Quess Corp
BSE SENSEX
38,471
S&P CNX
11,269
5 March 2020
Update | Sector: Technology
CMP: INR501
TP: INR560 (+12%)
Neutral
Shift of focus toward RoE improvement
We attended Quess Corp’s (QUESS) Analyst Day. Key takeaways:
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
QUESS IN
147
73.8 / 1
820 / 387
-12/4/-37
140
All-weather business model to benefit during downturns
Management indicated that propensity of clients to outsource increases
during downturns. 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. The focus will be on these
rather than the EBITDA margin/gross margins targets.
Over time, the company intends to divest businesses that do not meet the RoE
threshold, which we understand is 20%.
QUESS also hinted at further headroom for an improvement on asset turns.
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.
Driving greater share of value-added services (VAS) and efficiency
improvements through digitization are other strategic priorities.
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.
Focus beyond BFSI industry and strengthening of GTM team are the focus
areas in overseas IT staffing business.
Faster collections, project closures and reducing capex intensity will be the key
objectives in training and development.
Through Comtel, QUESS has exposure to geographies like Singapore which
were severely impacted by COVID-19.
Increasing spread of COVID-19 in core geographies like India will pose a key
risk to business continuity of QUESS. This will be a double whammy given the
already weak economy and demand for business services.
We downgrade our FY21-22 PAT estimate and TP by 6%. Maintain
Neutral.
Financials Snapshot (INR b)
Y/E Mar
2020E 2021E 2022E
Sales
108.7 129.2 160.5
EBIT Margin (%)
3.7
3.6
3.5
PAT
2.9
3.4
4.6
EPS (INR)
19.6
23.2
31.3
EPS Gr. (%)
11.9
18.2
35.3
BV/Sh. (INR)
265.8 295.7 336.2
Ratios
RoE (%)
10.0
10.7
12.8
RoCE (%)
12.1
12.1
13.8
Payout (%)
0.0
0.0
0.0
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
25.6
1.9
11.0
0.7
21.6
1.7
9.1
0.5
16.0
1.5
6.9
0.4
Shift of focus toward RoE improvement
Strategic priorities in key segments
Shareholding pattern (%)
As On
Dec-19 Sep-19 Dec-18
Promoter
54.7
71.6
71.4
DII
13.2
5.6
5.6
FII
16.6
14.8
14.1
Others
15.5
8.0
8.9
FII Includes depository receipts
Stock Performance (1-year)
Quess Corp
Sensex - Rebased
920
730
540
350
Valuation and view – Weak macro + COVID-19 to be a double whammy
Sudheer Guntupalli – Research analyst
(Sudheer.Guntupalli@MotilalOswal.com); +91 22 5036 2749
Research analyst: Anmol Garg
(Anmol.Garg@MotilalOswal.com); +912271934271 /
Mohit Sharma
(Mohit.Sharma@MotilalOswal.com); +91226129 1531
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.