Quess Corp: Simplifying corporate structure

1 Apr 2024 , 12:25 PM

Quess Corp recently announced its demerger into three independent companies – Digitide (GTS), Bluspring (OAM and PLB) and Quess (WFM and the remaining businesses). The demerger is aimed at simplifying the corporate structure, in a bid to reduce the conglomerate discount. Quess expects the demerger process to be completed in 12-15 months. There is a potential risk of delay, if the I-T department challenges the demerger due to the outstanding liability under Sec. 80JJAA. In that scenario, healthy FCF generation and the company’s intent to stay away from M&A until the demerger could result in cash being returned to shareholders. Quess’ underlying business momentum remains healthy and the targeted Ebitda break-even at foundit by Q4FY24 remains on track. Analysts of IIFL Capital Services raise EPS for FY25/26 by 5%/2%. Their new TP comes to Rs650 (vs Rs640 earlier).

Demerger to simplify organisation structure:

The demerger follows the increasing realisation that a one-size corporate strategy does not fit all the three companies. Each business (WFM, GTS, OAM and PLB) is now mature with its own rhythm, cyclicality and nuances. Quess has run these in a decentralised way, with each business having its own president, staff functions and backend. The demerger would result in sharper focus on each business.

Improving business outlook:

FY23 profitability was largely impacted by Rs0.95bn Ebitda loss in its jobs platform foundit (formerly Monster). Analysts of IIFL Capital Services expect foundit to turn Ebitda-neutral in FY25. This, coupled with the depressed PAT margin in FY23, should drive 2.5x EPS jump between FY23 and FY26. Higher thrust on manufacturing, opportunities in Tier II and III cities and expansion of commercial Real Estate are the key medium-term growth drivers.

Targets shared in the analyst meet:

Quess Corp (WFM) aims to achieve 30% margins from international staffing. The company aspires to become the largest player in WFM worldwide, in terms of headcount (currently at 412k — the largest at 602k). Digitide aims to do US$1bn top line in the long run (currently US$300mn); including through potential M&A. Management aims to achieve an ARR of US$100mn for foundit by FY30 (currently US$20mn ARR). The company targets to grow OAM at 3-4x GDP growth, with 5% Ebitda margin.