CRISIL has assigned a CRISIL IPO Grade ‘3/5′ (pronounced ‘three on five’) to the proposed initial public offer of eClerx Services Ltd (ESL). This grade indicates that the fundamentals of the issue are average, in relation to other listed equity securities in India.

The grading reflects management’s ability to get contracts from large global clients in its two niche verticals, IT hardware retailing and the post trade OTC derivative segment, and increase in the size of client relationships over the last 3-4 years. The company has also benefited from the promoters’ strategic focus on knowledge management as seen in its strong margins.

The grading is tempered by anticipated pressures on margins from the expected increase in competition from large third party players in India, exchange rate movement and wage pressures. The grading also reflects the heavy client concentration, especially in the retailing vertical and likely moderation in revenue growth.