Benefits of ExlService Q2: excellent small player in the BPM market (NASDAQ: EXLS)
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Introducing ExlService
ExlService (NASDAQ: EXLS), a business process management company, provides operations management and analytics services to its clients. The company provides business process outsourcing, automation and data-driven solutions to customers in various industries, including insurance, healthcare, utilities, banking and finance, travel and retail. retail, among others. The The company operates in four segments: analytics, insurance, healthcare and developing markets, depending on the areas it serves. The majority of the company’s sales are made in the United States, and more than half of the company’s revenue comes from business process management and related services.
Industry Outlook
The field of business process management involves the use of a variety of techniques to identify, model, analyze, measure, improve, optimize, and automate business processes.
In today’s digital world, the development of intelligent business process management systems is facilitated by the adoption of artificial intelligence (AI) in several well-known companies. By merging AI with cloud capabilities, BPM (business process management) software and software solutions, it’s done. BPM platforms are therefore constantly evolving. As a result, it also incorporates a variety of enhanced processes including Internet of Things (IoT), business activity monitoring, cloud capabilities, message-oriented middleware, and more. For example, BPM systems with AI are frequently used in banking to streamline operations, including report preparation, document generation, contract administration, and sales analysis.
These technologies may well power the future of business process management.
According to research from Fortune Business Insight, the business process management industry is expected to grow from $10.65 billion in 2020 to $26.18 billion in 2028, with a healthy CAGR of 12%
Competition
Intense competition is present in the data analytics and digital operations and solutions market.
Accenture (ACN), Cognizant Technology Solutions (CTSH), Genpact (G), Infosys (INFY), NTT DATA (OTCPK:NTDTY) (OTCPK:NTTDF), Tata Consultancy Services and WNS (Holdings) (WNS) are some of them. one. examples of large global companies with digital operations and solutions and operating capabilities that ExlService competes against. Other competitors include niche digital operations and industry-specific solution providers like Cotiviti and Optum Health.
|
Company |
activity Descrition |
Market capitalization |
Last year’s revenue growth |
|
ExlService (EXLS) |
ExlService, a business process management company, offers operations management and analytics services to its clients. |
5.59B |
17.10% |
|
Accenture (ACN) |
Accenture, a global leader in IT services, provides consulting, strategy, technology and operations services. These services cover a wide spectrum, from assisting businesses in their digital transformation to providing procurement services and integrating software systems. |
193.34B |
14.00% |
|
Infosys (INFY) |
With approximately 250,000 people worldwide, Infosys is one of the leading providers of IT services. The Indian software company, based in Bangalore, relies on its offshore outsourcing strategy to derive 60% of its revenues from North America. |
81.59B |
20.28% |
|
Cognitive Technology (CTSH) |
A leading global IT services provider, Cognizant works with some of the largest companies in the consumer goods, media and communications, healthcare, natural resources and financial services industries. |
35.18B |
11.14% |
|
Genpact (G) |
One company that offers business process management services is Genpact Ltd. Clients are business entities that operate in banking and financial services, insurance, capital markets, consumer products, life sciences, infrastructure, manufacturing and healthcare, as well as high technology. . |
8.83B |
8.43% |
|
WNS (holdings) (WNS) |
With a hybrid onshore, nearshore and offshore delivery strategy, WNS (Holdings) Ltd. is a global provider of business process management (BPM) services, providing comprehensive data, voice, analytics and business transformation services. The two reportable lines of business for the company are WNS Global BPM and WNS Auto Claims BPM. |
4.23B |
21.60% |
Source: Morningstar and Seeking Alpha
Competitive position
According to the latest annual report, ExlService claims to be in competition by…
… striving to differentiate itself as a strategic partner for companies with deep industry expertise, sophisticated data and analytics capabilities, operations and innovative digital solutions and technologies, strong client relationships, industry-leading talent, superior process capabilities and differentiated technology, which enable ExlService to respond quickly to market trends and the evolving needs of its clients.
ExlService applies a so-called vertical industry strategy. I’m a big fan of this approach because it allows for the mentioned “deep industry expertise” that helps customize solutions to maximize solution effectiveness and thus maximize customer satisfaction.
I believe its previously claimed differentiations regarding data and analytics capabilities can be backed up by the countless analyst mentions.
For example, the company is named a 2022 Leader for Finance and Accounting Business Process Outsourcing by Gartner. Gartner believes that…
… by 2024, financial outsourcing of artificial intelligent process technologies will grow from 6% to 40%, primarily focused on the digital transformation of transactional operations.
I think this recognition speaks to its strong offering of AI-based solutions.
In addition, in 2022, ExlService is named
Additionally, users rate its products on Gartner at an impressive 4.9 out of 5 over the past 12 months, which is slightly higher than most of its other competitors.
With its deep industry expertise, high user satisfaction, and leadership position in its industries, they have built a respectable clientele across multiple industries.
Important customers (RW Baird 2021 Global Consumer, Technology & Services Conference in 2021)
Despite intense competition with much larger companies, ExlService seems to have a strong position in its market due to its deep industry expertise and very robust product offering.
The Latest Earnings Report
On July 28, ExlService released financial performance statistics that exceeded analysts’ estimates. The CEO said that…
…EXLS had a strong second quarter with revenue of $346.8 million, an increase of 26.1% over the second quarter of 2021. Analytics continued to lead our growth with a revenue increase of 44 .8% from the second quarter of 2021. Adjusted diluted earnings per share for the quarter was $1.50, a 31.6% year-over-year increase. Our focus on data-driven solutions that leverage domain expertise, AI, and digital capabilities resonates with customers and drives significant growth. Our value proposition to help our clients improve their growth and profitability remains relevant throughout the economic cycle. The market for our services remains strong as we look to the second half of 2022.
In my view, these stats demonstrate its strong current supply.
The stock price is up 17% in the last 5 days due to earnings figures.
Valuation & Financial Performance
Base Stats Comparison:
|
index |
EP before |
Gross margin |
Free Cash Flow Margin |
Sales growth over 3 years |
EPS growth over 3 years |
Debt Equity |
|
ExlService |
26.39 |
37.85% |
8.64% |
8% |
27% |
0.54 |
|
Accenture |
23.81 |
32.26% |
12.44% |
seven% |
13% |
0.16 |
|
Infosys |
23.47 |
32.59% |
24.98% |
11% |
11% |
0.07 |
|
Cognitive technology |
15.29 |
36.67% |
12.09% |
4% |
9% |
0.13 |
|
Genpact |
6:32 p.m. |
35.45% |
10.80% |
ten% |
9% |
1.18 |
|
WNS (contributions) |
23.26 |
33.72% |
in |
11% |
9% |
0.3 |
Source: Alpha Research
ExlService is the most expensive company in the group of competitors. Additionally, its revenue growth is not out of the ordinary, its free cash flow margin is a bit lower than other companies, and its debt to equity ratio is higher.
What the company has in its favor is its very high 3-year earnings per share growth rate of 27%. Moreover, the title has the highest gross margin of the group.
A more detailed look at his EPS over time since 2015:
EPS growth (data from Seeking Alpha, chart by author)
This translates to a very healthy CAGR of 12% since 2015. I don’t think it’s realistic to use the historical 3-year EPS growth rate of 27% for subsequent years. However, I think around 12-16% per year would be more appropriate.
Final grip
I think ExlService has a very strong offering and is loved by many high-profile clients and analysts because of it. As a result, they have historically shown high growth rates. The latest earnings performance was so good that it sent the stock price up 17%. Because of this, the valuation is now a bit higher than that of its competitors. Nonetheless, I still think there is a buying opportunity here. ExlService is only a fraction of the size of other competitors, and with its earnings growth momentum, I believe its earnings growth can continue at a higher rate than its peers, albeit lower than its historical growth EPS over 3 years.
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