The primary objective of a share buyback programme is to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better P/E multiple.
In the past 10 months, the stock of knowledge and business process outsourcing services provider has underperformed the market by falling 23 per cent, as compared to 4 per cent rise in the S&P BSE Sensex till Thursday.
eClerx Services reported weak performance in the December quarter (Q3FY19). While revenue came at US$50.2 million (+0.4 per cent QoQ in USD terms, +0.7 per cent QoQ in CC terms), EBIT (earnings before interest tax) margin plunged by 529bps QoQ to an all-time low of 15.2 per cent. This was owing to increased investments in onshore delivery along with a one-time impact due to facility consolidation in Pune. Poor margin performance along with substantially lower other income led net profit to crack by a massive 44.3 per cent QoQ to Rs 39 crore.
According to analysts at Reliance Securities, eClerx’s business outlook on the revenue front is likely to improve in FY20E led by newer growth areas. However, incremental revenue growth is coming at a lower margin on account of higher onsite proportion and upfront investments required to be made, while revenue follows through with a lag. Thus, margins are likely to be under pressure, and the upside is also not likely to be substantial.
At 11:14 am, eClerx Services was trading 6 per cent higher at Rs 1,098 on the BSE. In comparison, the S&P BSE Sensex was down 0.19 per cent at 36,655 levels. A combined 58,274 equity shares changed hands on the counter on the BSE and NSE so far.