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Stock To Buy: Q4FY22 Revenue Up 26% YoY, Buy For 13% Potential Upside, Says Motilal Oswal

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Motilal Oswal Financial Services, a reputed brokerage firm has recommended buying the stocks of Quess Corp Ltd, a Business Service Provider company, for a target price of Rs 790./share.

 

Stock Overview - Target Price, CMP, Return, 52 Week Low & High

According to the NSE, the Current Market Price (CMP) of the stock as on 31st May 2022 is Rs 702.85, gained 2.22%. Today it was opened at Rs 686, while the previous close was Rs 687.60. According to the CMP and the target price, it has the potential to gain 13%. The stock's 52 week low is Rs 527.40, while the 52 week high is Rs 989.90.

Gradual pickup in margin on account of investment in Monster
 

Gradual pickup in margin on account of investment in Monster

Quess Corp Ltd's 4QFY22 performance was modest, with revenue (up 26% YoY) and PAT growth (down 31%) below our estimates. EBITDA margin (reported 4.9%) was impacted by 20bp due to Rs 100m initial investment in Monster. While the WFM business delivered good growth (up 28% YoY) and EBITDA margin improved by 40bp, growth in the other two segments were weaker than expected (OAM/GTS segment up 24%/22% YoY). While growth in 4QFY22 missed our estimate, the management commentary on FY23 was very strong for both the WFM and OAM businesses as the business environment normalizes after the impact of COVID lockdown in FY21-22. The General Staffing business should benefit from a large quantum of open mandates as well as strong workforce addition in FY22. Similarly, OAM is expected to report a stronger 1HFY23 due to the reopening of corporates.

The brokerage said, "While we expect some growth moderation in the GTS business after a strong FY22, overall growth in FY23 (~30% YoY) should exceed FY22 levels (up 26% YoY).  The company should also continue to improve its profitability in FY23 (we factor in 5.3% v/s 4.8% in FY22), despite increased investment in Monster (Rs 1.1-1.2b). This should help Quess Corp Ltd more than double its PAT to Rs 5.6b. On the other hand, the disallowance of 80JJAA deduction by the Income Tax Department remains a key overhang on the stock, as the issue is now an industry concern after TeamLease received a similar query." The brokerage added, "We expect an increase in provision (to Rs 167m for the FY18 assessment) as the rest of the FY16-22 period deduction is likely to be rejected and a resolution will be time-consuming."

Growth estimate miss, 80JJAA issue continues

Growth estimate miss, 80JJAA issue continues

Revenue rose 26.2% YoY, but was below our estimate of 33%. Workforce Management grew 4% QoQ, Operating Asset Management was flat, and GTS rose 1.4%. EBITDA margin was flat QoQ, but down 30bp YoY at 4.9%. It missed our expectation of a 20bp margin improvement. Adjusted PAT declined by 31% YoY to Rs 780m (est. Rs 1.5b), led by lower profitability and a significantly higher tax rate. Revenue/EBITDA/adjusted PAT grew 26%/13%/29% YoY in FY22. In an updated assessment after a special audit for FY18 claims, the I-T Department has issued a draft assessment order on 24th May'22, disallowing the entire deduction under 80JJAA.

Buy for a target price of Rs 790

Buy for a target price of Rs 790

Strong hiring trends have led to a robust demand recovery. Such a trend would likely play out in the near term, benefitting business services firms such as Quess Corp Ltd. Over the medium term, as both the Center and state governments look to liberalize and formalize the labour market, Quess Corp Ltd should be among the biggest direct beneficiaries. Strong growth and the improvement in cash conversion/RoE should drive a rerating. "Our Target Price of INR790/share implies 16x FY24E P/E. We reiterate our Buy rating," the brokerage has said." the brokerage has said.

About The Company - Quess Corp Limited

About The Company - Quess Corp Limited

Headquartered in Bengaluru, Quess Corp Limited is a 14-year old startup, established in 2007. The company is India's leading business services provider, with extensive domain knowledge and future-ready digital platforms to drive client productivity through outsourced solutions. The company provides a host of technology-enabled staffing and managed outsourcing services across processes such as sales & marketing, customer care, after-sales service, back-office operations, manufacturing operations, facilities and security management, HR & F&A operations, and IT & mobility services, etc. Quess today has a presence in more than 64 locations across India, South East Asia & North America, backed by technology-intensity and domain specialization to create unmatched service experiences.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.

Story first published: Tuesday, May 31, 2022, 12:56 [IST]
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