eClerx Services is entering the capital market on 4^th December, 2007, with an issue of Rs.101 crores, in the price band of Rs.270 to Rs.315 per share. 8.90 lakh equity shares of Rs.10 each are offered for sale while fresh issue of about 23 lakh to 28 shares of Rs.10 each would be made, depending upon the price discovery.

The company is into offering data analytics, operations management, data audits, metrics management and reporting services for financial services, retail and manufacturing industries,. The company is presently employing about 1,400 people and are now going for an expansion and acquisitions for which fund requirement of Rs.50 crores has been estimated excluding for general corporate purpose.

The financial performance of the company was quite good for FY 07, wherein, its total income was at Rs.86.23 crores with EBITDA of Rs.43.36 crores translating into a margin of 50.27%. PBT was placed at Rs.40.79 crores with PAT of Rs.40.52 crores. As at 31^st March, 07, paid up equity was tiny at Rs.1.01 crores, which rose to Rs.16.55 crores, due to warrant conversion and bonus issue.

For six months ending September, 07, the topline of the company though rose to Rs.51.44 crores its EBITDA was lower at Rs.20.88 crores resulting into an EBITDA margin of 40.60%. A fall of almost 10%. The reason for this is strengthening rupee and increase in employee and personnel cost, which rose to 34.35% of total income in H1 FY 08 from 28.50% of FY 07. Even PAT was just Rs.16.47 crores, about 41% of FY 07.

Even if one expects a sharp rise in second half of FY 08, in topline and bottomline, it may be difficult for the company to keep its FY 07 bottomline. The tax impact in FY 08, is also the culprit for fall of profits at the net levels.

The present equity of Rs.16.55 crores may rise close to Rs.18.87 croes (at Rs.315) or may cross Rs.20 crores at the lower band of Rs.270. The EPS for FY 08 may be at Rs.20, and hence the issue price results in a PER of 13.5 to 15.5 times.

The company would definitely be treated as a small cap IT service company and recent IPOs floated by such companies, have not performed well on the bourses. Perception of such issues are at low ebb and issue at the upper band of Rs.315 is a risky proposition. Investment at the lower band of Rs.270 may be contemplated.