caption]

The zero-debt company has a cash and bank balance of Rs 179 crore. Gupta said that the company is seeking shareholders' approval to raise Rs 300 crore through equity and equity-linked instruments. This is an enabling resolution to ensure that the company is ready to look at any potential acquisition opportunity.

eClerx looked at six to seven potential targets in the past one year. "Some of them did not meet expectations in terms of quality of customers," Gupta added.

When we look at companies we examine the numbers wearing a few different hats, shareholder, PE players and employees. This list below is a good rule of thumb to examine eClerx, depending on the hat you feel like wearing.

If you are shareholders or retail investors looking to pick your stock look out for the following:

• Zero debt company, looking for equity dilution this year

• Revenue growth north of 30% for the second consecutive year

• Operating profit rose 65% to Rs 149 crore; margins in line with peer group

• Paid dividend of Rs 22.50 per equity share for 2010-11

Private Equity players / bankers /Consultants watch out for:

• The company seeks to acquire firms in the range of $20-40 million

• Hired Avendus Capital to find potential targets

• board approves enabling resolution to raise funds through equity or equity-linked instruments of up to Rs 300 crore

• The company has a cash and bank balance of Rs 179 crore

Employees take a look at this:

• 6,00,000 options granted to employees at an exercise price of Rs 690.26 per option

• The company is seeking approval for instituting a new ESOP

• Employee cost as a proportion of net sales rose to 43% from 42% earlier.

• Attrition increased to 38.7% from 30.5% earlier.