Quess Corp, India’s leading business services provider announced its financial results for the quarter and year ended 31st March 2020 today.
Commenting on the financial results, ED & CEO Mr. Suraj Moraje said, “Quess delivered a strong year, with 29% revenue growth and 42% EBITDA growth. Our focus on OCF generation (including DSO reduction from 69 days in FY19 to 62 days in FY20) saw us grow OCF by 34% on a normalized basis. We are especially pleased by the growth delivered by our General Staffing and Allsec businesses. We have taken resolute steps to further develop our business and to face headwinds that the global COVID-19 crisis seeded in Q4. We are confident that these actions will continue to boost our OCF growth and ROE in the medium term, while ensuring the institution emerges stronger and even more resilient from this tragic period for humankind.”
- Q4 FY20 Revenues grew 30% YoY (organic growth of 27%) and 2% QoQ (all organic) driven by an exceptional performance in general staffing (up 67%)
- FY20 revenue was up 29% to Rs. 10,991cr with headcount growing by 21% to ~384,000
- Quarterly EBITDA grew 28% YoY to Rs. 169cr. EBITDA decreased marginally QoQ on account of COVID impact
- FY20 EBITDA was up 42% to Rs. 658cr with margin improvement of 54 bps
- FY 20 Operating PAT, i.e., before the one off exceptional items and Ind AS adjustments (comparable to last year PAT) up 11% at Rs. 284 crores
- FY 20 Reported PAT includes one off non-cash charge of Rs. 664 crores on account of Goodwill impairment and change in tax regime
- Improvement in cash position due to continuous focus on collections – combined DSO improved to 57 days from 63 days in Q4FY19 and 59 days in Q3FY20
- OCF for FY20 grew 16% YoY with conversion ratio marginally higher at 44% vs same period last year. Normalised OCF / EBITDA conversion (adjusted for pre-released expenses) stands at 51%, implying 34% growth in normalised OCF
- QOQ Net Debt increased by Rs. ~41cr to Rs. ~354cr, primarily on account of Rs. 100 crores precautionary working capital lines drawn in March 2020 due to COVID impact. However, Gross debt / EBITDA levels remained largely flat.
The stock corrected almost ~75% from pre-COVID-19 levels on concerns around: a) the severe impact on general staffing and collections, b) liquidity position, and c) the potential legal liabilities in outcome-based businesses. However, given a) industry concerns around manpower shortages / sharp wage increases and b) government orders forbidding lay-offs, we understand the General Staffing segment has not witnessed any material dislocation thus far. Accordingly, we believe the above-mentioned concerns are exaggerated. A material impact is unlikely going forward as the economy goes into a phased re-opening and enterprises try to dodge the supply-side disruption.
Outlook: In the Base Case, we expect 15%/17% revenue/EPS CAGR over FY20–22E. In the Bear Case, we expect a 5%/-3% annualized change in revenue/EPS. Using residual income approach, We arrive at a target price of RS 295.