Eclerx Services Ltd

NSE:ECLERX

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the eClerx Services Limited Q1 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohitash Gupta, CFO, eClerx Services. Thank you, and over to you, sir.

[Rohitash Gupta, Chief Financial Officer]

Thank you. Good evening, everyone, for joining us today for our first quarter call. At the start of this year, we have made a number of changes and additions and disclosures, and you would have noticed those already in our investor pack today. As our business has moved towards volume-based managed services, volume fluctuations have added to their existing seasonality of CLX business. Hence, we will be focusing more on year-over-year trend instead of sequential movements going forward, thereby reducing some of the distractions caused by sequential volatility. We have also adopted in AS 115 since last year, which impacts revenue recognition for certain fixed price projects compared to earlier method, as it pushes more revenue towards either the minus to our achievements or the project completion as the case maybe. This year, we have also adopted AS 116 for our facility leases. This has minor negative impact of INR 3.5 million at the PBT level, and it may have a similar small offsetting positive impact in subsequent years. While the impact of Ind AS 116 is immaterial, the requirement to classify certain G&A items into 3 different categories has allowed us to relook at our various operating metrics, and realign our focus from offline operating margins to absolute finite EBIT. This is partly on -- let me come back to our quarterly performance. EPS completed quarter 1 with USD 50.9 million in revenue, with a resurgent constant currency growth of 4.5%. While this is stacked below the organic industry CAGR, we are pleased to see that our revenue growth has been marching in the right direction. In line with our period currently, onshore business constant currency growth in Q1 has been faster at 40% year-over-year, whereas offshore business grew modestly at 2% year-over-year. As of quarter end, we see our high probability pipeline not only higher on year-over-year basis, but also slightly more skewed towards onshore business than before, suggesting continued momentum in the onshore business. The double-digit growth in both onshore and managed services business so far has given us scale, and it also presents newer opportunities for improving margin on those revenue books. Many of our larger long-term managed services projects are now at margins which are superior to corresponding FE business. Similarly our onshore consulting business, clients are appreciating our agile deployment and solutions approach, thereby entrusting us with more variety of projects, and also with the pricing, which has come in direct with higher values that we deliver compared to larger competitors. Among our 3 businesses over last few quarters, financial markets has displayed best traction in offshore revenue, followed by digital. While our customer operations offshore revenues have been subdued for a while now, the vertical has made up through significant ramp-up of pipe drilling, which by itself is now larger than many independent U.S.-based small corp in the company. Pipe drilling programs also help showing positive rub-off on increasing stickiness for our offshore business, as the number of offshoring average clients use superior business outcomes delivered from eClerx pipe drilling as the reason to choose us for hybrid-delivery programs. Our absolute EBIT has declined year-over-year by about INR 300 million, despite increasing the core revenues by INR 152 million year-over-year. Significantly, INR 225 million out of the INR 300 million decline was due to uncontrollable factors, like currency movements in the other income and spending clarity of applicability of SEIS incentive scheme for FY '20 amidst the backdrop of several global geopolitical events and uncertainty. If anything changes on SEIS from what we know today, we will provide for suitable capture of SEIS revenue in subsequent quarters. G&A and depreciation, which have been clubbed together under Ind AS has been flat year-over-year. However, note that a significant portion of authorized adjusted fee rate is now also below EBIT line, and that increase largely represents the cost of Pune consolidation and inflation. The India delivery cost increases largely due to wage increment impact, which typically normalizes in later quarters of the year. Onshore delivery cost increase is in line with onshore mix increase of about 180 bps year-over-year in Q1. We have made significant investment -- development team as visible in our people metric, however, the increased cost is somewhat offset by lower travel cost because of a growing onshore organization reduces inventories on international travel. On the margin improvement lever for near-term, in addition to wage hike normalization and possible use of SEIS revenue, our headcount has rationalized as work intake of campus hires got adjusted against the Q1 attrition, and we might see some improvement in wage costs in Q2 because of that effect. We will also benefit from increasing hedge rate in coming quarters, and we also anticipate Pune consolidation benefits to increase from current Q1 levels in future. And we expect continued moderate uptick in pricing in FE book given that's typically seen in last few quarters. However, you can also have headwinds coming from higher onshore growth rate, as I alluded to earlier, increased share of short-term projects and recently announced minimum wage that we used in Maharashtra.While our U.K. exposure is sub-10% of our revenues, a large count of our clients are keenly watching political events in U.K., and we feel that uncertainty around variety of outcomes could lead to delaying of some necessary projects in short term by some of our U.K. clients. I want to touch upon 3 areas to provide some sense of how onshore presence and pivot to technology has allowed us to capture emerging opportunities through specialization. Number one, we have started a large onshore consulting project in compliance area for a U.S. division of a new European bank, where work entails understanding KYC requirements, fulfilling those requirements, collaborating with the sales teams to escalate issues, screening for adverse news and then indexing and closing KYC cases through our quality control in U.S. office. This work falls into our highly productized client life cycle management practice. Number two, we are providing development support across portfolio of the small- and medium-sized IT projects for a market business of a new U.S. asset management client, driving the entire [ SBL ] team using our hybrid offshore/onshore delivery model. Our involvement in these projects aim to provide better preferred compliance, better front office decision-making through the sourcing of more than better data and upgrading of their tech tax. Number three, logo watch. Our flagship automation product have been slowly gaining trend in a cluttered market of RPA tools and a world where many Fortune 500 clients have some early cost in fragmented approach of one third-party IP platform, appointing some person through the implementation partners, creating in-house periods and then hoping for business outcomes. In contrast, eClerx's comprehensive, automation solution centered on low-cost delivering our now mature hybrid specialty model, ready to deliver promised business outcomes. Apart from various profit models, clients who have chosen eClerx's unique automation approach in this industry, we now also have several Fortune 500 clients in banking, travel, tech and manufacturing ready on the go. We successfully completed our INR 2,620 million buybacks in Q1, and would like to reiterate that our capital allocation approach and long-term payout ratios will remain unaffected irrespective of the recent budget announcements. Our DSOs have remained steady in previously guided 80 to 90 days range. Our cash balance of INR 5,287 million is lower by INR 780 million despite the cash spend on buyback due to continued strong cash flow generation in the business. We have now added more color to our client revenue bucket disclosure. Our -- it will be advisable to focus on long-term trends of aggregate 1 million-plus-plus client's bucket, as many clients in intermediate buckets will show volatility due to high proportion of short-term projects in some of them. Amongst several new logos added this quarter, most notable were 4 new Fortune 500 clients in beverages, computing, telecom and hotel space. Our emerging client revenue progress has continued with healthy year-over-year growth, although, we stopped another Y-o-Y decline in our top 10. Our overall headcount numbers remained flat, with 2 major exceptions of business development as well as onshore delivery ramp up that we have alluded to earlier. We strongly feel that in our involuntary attrition is the clearer representation of attrition in our business given the continued flatness in our offshore revenue. There's lots of underlying churn in portfolio and newer skills required to deliver them. Our involuntary attrition has remained steady for Q1 despite Q1 being seasonally high attrition quarter for us. Our mid- to senior-management attrition remains at lowest levels in the last 3 years, thereby creating opportunity for leveraging promised efficiencies when the offshore revenues improve. With this, I will like to open up for the questions and answers. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Harit Shah from Reliance Securities.

[Harit Shah, Senior Research Analyst]

Rohitash, I just have a question about the state of increasing wage cost and the last time you had mentioned earlier in the call. So what is the likely impact on your margins? And when will it be affected? Has it already been affected in the second quarter or from then?

[Priyadarshan D. Mundhra, Co]

Sorry, I just -- we really couldn't fully understand your question. Could you please repeat that a little slowly, thank you.

[Harit Shah, Senior Research Analyst]

Okay. So my question is regarding the increased wage cost in Maharashtra. I think, Rohitash had mentioned that earlier in the call. So what will be the likely impact on margins? And from when is it likely to get affected?

[Priyadarshan D. Mundhra, Co]

So I think there is not complete clarity on this yet, because while the minimum wage has been announced, some of the other components, like dearness allowance and special allowance have not yet been notified by the government. So at this stage, our assessment is that at minimum, this would have an impact on our outsourced services spent for things like housekeeping and potentially security guards, where the increase in the minimum wage will result in some increase in cost. Whether it affects our full-time employee pool, I think will depend on the magnitude of upward revision in DA and SA, et cetera. This has not yet been notified by the government, so we don't have any quantification of that. On the housekeeping and security guards, so on the security guards, those to the bar code needs to announce new rates, which has not yet happened. So really we don't have very good numbers on this. But I think in a month or 2, there the situation should become more clear.

[Harit Shah, Senior Research Analyst]

Got it -- got that. Thanks for that. Any -- on the -- to you mind giving the account of the number of employees that are based out of Maharashtra?

[Priyadarshan D. Mundhra, Co]

So I think of our 8,500 people in India, probably around 6,000 approximately would be based in Maharashtra, with the remaining being in Chandigarh.

[Harit Shah, Senior Research Analyst]

Okay. Fair enough. And one more question. The -- any data on the percentage of revenue that comes from your short-term contracts? There were some comment about possible margin issues because of that also. So any data on that?

[Priyadarshan D. Mundhra, Co]

I'll ask Rohitash to provide that -- the data point.

[Rohitash Gupta, Chief Financial Officer]

Short-term projects, as you can imagine, have been quite volatile because their duration is short and their timing of when they will start and come is also not sure. So that metric, particularly as to what percentage of our revenue, our pipeline is kind of short term is difficult to say. But typically, if you take a very long-term average, it could be around 15% to 20% on the outer side.

[Harit Shah, Senior Research Analyst]

And short term is typically what, up to 1 year? Or...

[Rohitash Gupta, Chief Financial Officer]

Short term is typically less than 1 year in our terminology.

[Operator]

The next question is from the line of Sarvesh Gupta from Maximal Capital.

[Sarvesh Gupta, Founder]

So I have 2 questions. First of all, our delivery cost, as you mentioned, is rising, I think in Q3 of last year. We thought that this is the maximum of probably what we'll have, and I think we are seeking new highs in terms of cost of delivery. So any guidance on -- have we reached the maximum levels? Or you need further increase from here also because the margins keep getting affected because of the same?

[Rohitash Gupta, Chief Financial Officer]

So if you look at our margin bridge disclosure in our investor pack, I think that will give you a very good sense, because on one hand you will see about INR 15 crores of additional revenue. And on the other side, you will see certain increases in our India as well as onshore employee costs, right? Now it's very, very easy to understand that most of that INR 15 crores additional revenue would have come from onshore, given the onshore traction, right? And that INR 15 crores will require typically INR 10 crores plus-plus kind of employee cost onshore to service that. So I think that will give you some sense of -- if the growth has more on onshore, the revenue and cost from the employee side will be globally tracking each other because there is not much arbitrage left below the diem.

[Sarvesh Gupta, Founder]

Yes, that I understand. But I want to understand where will be the start? Because...

[Rohitash Gupta, Chief Financial Officer]

It will be the onshore percentage, the share of revenue.

[Sarvesh Gupta, Founder]

No. So if I guess your onshore percentage, that has been broadly stable over the last 5, 6 quarters. But your costs have been going up irrespective of the onshore delivery percentage mix, which hasn't changed in the last 5, 6 quarters. So I want to understand what will be the sort of bottom in terms of your margins, because you've already reached quite a very low number come -- you're almost like 1/3 of where we are -- we were many years back. So is there a bottom to it, or will we keep going and getting lower and lower numbers in terms of the margin?

[Rohitash Gupta, Chief Financial Officer]

So to be honest, I have laid down both the headwinds as well as tailwinds on various cost and revenue element. And it will depend how the business mix evolves and how those margin levers play out either favorably or adversely for us. But just focusing on the India employee cost as an example, I very clearly mentioned that Q1 typically is a high efficient quarter. And that's also a time when bulk hiring is possible through campus tour. And then you try to do all of that and try to mitigate high possible attrition and build a little buffer. But given our recent high attrition rates, typically, that excess or flat gets adjusted very quickly. And I think we have already come down due to the natural attrition now as we speak in July/August, and that excess cost is gone. But the wage impact that we have given, that takes 1 or 2 quarters to subside.

[Sarvesh Gupta, Founder]

Understood. And any guidance on the revenue side? Because as it's again been sort of flattish. So where are we seeing this in this year?

[Anjan Malik, Co]

I think -- sorry, this is Anjan. We continue to see challenges in the revenue outlook. However, we continue to also see a lot of opportunities for growth. So in certain parts of our book, where as we know, the challenge in automation and we've seen in-sourcing biases. But we continue to see growth in onshore. We continue to see growth in analytics. And in particular, we are seeing opportunities in areas where we've got -- we've got products and services. And those are the areas in which we've seen the maximum of growth. So there is -- so pipeline has been healthier -- and healthier today than it has been in the recent past. Our close rates are good. And I think we can see our roll-offs over the last 6 months look more encouraging in terms of being lower than they have been in the recent past.

[Sarvesh Gupta, Founder]

Will you want to give a quantitative guidance to the revenue growth for this year?

[Anjan Malik, Co]

Yes, I think we don't -- well, I think we have a sort of policy of not really providing the revenue guidance to the Street. So I think we're not in a position to do that. But I think what we can say is that it's definitely looking a little stronger than it has done in the immediate recent past.

[Sarvesh Gupta, Founder]

Understood. And finally, on the capital allocation point now, we as a company have been doing buybacks every year. And that was because buybacks are also more tax efficient. But now with the recent change in the taxation, I don't think there is any advantage of waiting for a year to do the next round of buybacks. So is it not better for us, given the INR 150 per share cash that we have, to just announce a special dividend and just dividend it out rather than retaining it in company with longer-term liquid funds?

[Priyadarshan D. Mundhra, Co]

So I think -- this is PD to respond to that. I mean, I think that figure of INR 550 crores, give or take, is not too large compared to the size of our business and historic levels of cash that we maintain. We've had a pretty large payout just a couple of months ago in terms of the buyback of INR 260 crores that was completed. So I think our preference would be to wait for about 12 months and see what transpires also in terms of regulatory changes in the next budget and so on, and then take a call. But the long-term goal too, if I should comment in the opening remarks, remain to keep returning at least 50% of net income back to shareholders. Choice of vehicle obviously depends on their IPO considerations, including tax. But I think for this year, we see we've already returned INR 260 crores just a couple of months ago. And we do want to maintain a certain amount of liquidity in the business, also from a point of view of excluding acquisitions should something interesting come along. So we think that INR 550 crores, $78 million in the context of a $200 million revenue company is not inordinate.

[Sarvesh Gupta, Founder]

Understood, sir. And I do just as a position, I think, if you can give some revenue guidance going forward because you have made so many other changes in the presentation as well, I think that would be very helpful.

[Operator]

[Operator Instructions] The next question is from the line of Manik Taneja from Emkay Global.

[Manik Taneja, Research Analyst]

I have a few questions. So the first question was in regards to the stableness of our onshore operations. Just wanted to understand how the progress on that side has been? That's question number one. The second thing that I wanted to understand is that we've seen some of your -- I think you're talking about -- talking about, once again, seeing in some offshore growth both because of the hiring challenges in onshore locations, and the related maturity of the digital engagement. Do you see something like that happening in our space as is?

[Anjan Malik, Co]

Sorry, do you have a follow-on question?

[Manik Taneja, Research Analyst]

Right. And I'll come back one more after.

[Anjan Malik, Co]

So Manish, I think -- this is Anjan here. I think being compared to the large IT guys is always difficult because they operate at a very different scale. And I think fundamentally the business is very different. I would say that we have seen good success onshore. And I think we've certainly seen a lot more success onshore than we've seen offshore in terms of growth rates, right? And that's gone up in the numbers that we've been showing over the last couple of years. I think what was interesting to watch in this quarter is sort of some of the early, I think in the last -- I think in the last call of the quarter, surely in the investor call, I think I have personally had mentioned that. We have made an effort to invest in onshore because we believe that onshore will ultimately drive more offshore. And the sign -- it had been too early to call whether or not that strategy was successful. I think, certainly, in the last 3 to 4 months, we've seen more evidence that, that strategy does work and is working, right, to the point that Rohitash made it his opening preamble. We certainly -- in gigs that we wouldn't have been in had -- had we not have that onshore presence, right? So whether it's a hybrid onshore delivery in the sort of tech-enabled space or whether it's the -- know-your-customer example that we gave or even -- the result of work we're doing in dispatch along with our site in North Carolina. So I'm not sure if that drives the offshore is happening because, all of a sudden, hiring in-location or client locations is difficult, or because there are net new buyers that are opening up to offshore because having the onshore presence allows you to convert a net new buyer to be offshore. So I think it may be more of the latter than former.

[Manik Taneja, Research Analyst]

Okay. So my first question was around the profitability of your onshore operations. I think you had some challenges in the last couple of years in terms of...

[Anjan Malik, Co]

I think that -- I think also it was about scale and it was about investments. So I think that will continue to improve over time, right, as we scale and as we build maturity in that business longer than we have anticipated that will improve. And as we gain experience around execution, we expect that to continue to improve. So I think that's the improvement, and will continue to improve.

[Manik Taneja, Research Analyst]

Despite the party on this, but do you make your breakeven on -- at the gross margin level with your gross -- with your onshore operation?

[Priyadarshan D. Mundhra, Co]

Manish, this is PD, and I'll take that question. I think we disclosed that about 23% of our revenues comes from onshore. As for the collection, I would say, sort of 3 different buckets. There is the CLX bucket, which is classified largely as onshore, where there's clearly positive EBITDA, positive gross margin and positive net income. And there is the onshore consulting business, which is typically people that we pay on client premise, both in our markets business as well as in digital. That is also positive from a gross margin and operating margin perspective. And then the last piece is our investment in sales within North Carolina, which you can think of like a high-end call entering the U.S. That business is, today, negative in terms of gross margin. So I think of the 3 components, one is negative, certainly at gross margin and even more so at operating margin. The other 2 are positive.

[Manik Taneja, Research Analyst]

So any indication on what's the quadrant -- what's the share of these 3 segments within the onshore component for us?

[Rohitash Gupta, Chief Financial Officer]

Please, respond to that.

[Priyadarshan D. Mundhra, Co]

So Manik, clearly CLX is the largest component here. Roughly half of our onshore business typically will be contributed by CLX. And I do know [indiscernible] will be the smallest piece in relation to CLX, but by itself, it's a multi-million dollar revenue business for us that I just alluded to. And the consulting business that PD was talking about is somewhere in the between.

[Manik Taneja, Research Analyst]

Okay. And a second, while you -- one more question. If you could give us a sense of what the share of the 3 startup business segment for us now? And what's your commentary across the 3 segments on a go-forward basis?

[Rohitash Gupta, Chief Financial Officer]

So I'll let Anjan speak about commentary. But in terms of size, Manik, it continues to be roughly 40, 40, 20, like it's been for a long time. We have variations of 1% or 2% quarter-on-quarter, but it hasn't changed much beyond that. It's still roughly 40, 40, 20 give or take. And I'll let Anjan talk more -- most objectively about markets.

[Anjan Malik, Co]

Yes, I think the 3 businesses continue to have different challenges. I think of the 3 businesses, markets had probably the most tailwind in the recent quarter. And I think that's partly a function of maybe of the relationship that we made to go -- be more on automation level of operations early on and the focus towards consulting. I think, certainly, the acquisition that we made up 2 -- 2, 4 -- couple of years back has really helped us. In the customer space, we've seen growth. We've signed also new customers in that space, specifically around our technical operation services. Actually it's different from what -- where we were seeing growth last year, which was more on a quality and contract center optimization services. So this year, it's really been around technical operations and servicing, engineering services. And in digital, we continue to see growth in analytics. It's an interesting space where we're doing really more end-to-end and large deals, and certainly largest that we've done in the long time. And we probably have the most interesting pipeline of a long period. So I think we see good momentum and really interesting discussions happening that are probably different from what we said in the past.

[Manik Taneja, Research Analyst]

Okay. Okay. And one last question for my -- if I can. So historically, I got your remarks regarding the short term -- or regarding the higher share of short-term engagement. If I recall correctly, in the past, the indication was that some of these short-term engagements were actually both revenue as well as margin accretive. But now the sense that you seem to be giving us it seems that given the lack of visibility around these, engagements have been margin dilutive. So if you could essentially help us understand that.

[Rohitash Gupta, Chief Financial Officer]

Yes. So Manik, that comment was partly influenced by my prior statement about adoption of Ind AS 115 last year. But some of the short-term projects happen to be fixed term projects, where the new revenue recognition standard does have a tendency to defer the revenue to the later period. So I think that comment has to be seen only in light of that statement. In on wheel there is no rule that short-term projects will be lower or higher -- barring then long-term business. But as we all know, your longer-term business is overall accretive simply because you don't have to resell it again. So from that perspective, long-term business is always better on margin.

[Operator]

[Operator Instructions] The next question is from the line of Rahul Jain from Dolat Capital.

[Rahul Jain, Vice President of Research]

Firstly, on the SEIS front. Is there a quantum that we can disclose as of now, or it is not certain?

[Priyadarshan D. Mundhra, Co]

Rahul, this is PD. So I think this may be there on the bridge slide in the deck. But basically, if you look year-over-year, in Q1 last year we recognized INR 12.5 crores as SEIS revenue. This year, we are not recognized. So that is the quantum in terms of a year-over-year delta. And obviously we need to wait for any government recognition -- government notification of 15 before we can recognize any benefit.

[Rahul Jain, Vice President of Research]

Okay. And from this [indiscernible] project perspective, when -- what kind of utilization or any other factor is what we should watch out for, for this operation to become operationally positive?

[Priyadarshan D. Mundhra, Co]

So again -- okay, I can take that, Rahul. I think there are 2 things. One is that the capacity of the floor that we have in Fayetteville is about 250 feet, give or take. And today, we're running at about 150 feet. So I think as we can fill out that facility, it allows us to amortize the G&A costs and, therefore, have sort of less bleeding, so to speak. So that's one thing that will help over time. The second thing is, I think we've also, sort of when we launched that facility, the first, first client we onboarded and the first couple of deals we struck were, I think, for a price that has, what I would call an aggressive price, to get that facility going. The subsequent deals we struck more recently have been at more accretive prices. So I think they're also -- are purposely more selective in terms of what business we took in there so that the prices are more illuminated. So to sum up, I said 2 things that will drive profitability: One is better utilization; and second is a reduction of the effect of the initial very aggressive deals that we did there.

[Rahul Jain, Vice President of Research]

Right. So -- and also from the pipeline perspective, what the numbers look like from a trading position? And why, despite a very strong numbers, this client, kind of incidence also, kind of behind us, why this number is not picking up meaningfully on the top line?

[Anjan Malik, Co]

So I think part of it has been, as we've discussed, there is the demographic change in spite of the revenue that we have. And over the last 3 years, there's been a shift towards more, I guess, short-term revenue. So even though we're selling more than we ever done in the past, there's more churn in the book than there has been in the past. That's one. Two, as we've shifted more of our business towards managed service, we have quarterly fluctuations in volumes that can be quite significant. And because that's one of the gives which you give away in a managed service deal is that, that volume variability we take into account, right? So obviously, as our clients have invested more in automation over a period of time, we've seen declining volumes in terms of certain deals that we've done over a period of time. And that's been lowered. So we've had, I guess, lower transactions to manage than we would have -- as we would have liked. I think those 2 are probably the big reasons for why net revenue hasn't been as -- hasn't grown as quickly as we would have liked to have seen. But as I mentioned, pipeline and fill rates are better than they have been in the past. So that continues.

[Rahul Jain, Vice President of Research]

Right. So what do we see -- we need to do more to sort of move up on the revenue, because if the nature of this short-term deal and managed services deal would have this intensive volatility and higher churn, this portfolio is only going to go up. So from that perspective, there would be more volatility in the performance that may happen. So obviously, one, there is a demand in this side. We would like to still participate in this. But what are the additional thing that we could do to take this revenue from current base to, maybe whatever be next target that we had in mind?

[Anjan Malik, Co]

Yes, I think there are some fundamental things that continue -- that the firm continues to focus on, right? So one is -- so we're definitely not going to stop doing managed service. So that component of our revenue will continue to show volatility for the very reasons we've discussed. But retail managed services is critical strategically for the development of the company. I think the 2 other things -- the couple of other things that we're focused on, obviously, is trying to be much more focused on the types of services that we're taking to our clients and making sure, that over a period of time, we increase the average footprint of the services with our clients. So I would say that in the software business we call it average contract value. So there's a focus on that. And I think we definitely want to be more -- and that's an area that we're spending a lot of time thinking about. The second one is increasing the actual number of service that we're selling to existing clients, and that's another area of focus. And the last part, which I think probably maybe follows on from the first 2, or maybe it's in the appendix, is that proactively focusing on increasing the tenure of the contracts that we're selling. And I think that's going to be a challenge given the marketplace that we're in. But in selected parts of the book, we're seeing success. So that's obviously going to have the biggest impact.

[Rahul Jain, Vice President of Research]

Right. And lastly, from an inorganic perspective, if we see the large transaction we get is some time is no more than couple of 5, 6 quarters, I guess. And that too was not a size transaction. And the previous 2 transaction is what actually helped us to add additional revenue stream. So what are our plan on this? And secondly, given that the overall operating margin of the business has come off over the quarters, have we changed our filter of the companies that we are acquiring, because traditionally, we would like to have them being accretive at a much higher number, but now those filters would have come down. Are we aligning that in our inorganic thought process?

[Priyadarshan D. Mundhra, Co]

So Rahul, maybe I can take that. I think, to be completely honest, an outcome on the inorganic side is not really what I would call controllable for the company, because it also depends on inbound deal flow. So our approach has been to, sort of, be very open and look at all the opportunities that come our way. And then if we think that we can do more to a particular company than just provide capital. So it's a combination of our capabilities and the target company's capabilities is more than the sum of the parts. And I think it's a situation that we feel we can add value to, because certainly from a capital perspective, there are many other potential buyers out there whose cost of capital is cheaper, and therefore ability to pay is greater. In terms of filters, I think even in the past, when we were enjoying higher levels of profitability, we never sort put the expectation that the target company has to have the same margins as us and if we had done that, we would never have bought CLX, for example, because that's the time their margins were half those of ours, right? So I think we look more at it on a stand-alone basis than from an entity basis, is it going to be accretive, is the business sticky, is the revenue sticky, will there be cross-sell opportunities? So I think those are more considerations than percentage margin of the target company. I hope that answers your question.

[Rahul Jain, Vice President of Research]

Or maybe in some other way, the MPV calculation perspective, since the thing that could be deploying the multiple to -- for the buyback effectively, is that what are the right valuation metrics when we consider the alternatives? Or those assets are still not so attractive, irrespective of the valuation?

[Rohitash Gupta, Chief Financial Officer]

I didn't understand the question, Rahul. Sorry, you will have to rephrase or explain that.

[Rahul Jain, Vice President of Research]

So I mean I'm trying to understand the application of thoughts when we put into acquisition. Are these coming just because these are not the kind of asset that we are looking, or there are factors like valuation, which are also now discouraging us in some of the good assets, because ultimately, if the usage -- the counter usage, is a buyback that we have used, is in fact the benchmark we would apply from a multiple perspective, if the asset is good but valuations are high?

[Rohitash Gupta, Chief Financial Officer]

So if -- I'll answer your question another way. I would say, 100 eagers come our way. Probably there are at least half of those where the nature of the asset or the quality of the franchise is not attractive. So those are not situations we would want to get into it any price. What's the remainder, where the asset is attractive. When I think the second question comes, which is can we do something that really has some revenue synergy? Because if not, then in an era where capital has been plentiful, we always find, particularly financial sponsor being much more aggressive in bidding situations than us. So in those situations, valuation becomes a problem because what we would consider the fair and reasonable value for that asset is lower than what other people who will be willing to pay. So I think a long line of your saying that the situation, where we think we end up being successful as a buyer, is an asset that we consider attractive, an asset that is somewhat flawed in some fashion, therefore, is not as attractive to other financial buyers. But because of our platform, maybe the clients we have, maybe the people we have, maybe the services we have, we feel we can compensate for that flaw, and therefore, is attractive to us. So those are the situations, I think, which are more likely to result in a transaction.

[Operator]

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

[Rohitash Gupta, Chief Financial Officer]

Thank you, everyone, for joining our call, and we look forward to speaking with you next quarter. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of eClerx Services Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.