MOSL: QUESS CORP (Buy)-Acquires Tata Business Support Services-Strengthening the technology portfolio
​QUESS CORP: Acquires Tata Business Support Services; Strengthening the technology portfolio
(QUESS IN, Mkt Cap USD1.8b, CMP INR866, TP INR1170, 35% Upside, Buy)
- Quess Corp acquired 51% stake in Tata Business Support Services, a provider of Customer Lifecycle Management and Business Process Management. The company would fit into Quess' technology solutions portfolio (30% of revenue), strengthening offerings and providing cross-sell opportunities.
- Quess would pay INR1.53b in an all-cash deal, valuing TBSS at INR3b, implying a trailing sales multiple of 0.5x and EBITDA multiple of 5.4x. Valuations for the deal seem attractive given Quess' current multiples of 2.5x sales and 46x EBITDA.
- Our FY19/20 estimates for revenue/EBITDA/PAT increase by 8/12/8%, thereby increasing our price target by 12% to INR1,170, implying an upside of 35%.
- About TBSS: TBSS, a subsidiary of Tata Sons is a company with wide a wide services portfolio ranging across Customer Lifecycle Management (CLM) and Business Process Management (BPM), serving Tata and non-Tata companies in the verticals of telecom, media, retail, manufacturing and BFSI. TBSS as of FY17 had revenue of INR6.6b and has seen growth of 12% in FY17. The company had an EBITDA of INR559m in FY17, implying margins of 8.5%. Although margins have seen a decline for the last two years, current levels are expected to be sustainable.
- A sizeable acquisition: Assuming continued revenue growth of 12% and stable margins, the acquisition would add 8/12% to our FY19E revenue/EBITDA estimates. Our PAT expectations are inching up by 8% given erosion of other income led by the cash outflow. The acquisition fits into the Global Technology Solutions segment of Quess Corp, which contributes to ~30% of total revenue. The segment is currently made up of Magna Infotech (IT staffing in India), Brainhunter (IT staffing in North America), MFX (IT services for the P&C industry in North America) and Comtel (IT staffing in Singapore).
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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