MOSL: QUESS CORP (Neutral) - Quess3.0-Betting on the shift – unorganized to formalization
Quess Corp: Quess3.0: Betting on the shift – unorganized to formalization; Transformation from a peoples services to a platform-based business
(QUESS IN, Mkt Cap USD1.3b, CMP INR649, TP INR730, 12% Upside, Neutral)
We attended Quess Corp's (QUESS) Analyst Day, where the company shared its view on the key verticals and the strategy to drive the business toward its vision. Key highlights:
- Strategy toward platforms: QUESS started as a people services company with a focus on manpower deployment and peripheral managed services. However, over the years, it has transformed itself into an all-round service provider under three business platforms: [1] workforce management [2] asset management and [3] technology solutions. QUESS now has an annual run-rate of INR62,332m (CAGR of 34%), with total workforce exceeding 262,000 (CAGR of 47%).
- Focus on cash generation: 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. YTD OCF stands at INR1.24b, already higher than INR1.09b in FY18. Cash flow conversion (as a percentage of EBITDA) stood at 44% in 3QFY19 v/s 27% in FY18. This is driven by an increase in 'collect & pay' as a percentage of total projects in people services, from 58% in FY18 to 62% in 9MFY19.
- Returns hurt by inorganic foray: 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.
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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