Result Update: Quess Corp Ltd - BUY - TP Rs.1302 - Kotak

One-off impact: The company has booked a non-operating accounting charge of ~Rs.160 mn (prior-period) in Q1FY19 resulting in lower PAT and lower margins. However, management is optimistic that in 9MFY19 the margins will improve. It has already started a business transformation program encapsulating zero based budgeting, service excellence and digitization of key business processes to further enhance margins.

Key Highlights

- Quess has reported lower than expected bottom line. Quess's Q1FY19 reported PAT decreased 28% qoq to Rs.544 mn (+19% yoy) mainly due to lower operating profit, one-time non-operating accounting charge, lower other income, higher tax paid and higher depreciation charge.

- In Q1FY19, operating margin declined by 58 bps qoq and 59 bps yoy to 5.2% mainly due to 1) Impact of seasonality in the business operations of recently acquired entities such as Conneqt Business Solutions and Manipal Integrated Services and 2) Impact of ongoing strategic investments in Technology, sales and operations at Monster and DigiCare.

- Employee headcount increased by 39%/4% yoy / qoq to ~272,000 in Q1FY19.

Valuation & outlook

- We now expect Quess to report an EPS of Rs.28.7 in FY19E and an EPS of Rs. 32.6 in FY20E supported by both recent acquisitions done by the company and organic growth. We maintain BUY rating on Quess with a revised target price of Rs.1302/share (earlier Rs. 1320/share), valuing the company at a P/E multiple of 40x on FY20E. In India, every month ~1 million people are entering the workforce, generating sustainable employment becomes an imperative which opens huge growth opportunities for Quess.

Shares of Quess Corp Ltd was last trading in BSE at Rs.1069.05 as compared to the previous close of Rs. 1131.05. The total number of shares traded during the day was 8905 in over 841 trades.

The stock hit an intraday high of Rs. 1140.05 and intraday low of 910. The net turnover during the day was Rs. 9720600.

Source : Equity Bulls

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