Quess corp disappoints investors with poor profit growth and weak margins

In the recently released Earnings report for Q2, the company displayed an unimpressive performance as it failed to increase the net profit despite an increase in revenue.

Q2-FY 22 Highlights

Quess reported a healthy recovery (revenue up 23% YoY/8% QoQ) after a sluggish second wave period. General staffing grew 6% QoQ as associate headcount crossed 250k with a strong contribution from new clients. Global Technology Services and Operating Asset Management segments grew 18% YoY and 15%YoY, respectively. 

Consolidated revenue stood at Rs 3,228 crore in Q2-FY22 against Rs 2,615 crore in the corresponding quarter last year.

EBITDA declined 20% on a YoY basis stood at Rs 112.3 crore in Q2-FY22 against Rs 139.7 crore in the corresponding quarter last year. However, EBITDA margin contracted 200 bps on a YoY basis due to high employee cost, EBITDA margin stood at 3.2%.

Net profit declined 26% stood at Rs 38 crore in Q2-FY22 against Rs 46 crore in the corresponding quarter last year. However Net profit margin contracted 60 bps on a YoY basis, NPM stood at 1.1%.

Company and its Business

Quess Corp (Quess), India’s leading integrated business services provider, was established in 2007. Headquartered in Bengaluru, the company has a pan-India presence with an overseas footprint in North America, the Middle East and Southeast Asia. The company serves over 2,600 plus customers. Quess employs over 384,000 personnel (including Terrier Security Services) across its three platforms namely,

a) Workforce Management (WFM) – 66% of revenue

b) Operating Asset Management (OAM) – 16% of revenue

c) Global Technology Solutions – 18% of revenue.

Outlook and valuation

The outlook is for a continued recovery across all businesses during 2HFY22. Encouraging so far is the traction in the staffing and tech solutions segments. Workforce management and security should gather steam gradually. The company is trading P/E of 237x against an industry P/E of 52x.

Valuation looks on the higher side but Quess corp is one of the major players in the industry to watch out for in the future. 

The share closed at Rs 910.10, 3.5% down for the day on November 18, 2021.