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    eClerx Services Q1 FY26 earnings call

    ECLERXGood
    Services·25 Jul 2025
    Management Summary

    eClerx delivered a strong start to FY26 with robust double-digit YoY revenue and profit growth despite a volatile macroeconomic environment. While margins faced seasonal pressure from annual wage hikes, the company successfully offset some impact through offshore growth and pyramid optimization. Management remains cautiously optimistic, maintaining its full-year margin guidance and expecting sequential growth in Q2.

    Highlights

    8

    • Operating revenue reached INR 9,346 million, up 19.5% YoY and 4% QoQ

    • EBITDA stood at INR 2,346 million with a margin of 24.8%, down 250bps QoQ due to wage hikes

    • PAT for the quarter was INR 1,417 million, representing a 15% margin and nearly 27% YoY growth

    • New deal wins (ACV) for Q1 were $32 million, with a full-year target exceeding $140 million

    • Analytics and Automation segment grew 6% QoQ, outpacing the firm's overall growth rate

    • Net operating cash flow was significantly lower at INR 223 million (9.5% EBITDA conversion) due to one-time gratuity payments and higher DSO

    • DSO increased to 86 days from 80 days due to system changes at large clients

    • Upskilled 8,000 employees (40% of workforce) in Gen AI through collaboration with Technical University of Munich

    Concerns

    1

    • Fashion and Luxury Segment Weakness

    Key financials

    Single quarter

    06 metrics
    1. 01Operating Revenue9,346 Mn+19.5%YoY
    2. 02EBITDA2,346 Mn+25.3%YoY
    3. 03EBITDA Margin24.8%
    4. 04PAT1,417 Mn+27%YoY
    5. 05DSO86 days

    Segment breakdown

    Analytics and Automation
    6% QoQ Growth
    BFSI
    — Performance
    Fashion and Luxury
    — Performance
    List

    Guidance & targets

    4
    CategoryTargetPriority
    Margin
    EBITDA Margin Band
    24% to 28%
    		High
    Revenue
    Full Year ACV
    >$140 million
    		Medium
    Revenue
    Sequential Revenue Growth
    Positive
    		High
    Other
    Receivable Days (DSO)
    80 to 82
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Fashion and Luxury Segment Weakness

    Segment remains weak due to US underperformance, China weakness, and Euro appreciation. — Management acknowledged

    high

    Macroeconomic Volatility

    Management cited 'macroeconomic uncertainties' as a reason for cautious optimism and delayed decision-making by some clients. — Both acknowledged

    medium

    Working Capital Stretch

    DSO increased to 86 days; management expects a reversal to 80-82 days but it impacted Q1 cash flows. — Analyst acknowledged

    medium

    Areas of Evasion(2)

    • Specific percentage of revenue from GCCs
    • Specific Capex numbers for the upcoming year

    Q&A highlights

    3

    “roughly about 250 bps has come through because of wage hikes, and about 20 has come because of the new delivery centers... we were able to recoup margin because of the strong growth, especially offshore”

    Quantifies the specific impact of seasonal wage hikes and how the company is defending margins through structural shifts.

    asked by Mihir Manohar, Carnelian Capital

    2 min read5 chapters

    Detailed Narrative

    01

    Robust Revenue Momentum Amidst Macro Headwinds

    eClerx reported a strong Q1 FY26 with operating revenue of INR 9,346 million, representing a 19.5% YoY increase. Growth was broad-based across most verticals, with BFSI and CMT showing significant traction. The company also reported $32 million in new deal wins for the quarter, maintaining a positive trajectory despite some delays in client decision-making.

    02

    Margin Resilience Through Structural Optimization

    Despite a 250bps headwind from annual wage hikes and a 20bps impact from new delivery centers in Lima and Cairo, eClerx maintained an EBITDA margin of 24.8%. This was achieved by leveraging strong top-line growth in offshore segments like BFSI and CMT, allowing the company to hire at the 'bottom of the pyramid' and optimize overall wage costs.

    03

    Working Capital and Cash Flow Anomalies

    Net operating cash flow for the quarter was unusually low at INR 223 million, primarily due to a one-time📎 large contribution to the gratuity fund and an increase in DSO from 80 to 86 days. Management attributed the DSO spike to system and process changes at large clients, emphasizing that there is no risk to collections and expecting a return to the 80-82 day range.

    04

    Strategic Pivot to AI and Upskilling

    The company has made significant strides in its AI strategy, upskilling 8,000 employees (40% of the workforce) in Gen AI. Management is embedding Gen AI into its productized services like Compliance Manager and QA 360 to drive efficiency and effectiveness. They also highlighted a vision to drive a 25% productivity gain in the technology team by leveraging AI code generation tools.

    05

    Vertical Performance Divergence

    While BFSI, Hi-Tech, and CMT segments grew strongly, the Fashion and Luxury segment remains a point of concern. This segment continues to underperform due to weakness in the U.S. and China markets and the appreciation of the Euro. Management remains cautious on this specific vertical while seeing positive momentum across the rest of the portfolio.

    This is an AI-generated summary of a publicly available earnings call transcript.