eClerx Services has plans to expand in Australia and Canada: Priyadarshan Mundhra, Co-founder & ED

Priyadarshan Mundhra, Co-founder and Executive Director, eClerx Services Limited, talks about Q3FY22 numbers, growth drivers, margins, latest NASSCOM report on IT industry revenue growth, employability in the sector, acquisition plans for FY23, pricing, digital transformation among others during an exclusive interview with Swati Khandelwal, Zee Business.

Edited Excerpts:

Q: The company's revenue has been excellent with a near 42% growth in Q3FY22. What has been the key revenue growth drivers and is it sustainable?

A: There are two to three main drivers of revenue growth.

(i) In the last two to three years, the company's effort has been to focus more on its specialised services, develop them and enhance their appeal by adding analytics and automation to them for the clients. So, the product development work that we have been doing for the last two to three years is benefitting us now, as you have seen in the results and the growth is very strong.

(ii) In the western market, especially in the US, the labour markets are very tight and getting the right skill is not always easy, so this has benefitted the offshoring companies like us.

(iii) During COVID, all of our clients have to work outside the office and they realised 

that many such tasks, which they thought could be done only in the office, can be done effectively outside the office. The realisation has provided an impetus to offshoring and we are its beneficiary.

So, I think these are the main two-three reasons for the growth and I believe that there are opportunities for growth in the coming years as well for the industry including us,

Q: Margin has also been largely unhurt, rather gain has happened over time with near 2.4% gain. What led to this increase and what's your outlook for the same?

A: I will talk about two to three factors:

(i) Clients have turned more comfortable with offshoring, so, our business mix Onshore Vs Offshore has tilted a bit towards offshore, incrementally. The margins remain better in the case of the offshore and it has benefitted us blended basis.

(ii) At the COVID times, some of the general expenses like travel and office-related expenses were saved, so, we also got the benefits of the same in the margins.

(iii) Since more of our new sales come in the focus services area and our delivery is more efficient in those areas, so, we have more opportunities to capture margin in the segment.

So, these were the main two to three reasons that led to growth in the margins. Generally, our guidance range for EBITDA remains between 28% to 32% and we are at the upper end of the same range, I think that we will get a chance to maintain the margins if the growth remains strong.

Q: As per the latest NASSCOM report, the IT industry revenue growth run-rate is expected to be 11-14% till FY26 to reach about $300-350 billion revenue. How do you see this from the industry point of view and what pivotal role your company, eClerx, will play in this growth journey?

A: As far as the industry is concerned, the first focus of clients is to automate the work that can be automated because they get the benefits of both, the cost and quality, in it. Therefore, I believe, the demand for technology skills will grow steadily over the coming years and that will help all the IT companies present in India. In the case of the works that can't be automated, the clients think about sourcing the best quality at the lowest cost and it is the place, where offshore and business process companies, like us, are benefitted. So because the client's approach is to automate whatever you can and reduce cost for whatever is left. I think this approach will benefit the Indian IT and Indian BPO industry. As you talked about the NASSCOM's optimistic forecast for the next three to five years, I think, it is right.

As far as our company is concerned, I expect that the attention we are making in the focus service areas has a good scope of demand - which is quite large - and if our execution remains good then there is no other reason that can give a pause to our good growth over the next three to five years.

Q: In the NASSCOM conference, there was also a mention of the IT industry has been known for giving high-quality employment, especially now in the digital segment. However, currently, the whole industry is facing the attrition problem due to a lack of specialised skills here. How do you see eClerx in reducing this gap as you have had partnered with NASSCOM Foundation before?  

A: As far as talent is concerned, we have two to three initiatives on the front like we give importance to training as when we work for the clients - for that like you said the ready skills are not available for the same in India - so we have strong investment for training, both, earlier it used to be a classroom-led training and now training is mostly done online and from the digital platform. So, it gives us the advantage that for raw skills we can train and hire and for the necessary last-mile skills cab be imparted from our training. In respect of the same, we have tied up with NASSCOM and have developed certain courses through which when they will graduate will be easily absorbed in companies like us.

In the case of laterals, as you said the market has been quite tight in the last six months and attrition was quite high across the industry, but we have seen slight cooling off in the last one to two months in that attrition. So, going forward, I believe that averages will be attained in line with a longer-term in terms of attrition.

Q: Going ahead, what are your acquisition plans for FY23 and what are the requirements and gaps that should be filled through a good opportunity in the M&A space and what are the verticals that you are eyeing at present?

A: I believe that acquisition is an important source of growth in our industry, therefore, we keep an eye on it. And, you would have seen that we acquired a company named Personiv in December 2020 and it is performing well for us. For us, the main criterion is that the company should work with the large corporate clients, as we do and their work and relationship should be long-term and they do not have short-term relationships with the clients. So, if they have such a sticky value add with the clients, then it remains attractive to us. We believe that through our existing clients and sales platform, we can assist the small companies as we did with Personiv and this leads to additional value creation. So, we will continue to see forward towards the acquisition opportunities but we have some filter criterion for the same and completion of the acquisition needs lining up of many things like valuation, terms, management fit among others. So, we have to have a look at all these factors but as there are a number of assets, hopefully, from time to time, we will continue to get good opportunities.

Q: With the ever-increasing digital demand are you planning to increase pricing for your offerings?

A: I would like to say that amid the cost inflation or wage inflation we are quite hopeful that we will be able to pass on it beyond that there is a huge competition in the market, so, we do not have an intention to increase the prices at this stage. But I think, the cost inflation that is happening in India will be passed on.

Q: As the global Diaspora of digital transformation is happening across the world. So, are you planning to enter into any new geography or segments going ahead for FY23?

A: Currently, 70% of our revenue comes from the US and around 25% comes from Europe and they will remain as big markets for us. In terms of other opportunities, we have more opportunities, especially in the English speaking geographies, if you look beyond the US and Europe then the natural targets are Canada and Australia and we have established our subsidiaries in both the countries and are also working a bit there. We expect that our work will grow a bit soon but, honestly, America will always remain the biggest market for companies like the US and within Europe, I think, the UK followed by the continent. So, that model is not going to change soon but incremental opportunities should be available in Australia and Canada.

Q: You have talked about the acquisition of Personiv, an outsourcing provider with 35+ years of experience and presence in the US, India and Philippines. What kind of incremental revenue are you getting from it? Also, update us about the kind of acquisition in terms of space that you would like to have and what would be its ticket size for that acquisition? 

A: At the time of acquisition of Personiv, we disclosed that it had an annualised revenue of around $30 million and more than a year has passed since then and the company has grown from that level to date, thus its revenue contribution is slightly more compared to that. If you will have a look at our last three acquisitions, namely Personiv CLX and Agilyst Inc, then coincidentally, at the time of deal closure all of them were 10-15% of our revenue. In a way, I think, they are a sweet spot for us, which means the asset is big enough that it is meaningful for us and bring a difference in the trajectory. At the same time, it is not such a big company or deal on which we will have to spend the entire business. So, the size is a comfortable size for us and if it is smaller than it then it doesn't make any sense. I think, the acquisition is an art of possibility, so, there is a need to evaluate the available deals with an open mind. But in the past, they should be in around 10-15% of our revenue.

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