Quess Corp Ltd. share price target

Strategic plans to unlock value and growth potential

Quess Corp (QUESS)'s 3QFY22 performance was strong, with revenue growth (31% YoY), adj. EBITDA margin (4.9%), and adj. PAT (94% YoY) being in line with our estimates. Growth was broad-based, with 35% YoY growth witnessed in Operating Asset Management (OAM), 34% YoY in Workforce...

Quess Corp (QUESS)'s 2QFY22 revenue growth (8% QoQ / +23% YoY) was in line with our estimates. However, the adjusted EBITDA margin at 4.8% (+40bp QoQ) was ahead of our estimates. Adj PAT grew 81% YoY to INR766m, while reported PAT declined 17% YoY to INR412m (expectation of INR702m). RPAT was impacted by 1) ECL provisions of INR440m (government training and other government business), 2) the reversal of ineligible GST credit (INR480m), and 3) receivables write-offs...

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29 July 2020 Quess Corp (QUESS)s 1QFY21 results were largely in line with estimates. Adjusted for businesses that remained completely closed (e.g. Excellus) and one-off COVID-19-related costs, underlying revenue, EBITDA, and recovery trends were reasonably resilient. Good cost rationalization, net debt reduction (by INR1b), healthy cash conversion (OCF/Ind-AS adjusted EBITDA = 152%), and the simplification of Terriers holding structure are key micro- level positives. Recent unemployment data (e.g. CMIE) and hiring outlook surveys hint at quick and strong recovery in the job market. However, the back and forth on lockdowns across cities would mean some amount of uncertainty in the job market. Operationally, our earnings estimate over FY2122E remains largely unchanged. Over the medium term, we expect QUESS to be the biggest beneficiary of the recently announced labor law reforms Quess Corp reported revenue/EBIT/PAT growth of 1%/-23%/-62% YoY (v/s est. Sequentially, overall headcount declined ~13% and general staffing headcount ~15%, in line with our expectations.

In good times, the flexi staffing business model anyways benefits from outsourcing of non-core activities by clients to support their growth. The company indicated that key focus going forward will be on RoE improvement at contract/individual business unit level. CEOs of different segments will have RoE targets. Over time, the company intends to divest businesses that do not meet the RoE threshold, which we understand is 20%. At the company level, RoE of ~20% is aspired to be achieved by FY23. Strengthening governance, improving capital allocation and balance sheet lightening are the other key priorities of the new CEO. In general staffing, QUESS remains focused on volume growth through new client additions. Expanding bill rate model and enhancing sourcing channels are the key priorities in the Indian IT staffing business. Renewed sales engine, renewed focus on new acquisitions (enterprise, tech, SE Asia), rebuilding/modernizing talent, reinforcing performance culture and digital marketing are the key priorities in Monster.

4 November 2019 Revenue grew 26.7% YoY (7.3% beat) in 2QFY20. Excluding the impact from the accounting standard line), up 70bp YoY against the backdrop of the Allsec acquisition, improved efficiencies in IFM, and expansion in the margins of skill development and North America staffing operations. For 1HFY20, revenue/EBITDA/PAT were up 24%/44%/5% YoY. 23% YoY, majorly driven by strong headcount addition in the general staffing business. QUESS added 59,000 associates in 1H, which is significantly more than 35,000 in FY19. The company has been gaining market share aggressively despite increasing its collect and pay offerings (72% of business). QUESS has given a clarification on various issues that were increasing the risk profile for the company. Further, it has assured that the demerger of TCIL will complete by end-3QFY20, post which the public holding will increase by 44% (currently 28%) and QUESS will become a domestically owned company.

4QFY19 revenue grew 21.4% YoY (v/s est. +23%) to INR22.9b and EBITDA grew 20.5% YoY (v/s est. +18%) to INR1.3b. EBITDA margin expanded ~30bp QoQ to 5.7% (~20bp beat), despite an additional INR80-90m expenditure towards ad campaigns for Monster.com, implying an even better operating performance in the non-internet businesses. PAT declined 0.3% YoY to INR755m (v/s est. of 4% YoY decline). Organic growth in FY19 was driven by People and Services: In FY19, revenue/EBITDA/PBT was up 38.3%/31.1%/14.2% YoY, while PAT was down...

QUESS indicated that its single-point agenda is strong cash generation by improving the conversion cycle. Cash flow from operations (OCF) was INR530m in 3QFY19, as against INR390m in the previous quarter. Cash flow conversion (as a percentage of EBITDA) stood at 44% in 3QFY19 v/s 27% in FY18. Peoples Services the largest contributing segment (~45%) generates a healthy RoCE of 52%. This is dragged down by lower returns in technology solutions, facility management (FMS), industrials, and internet services. FMS RoCE is lower on account of the higher capital base resulting from the Manipal acquisition, excluding which, the RoCE for the segment stands at 21%. Internet services business is yet to turn profitable at the operating level due to higher investments required for sustainability. Profitability in industrial and internet segments is likely to improve over the medium-to-long term.

24 January 2019 3QFY19 revenue grew 37% YoY to INR21.7b (1% miss). Organic revenue growth for the quarter was 23% YoY. EBITDA margin at 5.4% (in-line) was flat QoQ but contracted 30bp YoY. PAT versus 15% in the previous quarter due to tax reversal of INR170.8m versus only INR73.9m in 2QFY19. For 9MFY19, revenue/EBITDA were up 45.7%/35.8% YoY. PAT was down 22.6% YoY, but PBT was up 11.4% YoY. Organic growth was at 23% YoY v/s 26% in 2QFY19.

Quess corp management alluded its focus on execution and balance sheet management to boost its long term earnings growth. Improvement in operating margin will be supported by better revenue mix, improvement in...

26 October 2018 QUESS revenue grew 50% YoY to INR21b (in- line) in 2QFY19. The direction of several initiatives was encouraging in QUESS, the fructification of which would result in a positive the EBITDA margin to 6% by end-FY19 and to 8% in a few years, (ii) aim to convert 30-40% of EBITDA to operating cash, (iii) merger of subsidiaries into the parent, and (iv) a more selective approach on acquisitions with the intent of not adding additional verticals. We had downgraded QUESS when the impact of aggressive inorganic foray started to adversely impact the financial performance. However, we are encouraged by the steps the company is taking for margins improvement, cash conversion and focused acquisitions. While we remain encouraged by the long-term prospects of QUESS, we will reconsider our stance once we see start seeing an improvement on the above parameters.

One-off impact: The company has booked a non-operating accounting charge of ~Rs.160 mn (prior-period) in Q1FY19 resulting in lower PAT and lower margins. However, management is optimistic that in 9MFY19 the margins will improve. It has already started a business transformation program encapsulating zero based budgeting, service excellence and...

Monster is an online portal that provides job search services to registered users and recruitment solutions to clients. It has a workforce of 600 across the three geographies. Monster Worldwide is owned by Randstad. The three entities together had revenue of USD26m in CY16, and have not seen growth since CY14. Combined profitability, we reckon, would be slightly in the red. The entities would be acquired for an Enterprise Value of up to USD14m (0.5x trailing revenue) and the transaction is expected to be completed by 4QFY18. The acquisition would complement QUESS' presence in HR services and pose opportunities for value addition to its existing customers.