Quess Corp Limited

Buy - QUESS

CMP (NSE) 15:30, 17 Jun

827.10 -9.7-1.16%

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Reco. Price

202

Period

12-Months

Target Price

319

upside

%

Stop Loss

0

Last updated on

30 Apr, 2020

Quess Corp, one of India’s leading integrated providers of business services, is available at steep discount (~70%) to TeamLease and SIS post the recent correction. We believe that after considering the impact of Covid-19 in current price, the market’s reaction to past concerns is grossly overdone and does not factor in key elements like focus on improving ROE / OCF and multifold scalability of general staffing business. Moreover, it’s strong balance sheet and backing of Fairfax provides comfort in addition to the fact that the valuation of general staffing (high ROCE business) alone can be more than current overall market cap.

Vast opportunities available across business lines
The organized flexi staffing industry benefits from increasing formalization of economy, compliance requirements and labour laws. Sans the impact of current event, markets for temporary staffing, outsourcing and facilities management in India are all projected to grow in double-digits over the medium term, driven by growing needs for flexible and efficient cost structures.

Ability to withstand near term pressures
Quess Corp is well placed to withstand near term pressure vis-à-vis small peers on account of its strong balance sheet. As at December 2020, its gross debt to Ebitda stood at 1.3x and its cash balance is sufficient to cover ~15 quarters of interest.

Outlook & Valuation
The recent correction offers an opportunity to invest in India’s leading staffing company at low valuations. The stock currently trades at ~7x FY21E EV/Ebitda, which is at a significant discount to TeamLease (trading ~26x). Hence, we recommend to BUY the stock from a longer term perspective with SOTP based target of Rs319.

Financial Summary
Consolidated Rs cr FY18 FY19 FY20E FY21E FY22E
Revenue 6,167 8,527 10,892 9,493 9,476
EBITDA % 5.7 5.4 6.0 5.6 6.4
EPS growth (%) 127.5 (19.8) (5.1) (57.6) 81.7
P/E (x) 9.3 11.6 12.2 28.5 15.8
EV/EBITDA (x) 8.7 6.9 5.7 6.7 5.6
ROE (%) 18.9 9.9 8.9 3.7 6.4

Source: Company, IIFL Research

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