MOSL: QUESS CORP (Neutral)-Strength in organic business intact-Acquisitions continue weighing on profitability
Quess Corp: Strength in organic business intact; Acquisitions continue weighing on profitability
(QUESS IN, Mkt Cap USD1.4b, CMP INR687, TP INR750, 9% Upside, Neutral)
- Encouraging organic growth: QUESS’ revenue grew 50% YoY to INR21b (in-line) in 2QFY19. Organic growth of 26% YoY was encouraging, boosted by continued traction in People & Services business (+34% YoY) and robust growth in Integrated Facility Management (+26% YoY).
- Profitability still subdued: EBITDA margin contracted 30bp YoY to 5.4%. Margins shrank in all segments, either because of investments, restructuring or acquisitions. Despite strong revenue growth, PBT grew by a mere 5% YoY to INR690m due to (i) lower operating margins (-30bp YoY), (ii) depreciation (+100% YoY) and (iii) interest expenses (+80% YoY). Acquisitions continue weighing on profitability. Consequently, we revise our margins estimate downward, resulting in an 8% cut in earnings.
- Improving on problem areas: The direction of several initiatives was encouraging in QUESS, the fructification of which would result in a positive shade on performance and viewpoint. These include: (i) efforts to expand the EBITDA margin to 6% by end-FY19 and to 8% in a few years, (ii) aim to convert 30-40% of EBITDA to operating cash, (iii) merger of subsidiaries into the parent, and (iv) a more selective approach on acquisitions with the intent of not adding additional verticals.
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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