MOSL: QUESS CORP (Neutral)-Organic momentum strong, positive move on resolving structural issues
QUESS CORP: Organic momentum strong, positive move on resolving structural issues
(QUESS IN, Mkt Cap USD1b, CMP INR496, TP INR540, 9% Upside, Neutral)
** Revenue outperformance, margins in line: Revenue grew 26.7% YoY (7.3% beat) in 2QFY20. Excluding the impact from the accounting standard changes, EBITDA was up by 16.4% YoY (our estimate: +13%) and PAT by 5.5% YoY (our estimate: 28%). Ind-AS 116-adjusted EBITDA margin was at 5% (in-line), up 70bp YoY against the backdrop of the Allsec acquisition, improved efficiencies in IFM, and expansion in the margins of skill development and North America staffing operations. PAT came in below our estimate by 17.6% due to higher-than-expected depreciation and interest expense (partially impacted by Ind-AS) and lower-than-expected other income. For 1HFY20, revenue/EBITDA/PAT were up 24%/44%/5% YoY.
** Organic growth driven by People and Services: Organic revenue grew by 23% YoY, majorly driven by strong headcount addition in the general staffing business. QUESS added 59,000 associates in 1H, which is significantly more than 35,000 in FY19. High associate count was led by broad-based growth in all major verticals. The company has been gaining market share aggressively despite increasing its collect and pay offerings (72% of business).
** Progress toward ongoing issues: QUESS has given a clarification on various issues that were increasing the risk profile for the company. It has acquired Trimax IT's 49% stake, becoming the sole owner for future cash flows from the smart city project. Further, it has assured that the demerger of TCIL will complete by end-3QFY20, post which the public holding will increase by 44% (currently 28%) and QUESS will become a domestically owned company. The company has also made a move toward reducing intercompany loans by converting INR1,170m into CCDs. It is also looking out for converting another INR3,480m to CCDs post the TCIL de-merger. Resolution of these issues could significantly reduce its risk profile.
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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