(By Mani) ExlService Holdings, Inc.
) continues to represent one of the better opportunities in the BPO sector with strong secular tailwinds, a healthy deal pipeline, low exposure to discretionary spend, below industry attrition and rising penetration levels offshore.
ExlService provides outsourcing and transformation services primarily in the US and the UK. Its outsourcing and analytics services cater to the insurance sector, banking and financial services sector, customer operations in utilities sector.
Last month, Oak Hill distributed all of its 17 percent stake in ExlService, lifting a long-term overhang on the company's shares. S&P Indices announced that it would be including ExlService in the S&P 600 Small Cap Index after the close on June 27, another positive for ExlService shares.
For the first quarter ended March 31, 2012, the company earned $8.9 million, or 27 cents a share, flat with last year. Revenues were $104.6 million compared to $72.9 million a year-ago. Adjusted earnings were 36 cents a share, up from 33 cents a share prior year.
At current foreign exchange rates, the company sees 2012 revenues at the bottom of its guidance range of $445.0 million to $455.0 million, primarily due to recent rupee depreciation.
Adjusted earnings per share are expected at $1.50 to $1.55. Analysts expect earnings of $1.53 a share on revenue of $447.25 million.
Though a majority of its revenues are denominated in U.K. pounds sterling or U.S. dollars, most of its expenses are incurred and paid in Indian rupees and the Philippine peso. As a result, the company's revenues can vary significantly if the exchange rates among the Indian rupee, the U.K. pound sterling, the Philippine peso and the U.S. dollar fluctuate significantly.
However, the company remains comfortable with its long-term roadmap targeting multiyear revenue CAGR of 20-30 percent, the highest among peers. Though, forex headwinds with the rupee at lifetime lows may slightly temper growth expectations in the near term, the company is poised to deliver above-industry 23 percent fiscal 2012 topline growth--the highest among peers.
"With a healthy deal pipeline, low exposure to discretionary spending, and the strong secular growth nature of the BPO industry, we view this as an attractive entry point and would be buyers on recent weakness," Oppenheimer analyst Manish Hemrajani wrote in a note to clients.
The company currently have approximately 200 clients and largest clients in 2011 were Travelers, Centrica and American Express, which together accounted for about 31.8 percent of its total revenues in 2011.
At current levels with shares down 18 percent in the past three months, ExlService is trading at a three-year low forward price to earnings of 14.5, which provides a compelling risk/reward.
ExlService competes with Accenture, Inc. (NYSE:ACN) Genpact Limited (NYSE:G) and WNS (Holdings) Limited (NYSE:WNS). ExlService is cheaper than its rivals as Accenture has forward price to earnings of 15, Genpact has 19 and WNS has 35.