“BUY” This Mid Cap CDGS Stock For 38% Return Recommends Motilal Oswal

Motilal Oswal, a reputed brokerage company, has issued a buy call on Quess Corp Limited's stock. The brokerage has set a target price of Rs.1,100 for the stock, implying a +38 percent gain over the market price of Rs. 796. The stock was trading at a market price of Rs. 796 at the time of the brokerage's buy call, but it is currently trading at a market price of Rs. 805 per share on the NSE.

The brokerage’s take on Quess Corp

On 22nd December 2021, Motilal Oswal has said in its research analysis that "On 22nd Dec'21, Quess Corp. announced a fund infusion in its Monster.com subsidiary from Meridian Investments and Volrado Venture Partners at a pre-money valuation of INR6.0b, much higher than its 2018 acquisition cost of c.INR896m. The funding will be channelized to expand Monster's presence in the job search and training market. Fund raise is positive but poses a higher risk: In 2QFY22, Monster.com contributed 1.2% of Quess' revenues and nothing to PAT given its breakeven status. Hence, post-money valuation of INR6.6b (after the first stage) is positive as it accounts for 5% of Quess' current market INR 118b."

According to the brokerage "Conversely, we view Monster's expansion within job search and training space as concerning due to the dominating presence of Naukri in this market. Given the gap in capability and branding, Monster needs to deploy this fund quickly and might require future funding to disrupt Naukri's monopoly. Thus, we see this as a key execution risk. We are currently not factoring this in our valuation for Quess. The fund infusion in Monster.com will happen via a combination of Compulsory Convertible Preference Shares (CCPS) and Compulsory Convertible Debentures (CCD), with CCPS investment of INR625m from external investors being the first stage. Quess' stake in Monster will reduce to 90.6% after this stage."

Motilal Oswal has further claimed that "After this, there will be a CCD round of INR500m, split in 25:75 ratio between the investors and Quess, with valuation dependency on the next round of funding (at 25% discount to the next round with floor and cap valuations of INR6.0b and INR7.5b, respectively). Investors also have an option to top up to INR375m (including CCD) within four months at a pre-money valuation of INR6.0b."

Buy Quess Corp Says Motilal Oswal

According to the research report of the brokerage "Strong hiring trends have led to robust demand recovery. We noticed similar trends in the immediate aftermath of the GFC/demonetization - when staffing companies benefitted from positive hiring trends in certain verticals. Such a trend would likely play out over the near term, supporting business services firms such as Quess. Further, Quess should be among the biggest direct beneficiaries in the medium term, as both the center and state governments look to liberalize and formalize the labor markets."

Motilal Oswal has stated that "Resurgence of covid remains a risk which might impact near term growth. We welcome the corrective steps taken by the new management to address some of the investor concerns. The improvement in cash conversion / RoE should drive a re-rating. Our TP implies 23x FY23E EPS. Maintain Buy."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.