CMP: ₹497.5
Target: ₹560
Key takeaways: a) Management indicated that propensity of clients to outsource increases during downturns. In good times, the flexi staffing business model benefits from outsourcing of non-core activities by clients to support their growth.
b) The company indicated that key focus going forward will be on RoE (return on equity) improvement at contract/individual business unit level.
c) CEOs of different segments will have RoE targets. The focus will be on these rather than the EBITDA margin/gross margins targets.
d) Over time, the company intends to divest businesses that do not meet the RoE threshold, which we understand is 20 per cent.
e) In general staffing, Quess remains focussed on volume growth through new client additions.
f) Driving greater share of value-added services (VAS) and efficiency improvements through digitisation are other strategic priorities.
Valuation and view:
a) Through Comtel, Quess Corp has exposure to geographies such as Singapore which were severely impacted by Covid-19.
b) Increasing spread of Covid-19 in core geographies such as India will pose a key risk to business continuity of Quess. This will be a double whammy given the already weak economy and demand for business services.
c) We downgrade our FY21-22 PAT estimate and target price by 6 per cent. Maintain ‘Neutral’.
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