ExlService Holdings, Inc. (NASDAQ:EXLS)

This is an Overvalued stock!!! If you look “under the hood” of this company, you will see that there is no clear strategy or focus at all. To make thinks worse, the management team is not accurately disclosing implications of the market place:

Client Examples: They had a higher exposure to the downturn of losing many clients in the last 6-9 months. First losing Indy Bank as a customer (tremendous lose of outsourcing revenue, and Risk Advisory business), Lehman Brother going under – forgot to mention that they were also an outsourcing client - good luck in recouping any owed income from that bankruptcy. How about AIG – which was more that 40% of their Risk Advisory business – with the firing of key relationships there, and a big loan with the FED, the last thing on AIG’s plate is to help EXL. Also, let not forget to mention they also lost most of their outsourcing and Research and Analytic work with AIG too. There is also the loss off work from Orange telecom and the loss Aviva insurance deal too!!!
Conclusion- EXL is losing clients left and right. Watch YRC worldwide, part of The Traveler and Allstate insurance will be next!!!

Internal Management shifts: In the last 9-12 months, there have been many high level shifts in management (just watch the pictures on their website change every month). First, what ever happened to Sandeep Tyagi. He sold his company Inductis to EXL and was given the title of Head of EXL’s Transformation Business. You never saw Sandeep in any press release or anything related to acquiring new customers. The only thing you can see is in EXL’s S-4, as being one of the largest management shareholders, all he ever did is exercise his options and sell out (more than $4 – 6 million), is still hold many more shares http://finance.yahoo.com/q/mh?s=EXLS . Then there is Kal Bittianda, Head of strategic Accounts, only had the job for a few months before he left that position. What does that say? Well one can say that EXL has no direction on managing strategic accounts. Then there was Sridhar Kadaba, Head of their new consulting business called “Value Added Services”. After being there not even a year, he was asked to leave., as they could not develop any many clients, let alone manage to recruit or retain and experienced resources from the US to build this practice. The latest casualty is Matthew Appel their CFO. A very seasoned Finance and Accounting guy from an EDS outsourcing background. For a guy that with great credentials to leave, it is a sure sign that there is no upside to this company, as if you see the EXL S-4 agreement and contract, they loaded him up with tremendous option and incentive. Leaving without even making it two years, he is losing a large financial gain. If you look at EXL’s past CFO, she only stayed less that 5 months before bailed on EXL.

Service offerings: EXL has a big problem in determining how to integrate their Risk Advisory practice, with their Value Added Services with their Research and Analytics Group (Inductis – which they had too much infighting to keep the Inductis brand name). Lumping all these groups into one, and calling it Transformation Services, doesn’t hide the fact that there is a tremendous overall of service offerings and alack of skilled resources. Amazing they never get into what their transformation service group really does, and the differentiator of their offering vs. Genpact or WNS. Conclusion: too much internal infighting and land grabbing in the Transformation Services line of business. There is no evidence of having an integrated sales force that understand and can sell all the EXL service line, unlike many competitors who position themselves in that manner to the marketplace. A reliable insider told me there is tremendous turnover that no one ever wants to talk about.

What is the FINAL message: Take your own risk in purchasing EXL stock, as I think analysts need to get further “under the hood” of this company before they can make a conclusion. And having an investment banking relationship with EXL, does not always provide a clear and unbiased recommendation or target price. These banks know who they are, and should correct themselves before shareholder class action suits are made against them. Let alone, when you look at all the management S-4 filings, no one is buying, just selling, see the following link: http://www.secform4.com/insider-trading/1297989.htm . EXL’s VC firms all sold and cashed out, so there position is very small: http://finance.yahoo.com/q/mh?s=EXLS , as they start to disassociate themselves from EXL.

One would guess that either this company is just going to decline in value, as Obama is heavily against outsourcing, or they will be a candidate for takeover from one of the competitors who are better capitalized, have a better sales force, better market positioning and penetration. I am out at $7.50, made some money and had some losses…but out while the getting is good. The market is smart, just by claiming that you are an outsourcing company with presence in India and Philippines, doesn’t make you a market LEADER in ANYTHING anymore - investors are more savior than that. Why do you think Citibank was not interested in EXL’s offer to purchase their outsourcing business unit “EServe” in the first place – they knew EXL had no substance “under the hood”.