Expleo Solutions Ltd. share price target

INDIA l Institutional Research l IT l 3rd January 2022 Expleo Solutions l Fair Value: 1,900 Quality' assurance player ready to cash in We reiterate our positive stance on the stock and revise our Fair Value to Rs1,900 (earlier Rs1,480) with upward revisions in our FY22/FY23/FY24 estimates driven by robust outlook from the management, synergies from the merger that enhances growth visibility, and focused approach on the Indian entities by the MNC parent. Demand resilience and investments in next-generation technologies (highlighted in our recent...

We revise our Fair Value to Rs1,480 (earlier Rs1,420) with revisions in our FY22/FY23 estimates driven by strong growth visibility and high demand witnessed across segments. The company posted impressive revenue growth of 10% QoQ (+32% YoY) driven by increasing share of digital services coupled with buoyancy in specialised testing services (led by early investments in next-gen services as highlighted in our recent note) and we believe that this strong revenue growth should sustain going forward. The company's margin profile witnessed expansion sequentially despite persisting supply issues and we believe margins are likely to further expand from current levels. Given the company's focus on digital...

We present a high-conviction investment idea on Expleo Solutions, an under-researched premier quality assurance company, with a fair value of Rs1,420. The company is likely to be a One Stop Solution' provider with the merger of engineering, design and testing capabilities. Its investment in the high-growth next-gen testing segment, where it has a leadership position, has started to reap benefits. We believe, a niche company like Expleo Solutions is attractively placed considering its specialized offerings, growth visibility, MNC parentage, superior financials, increased outsourcing trend, traction in smaller deals...

EBITDA Margins recovered by 618 bps QoQ: The company has witnessedmany challenges over the year FY17 starting with Brexit which has an impact on depreciation of British Pound which took significant hit to ~ 25% of business from UK during the year.

SQS India BFSI Ltd delivered a modest performance in Q1FY18, with earnings (PAT) coming in at Rs 8.7 Cr, down 3.3% Y-o-Y on account of decline in sales and higher employee expenses (% of sales). In Q1FY18, employee expenses as a percentage of sales were reported at 64.7% as against 59.9% in Q1FY17. ..

Drop in revenue; Margins recovered by 414 bps QoQ: SQS recorded revenue of Rs. 575 Mn in Q4FY17 with a drop of 5.6% QoQ. However, EBITDA margins are at 20.3% which is up by by 414 bps QoQ. For the whole year, the company recordedrevenue of Rs. 2600 Mn which is down by 1.6% YoY. The company has witnessed many challenges over the year FY17 starting with Brexit which was unexpected and thus has an impact on depreciation of British Pound which took significant hit to ~ 25% of business from UK during the year.

SQS India BFSI Ltd delivered a modest performance in Q4FY17, with earnings (PAT) coming in at Rs 4.4 Cr, down 58.8% Y-o-Y on account of decline in sales and higher other expenses.

Weak Q3FY17 Due to Macro Environment Headwinds:Drop in revenue; Margins slipped by 305 bps QoQ - In Q3FY17, SQS recorded revenue of Rs. 609 Mn compared to Rs. 684 Mn during Q2FY17 with a drop of11.0%. As business remains weak in UK and Middle East, uncertainty in the US market continues as regulations set to change are the primary resaons for revenuede-growth. Low utilization, hiring of senior level employees also impacted EBITDA margins which was dropped to 12.2% down by 305 bps QoQ and 355 bps YoY. SQSrecorded PAT of Rs. 38 Mn with a QoQ decline of 36.6%, due to the impact of weak operating performance and a forex loss of ~ Rs. 24mn in the quarter.

SQS India BFSI Ltd delivered a modest performance in Q3FY17, with the company's earnings (PAT) coming in at Rs 3.8 Cr, down 48.6% Y-o-Y on account of higher other expenses, decline in sales and forex loss. In Q3FY17, revenue of the company declined 9.2% Y-o-Y to Rs 60.9 Cr while other expenses inc..

Drop in EBITDA Margin by 532 bps QoQ: In Q2FY17, operating revenue was Rs. 684 Mn compared to Rs. 731 Mn during Q1FY17 with a drop of 6.4%. This is due to Brexit voting which impacted in terms of Forex fluctuations and there is a planned decrease in the revenue from two large projects which were heading towards the end of the project milestones.

Benefits from SQS Group drive growth opportunities: SQS India BFSI is now part of the SQS group, which is world's largest independent specialist testing company. Before acquisition, the consolidated revenue was Rs. 1,614 mn in FY13. Over FY13-FY15, the company recorded revenue growth at a CAGR of 15%. We estimate the revenue will grow at a CAGR of 14% in FY15-FY18E. Going ahead, margin expansion will continue from 17.3% in FY15 to 19.3% in FY18E due to revenue acceleration, changing business mix and employee cost rationalization.

SQS India BFSI Ltd. (formerly known as Thinksoft Global Services Ltd) is an independent Business Assurance and Testing Specialist working entirely with financial sector clients in APAC, the USA,...