MOSL: QUESS CORP (Neutral)-Encouraging trends on cash flow generation and headcount addition
Quess Corp: Encouraging trends on cash flow generation and headcount addition
(QUESS IN, Mkt Cap USD1.3b, CMP INR646, TP INR720, 11% Upside, Neutral)
- In-line operating performance: 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 increased 6.5% YoY (our estimate: +5.4%) to INR650m. ETR stood at 1.5% 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.
- Performance steady in key business segments: Organic growth was at 23% YoY v/s 26% in 2QFY19. People & Services (P&S) continued exhibiting strength (up 35% YoY v/s our estimate of +31.2%), with segmental EBITDA margin expanding 15bp QoQ to 5.71%. Global Technology Solutions (GTS) revenue grew 49% YoY (our estimate: +52%; Conneqt and Digicare acquisitions are in this segment). P&S headcount was at 180,000 v/s 175,000 in the previous quarter. Overall employee headcount grew 21% YoY to 292,872 from 280,400 in 2QFY19.
- Strong cash generation; expect a strong exit: Cash flow from operations (OCF) was INR530m for the quarter v/s INR390m in the previous quarter. YTD OCF stands at INR1.24b, already higher than INR1.09b in FY18. Also, we expect EBITDA margin to expand ~60bp QoQ to 6% in 4Q, led by [1] continued leverage in P&S from upfront costs in training centers, [2] strong seasonality of Conneqt business, [3] low 3Q base from weak seasonality in IFM and [4] results from the recent initiatives to rationalize costs.
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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