Quess Corp Ltd - Research Report
Private Client Research
Rating
Buy
Sector
Miscellaneous
Company
Miscellaneous
January 10, 2018
Sensex: 34433.07
CNX Nifty: 10632.20
NSE: QUESS
BSE: 539978
Reco Price
Rs. 1070
Price Target (1 Year)
Rs. 1285
Upside
20.09%
Date
January 10, 2018
Sensex
34433.07
CNX Nifty
10632.20
Exchange
Code
NSE
QUESS
BSE
539978
Stock Data
CMP (Rs)
1061.25
Face value (Rs)
10
52 Week Range (Rs)
1194.90 - 630.00
Market cap (Rs Crores)
15479.52
Price To Book Value (x)
8.38
P/E Ratio (x)
65.08
EV/EBIDTA (x)
72.21
One Year indexed Stock Performance
Quess Corp Ltd
Sensex
Return (%)
1m
6m
12m
36m
Absolute
1.01
17.21
63.09
-
Sensex
2.92
8.57
28.01
24.82
Shareholders
(in %)
31-Dec
Promoter
71.67
Public
28.33
Others
0.00
Total
100
+91 22 6639 3000
research@stockaxis.com
Consistent performance with successful acquisitions and strong management will drive growth for the company
Successful Acquisitions:
Quess Corp is a leading integrated business services provider in India with PAN
India as well as overseas presence.Over the past three years, the company has made
several acquisitions which has fueled its growth and shown good track record of
improved margins and profits which is likely to continue in the coming years as
well. The company has done two acquisitions in the industrial segment during FY18.
It recently acquired 70% stake in Vedang Cellular Services which is amongst the
top 5 players in the Telecom Network optimization space at an investment of about
Rs 40 crores. Additionally, it also formed a JV with Trimax IT Infrastructure Services
to develop and rollout IT infrastructure for Ahmedabad city as part of the smart
city project being rolled out by the government. Going forward, the company intends
to continue to expand its service portfolio and operations through strategic acquisitions
that complement with its existing operations.
Diversified revenue base will lead to margin expansion:
Quess has presence in general staffing, IT staffing, facilities management, manned
guarding, and industrial asset management. The company has followed a de-risked
business model having no concentration in terms of segmental and sectoral exposure.
With the company drifting from a pure HR outsourcing company to business services
provider reveals that the new businesses are margin accretive. The company’s
margin has improved significantly from 2.61% to 5.31% between FY13-FY17. This is
due to company’s continuous efforts to bring in operating efficiencies and
increasing exposure to higher margin segments such as GTS, IFM, IAM. The company
expects further scope for margin expansion with some of the recent acquisitions.
Strong client base:
Quess has a well-diversified client base from sectors such as ecommerce, IT, BFSI,
infrastructure, utilities, oil & gas, auto, telecom, healthcare, FMCG and retail.
It has also developed long-term relationships with its clients which have enabled
the company to deliver consistent client servicing standards. The company has pan-India
presence with 65 offices across 34 cities along with overseas footprint in North
America, the Middle East and South East Asia. Out of the top 25 clients, 22 of them
have been a customer of Quess over the past 3 years.
Recent developments for organized players:
The government has simplified laws which relate to industrial relations, wages,
social security and safety. This development will positively impact organized companies
such as Quess. Also, the company has tax advantage under the section of 80JJAA and
is expected that it will remain a zero tax company in the next few years. Top 5-6
staffing companies have a market share gain of 20-25% whereas remaining 70-75% is
yet with the unorganized sector. Hence, with the GST rolling in, there is a huge
opportunity for the company to gain organized market share.
Industry
People & Services: The temporary staffing market grew 19% in 2016 to around Rs. 54,000 crores. The sector is expected to grow by 20% annually to Rs. 92,000 crores by 2019 driven by the demand from organised retail, e-commerce, banking and insurance sector. The working age population (15-54 years) accounted for 58.9% of the 1.26 billion population in 2016 and it is expected to increase to 65.9% of the population i.e. 891 million in 2022.
Global Technology Solutions: India’s Information Technology- Business Process Management (IT-BPM) industry grew by 8.6% in FY 2016-17 to USD 155.5 billion. However, the industry faces uncertainties due to regulatory changes in the US and the macroeconomic outlook.
Facility Management: India has witnessed increased acceptance of outsourcing non-core activities and sustained commercial and office space absorption have been significant drivers for growth of facility management services in India. In FY 2015-16, the IFM market size grew to Rs. 10,400 crores, at a historic five year CAGR of ~15%. The sector is expected to maintain a growth rate of 25% CAGR over the next three years.
Profile
Quess Corp, established in 2007,and headquartered in Bengaluru is India’s leading integrated business services provider. It has pan-India presence with 65 offices across 34 cities along with overseas footprint in North America, the Middle East and South East Asia. It serves over 1700+ customers across 4 segments namely, Global Technology Solutions (GTS), People & Services, Integrated Facility Management (IFM) and Industrial Asset Management (IAM). The company is committed to provide a world-class customer experience while continuously working towards creating better lives. Superior services and technology solutions have enabled Quess to achieve market leadership in many of the businesses that it has a presence in IT staffing, Industrials, Facility Management, Security solutions, skill development and general staffing.
Profit & Loss Statement:- (Consolidated)
(Rs Crores)
| Particulars | 15-Mar | 16-Mar | 17-Mar | Mar-18E | Mar-19E | Mar-20E |
|---|---|---|---|---|---|---|
| Net Sales | 2567.06 | 3435.01 | 4157.36 | 4780.96 | 5354.68 | 5997.24 |
| Growth (%) | 33.81 | 21.03 | 15.00 | 12.00 | 12.00 | |
| Total Expenditure | 2436.95 | 3283.54 | 3933.67 | 4518.01 | 5044.11 | 5637.41 |
| EBITDA | 130.11 | 151.47 | 223.69 | 262.95 | 310.57 | 359.83 |
| % Margin | 5.07 | 4.41 | 5.38 | 5.50 | 5.80 | 6.00 |
| Other Income | 7.44 | 9.05 | 15.25 | 15.00 | 20.00 | 20.00 |
| Operating Profit | 137.55 | 160.52 | 238.94 | 277.95 | 330.57 | 379.83 |
| Interest | 22.63 | 31.44 | 47.42 | 52.00 | 57.00 | 60.00 |
| PBDT | 114.92 | 129.08 | 191.52 | 225.95 | 273.57 | 319.83 |
| Depreciation | 10.14 | 14.39 | 26.44 | 30.00 | 32.00 | 35.00 |
| Profit Before Taxation & Exceptional Items | 104.78 | 114.69 | 165.08 | 195.95 | 241.57 | 284.83 |
| Exceptional Income | 0.00 | 0.00 | 0.12 | 0.00 | 0.00 | 0.00 |
| Tax | 35.88 | 33.52 | 51.76 | 0.00 | 0.00 | 0.00 |
| Profit After Tax | 68.90 | 81.17 | 113.44 | 195.95 | 241.57 | 284.83 |
| Consolidated Net Profit | 68.90 | 81.17 | 113.44 | 195.95 | 241.57 | 284.83 |
| Adjusted EPS | 5.43 | 6.40 | 8.95 | 15.45 | 19.05 | 22.47 |
Source: Stockaxis Research, Company Data
Valuation
Quess, being an integrated services provider of end to end business services, has established a track record of strategic acquisitions across its different business verticals. With strong customer base and diversified revenue streams, we expect the company to deliver good growth in the future. Hence, we recommend a ‘Buy’ with a target price of Rs. 1285 at a valuation of 57.2x its FY20E earnings with a period of 1 year.