The stock of eClerx Services has been on an upswing over the past one month, especially over the last couple of weeks, when it has rallied more than 15 per cent.
On Wednesday, there was once again a positive reaction from the markets to the news that the company is set to acquire, through its UK-based subsidiary, CLX Europe — a digital services firm that caters to luxury brands and major retailers.
The company is set to spend €25 million for the acquisition. CLX Europe reported revenues of €19.4 million and a profit of €0.5 million in CY2014. So eClerx is paying about 1.3 times its last year earnings, which is not too expensive.
This acquisition will expand the European footprint for the company, especially in countries such as Italy, Germany and the UK. Europe accounts for 18 per cent of eClerx’s revenues currently.
With cash reserves of over Rs 416 crore, the company will fund the acquisition from its internal accruals itself, thus incurring no debt.
Even after the acquisition, eClerx would still have substantial cash on its balance sheet.
The stock trades at 20 times its trailing 12-month earnings, which is cheaper than many mid-tier IT peers. While revenues have been growing steadily for the company, profits have been lower for the first nine months of FY15 due to substantially increased employee expenses and higher depreciation costs.