MOSL: QUESS CORP (Downgrade to Neutral)-Profitability miss traced down to acquired entities
Quess Corp: Profitability miss traced down to acquired entities; An elevation of risks may cap upside
(QUESS IN, Mkt Cap USD2.4b, CMP INR1095, TP INR1100, Downgrade to Neutral)
- Encouraging trends in organic business: Quess Corp’s 52% YoY revenue growth to INR19.7b was a 4% miss to our estimates. While growth in the organic business remained strong (40% YoY growth in People & Services), a marginal slowdown was seen in Integrated Facility Management (22% YoY in 1QFY19 v/s 28% in 4QFY18). We reckon Quess organically grew 29% YoY.
- Material PAT miss: EBITDA margin of 5.2% shrank 60bp on both QoQ and YoY basis. The company attributed the contraction to (i) seasonality in Conneqt and Manipal and (ii) investments in Monster and DigiCare. Benefits from these investments are expected to be seen in 2HFY19. PAT at INR544m grew by 41% YoY, against our estimate of +123%. While half the miss on PAT was because of operating profitability, the rest was driven by charges on the non-controlling-interest put option, lower other income, and higher ETR.
- Acquired entities weigh upon performance: Together, the operating miss and non-cash items have a material bearing on our earnings estimates (-20/-13% for FY19/20). All the reasons that the miss were ascribed to can be traced down to acquisitions. The surprise on seasonal weakness could be a function of a lack of foresight given the recency of acquisitions; however, the outcome of these investments would only be unfolded by time and reflective in the financial performance.
Quess Corp Limited is engaged in the business of temporary staffing services, executive search, recruitment services, housekeeping and facility management services, including engineering services, food services and skill development. The Company's segments include People & Services (P&S), Global Technology Services (GTS), Integrated Facilities Management (IFM) and Industrial Asset Management (IAM). Its P&S segment provides specialized service offerings in search, recruitment and recruitment process outsourcing, general staffing, training and skill development, payroll and compliance and retail solutions. Its GTS segment focuses on three areas, including information technology (IT) staff augmentation, solution and products. Its IFM segment offers facility management services, including soft services, hard services, food and hospitality and pest control. Its IAM segment provides plant asset management and it offers solutions in industrial operations and maintenance and managed services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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