quess build 2Issue Details:

Quess Corporation is coming up with a 400 crore IPO on June 29, 2016. The company, promoted by Thomas Cook (India), has fixed the price band of Rs 310 to Rs 317 per share for its IPO.

The issue will remain open from June 29 to July 1.The issue is being managed by Axis Capital, ICICI Securities, IIFL Holdings and YES Securities.

Issue Allocation:

Qualified institutional buyers (QIBs) –  75%

Non-institutional investors (NIIs) –  15%

Retail = 10%

The company has been covered in detail in the previous post http://ipoandmore.com/2016/06/21/quess-corp-ipo-will-it-be-priced-reasonably/

Quess Corp is is a business services provider that operates across four verticals—

  • Global technology solutions ( Help customers automate business processes)  : These services are offered  in India, North America and South East Asia, under Magna Infotech, Brainhunter, Mindwire and MFX brands. The segment contributed approx 27% its revenues in FY2016.
  • People services (includes comprehensive staffing services (excluding IT staffing) like general staffing, recruitment , temporary staffing , executive search, recruitment process outsourcing, payroll, compliance & background verification services, Skill development).. The segment is the largest and  contributed 56.64% to its  revenues in FY2016. Services offered under IKYA and CoAchieve brands.
  • Integrated facility management for hospitals and schools across India. Under Avon and Aravon brands, this segment contributed 82% to the company’s revenues.
  • Industrial assets management services : under Hofincons brand , co. provides industrial operations and maintenance (O&M) services mainly to  energy, oil & gas, chemicals and metal industries. This amounted to 5.61% of its revenues.

Financials and Comparison with Peers :

The Nearest peer company is Teamlease, even though Quess corporation’s range of services is much broader than  those offered by Teamlease Services.

Financial Performance :  Quess Corporation vs Teamlease

Quess Corporation Fy16 Team Lease Fy16 Team Lease Q4Fy16
Revenues 3442 2505 664.18
Net Profit 88.5 24.8 9.14
Equity 113 17.1 18.1
EPS(annualised) 7.8 14.5 20
NPM 2.57 0.99 1.40
Market / Offer  Price 317 914 920
PE 40.6 63.0 46.0
RONW approx 25% 7.97

 

Growth Comparison in last two years :  Quess Corporation vs TeamLease

Quess Corporation Fy16 Team Lease Fy16
Revenues  Fy15 2572 2007
Revenues  Fy16 3442 2505
Profit Before Tax Fy15 104.2 326
Profit Before Tax Fy16 124.75 378
Net Profit fy15 67.2 30.7
Net Profit fy16 88.5 24.8
% Growth in Revenue 33.8 24.8
% Growth in  Profit Bef Tax 19.7 16
% Growth in Net Profit 31.7 -19.2*
  • Due to increase in Taxes

On almost all fronts, including margin, growth Quess Corp is better placed than Teamlease by a wide margin.

Assessment:

  • Quess Corp is a step-down subsidiary of Fairfax Financial Holdings Group; held through its Indian listed subsidiary, Thomas Cook (India) Limited..
  • Quess Corp is country’s largest player in IT staffing co. with over 1,300 clients , 43 offices in India and operations across 8  countries.
  • Quess Corp has been growing at a rate of more than 50% year in year basis and this growth looks sustainable at least for next 2-3 years about 26%, 31/2% will be for stock options and remaining 10% shall be with public.
  • Post Issue, Thomas cook will be holding about 60% in the company, Mr. Ajit Issac MD will hold about 26%, 3.5% in Stock options and 10% by public.
  • Quess Corp is country’s largest player in IT staffing co. with over 1,300 clients , 43 offices in India and operations across 8    The company was 1,20,000 employees and has made 9 acquisitions in last 8 years.  The latest acquisitions have been in Sri Lanka.
  • Ajit Isaac, MD recently claimed that the company had grown 9x over the last five years, at a compounded annual growth rate of 65 %, and its return on capital employed (ROCE) stood at 28%. He said that till date the company had grown entirely out of internal accruals and never borrowed money to acquire companies. Also 95 % of the revenues are annuity in nature, creating a good amount of predictability on the revenue flows. He said, the money from the IPO will give the company muscle do more acquisitions in the future. Thus Quess is expected to grow both in organic and inorganic fashion.
  • The company aims at expanding its service portfolio and operations through strategic acquisitions that complement existing operations. It also aims at capitalizing growth in e-commerce in India and pursue other business-to-consumer (B2C) opportunities as well as improve operating margins.
  • Thomas cook the promoter company could be adversely affected due to Brexit & further developments and this is a risk factor.
  • The company had negative cash flows in two of the years including 2016 & has not given any dividend till date.
  • Quess Corp is coming out at a PE of 40.6. This is lower than that commanded by Teamlease even as Quess appears to be a more sound company with better growth track record, prospects, offerings, financial ratios and profitability.
  • At PE of 50 which may not be difficult to command, the company in normal market conditions could list at a price of Rs. 390/- plus.

 Disclaimer : Iam not a SEBI certified equity analyst and investors are advised not to construe the above analysis as a recommendation to buy or apply in this IPO.

Advertisements