Expect growth recovery to continue in FY22 Motilal Oswal values your support in the Asiamoney Brokers Poll 2021 for India Research, Sales, Corporate Access and Trading team. We request your ballot....

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.

Quess reported Q3FY18 sales of Rs 15.8 bn, up 48% YoY (adjusted for retrospective consolidation of MIS). Organic growth was strong at 30% YoY. Q3 results reflect consolidation of TBSS and Vedang Cellular. EBITDA margin expanded ~14 bps YoY to 5.7%. PAT at Rs 700 mn, up 107%

QUESS' 48.5% YoY revenue growth to INR15.8b was a beat to our estimate, driven by a pick-up in organic growth and integration of TBSS (which we had assumed for the subsequent quarter). While there have been several acquisitions over the last few quarters, we reckon organic growth in the quarter would be ~25% v/s ~20% in the previous quarter. A pick-up was also seen in the People & Services business,with growth of 25% YoY v/s 8% YoY in the year-ago period. EBITDA margin at 5.7%expanded by 10bp YoY. While margins were stable in P&S and the integration of higher-margin Manipal Integrated Services boosted profitability in Integrated Facilities Management, there was a YoY decline seen in Global Technology Solutions (-50bp) and Industrials (-200bp). A turn around in Industrials and further integration of accretive acquisitions would, however, lead to expansion, going forward. PAT at INR690m was up105% YoY, beating estimates because of a lower ETR (80JJAA).

We met the management of Quess Corp to understand its business model & future prospects. Incorporated in 2007, Quess Corp is India's leading integrated business services provider and among industry leaders in each of the key business services it operates in. It operates across business segments of people & services (P&S;) (53.6% to revenues in Q2FY18), global technology solutions (GTS) (30.6% to revenues), integrated facility management (IFM) (~10% to revenues) & industrials (IAM) (~6% to revenues). In the last five years, topline has grown at a...

Revenue traction strong across-the-board, only GTS growth acquisitive: Strong YoY growth was driven uniformly across business segments, with growth ranging from 17-40% YoY. GTS was the only segment with contribution from an acquisition (Comtel). Excluding this, growth in the segment was in high-single-digits. While growth in overseas acquisitions within GTS is expected to be relatively low, its Indian IT staffing business is facing the impact of sluggish activity in IT Services. Integration of Manipal and Terrier is expected to boost revenue growth in 2H....

Quess concluded FY17 with gross sales of Rs 41 bn, driven by strong organic growth of 21% YoY. EBITDA margin expanded ~100 bps YoY to 5.7%. PAT at Rs 1.13 bn, up 40% YoY. Positive FCF of Rs 330 mn or 30% of PAT should allay investor concerns.

Revenue increased by 9.3% to Rs. 1122.09 Cr in Q4FY17 when compared to the previous quarter.

BUY Quess Corp Ltd at CMP Rs.671 and add on dips to Rs. 595 - 671 for the Targets Rs. 757 & Rs. 840

Quess Corp Ltd is one of India?s leading integrated business services providers focused on emerging as the preferred partner for handling end-to-end business functions of its clients

Quess Corp Limited - QUESS is one of India's leading business service providers handling end-to-end business functions for clients. As of February 2016, it had over 117,000 associate employees i.e. employees placed with clients and has provided employment to more than 120,000 associates. Quess has 1,300 clients (20 Fortune 500 clients), 47 offices across 26 cities and 3,400 core employees across India, North America, Middle East and South East Asia. Quess Corp aims to raise | 400 crore through a fresh issue of shares (at a price band of | 310-317 per share).At the IPO price band of | 310-317, the stock is available at a multiple of 45x-46.1x FY16 EPS at the lower/upper band, respectively.