Quess Corp: decent earnings; performance of acquisitions key

The company posted a 65.9% year-on-year rise in consolidated net profit at Rs30.10 crore in the second quarter of fiscal year 2017


But the surge in Quess Corp’s stock has more to do with its three new acquisitions than just results.
But the surge in Quess Corp’s stock has more to do with its three new acquisitions than just results.

Shares of temporary staffing firm Quess Corp Ltd surged more than 12.7% intraday on Thursday, touching its highest level since listing on 12 July.

The company posted a 65.9% year-on-year rise in consolidated net profit at Rs30.10 crore in the second quarter of fiscal year 2017. In the quarter gone by, revenue grew 26.9% year-on-year to Rs1,018 crore; out of which organic revenue growth (ex-acquisition) was 18.1% year-on-year.

Ebitda (earnings before interest, taxes, depreciation and amortization) margin improved 69 basis points to 5.4% as against 4.7% in the year-ago quarter, buoyed by the performance of global technology solutions and industrial asset management verticals coupled with contribution from subsidiaries MFX and Brainhunter that have begun to turn around.

But the surge in Quess Corp’s stock has more to do with its three new acquisitions than just results.

The company has entered into agreements to acquire stakes in Singapore-based Comtel Solutions Pte Ltd (64% stake being bought upfront) and domestic firms—Terrier Security Services (India) Pvt. Ltd (49% stake bought upfront) and Simpliance Technologies Pvt. Ltd (45% stake upfront). Comtel Solutions would give a boost to Quess’s operations in Asia-Pacific markets such as Malaysia, the Philippines and Sri Lanka, where it has a presence.

Quess Corp’s strategy has been to grow via acquisitions. The management had said out of the total IPO (initial public offering) proceeds of Rs400 crore, it would set aside 20% for acquisitions. The company had then proposed to complete two-five acquisitions by FY17.

According to the company’s latest press release, both Comtel Solutions and Terrier Security Services have been profit-making and are Ebitda positive from FY14. Hence, both these buys are expected to be Ebitda accretive. Comtel Solutions is debt-free but Terrier Security has a working capital loan of Rs2 crore. There is no historical data available for Simpliance Technologies, but the company is profit after tax and Ebidta positive from FY17, showed the release. In a post- earnings conference call, the management said it expects margins to rise above 6%, aided by these acquisitions.

For now, these three acquisitions will be done for a total cash consideration of Rs206.84 crore: Rs132.34 crore for Comptel Solutions, Rs72 crore for Terrier Security Services and Rs2.5 crore for Simpliance Technologies. Quess Corp would acquire 100% stake in Comtel Solutions and Terrier Security once the required approvals are in place. “Our total commitment for these acquisitions is Rs350 crore, spread over a period of time,” the management said, adding that the company may take some debt to fund these acquisitions.

The company expects completion of these acquisitions in the next 60 days.

Meanwhile, peer TeamLease Services Ltd, which made its debut on the bourses in February this year, is yet to announce its earnings for the second quarter.

Shares of Quess Corp have outperformed both the Sensex and TeamLease since listing; trading at a rich valuation of 60.38 times. The stock ended Thursday 6% higher at Rs632.70. For now, it may hover at current levels and is unlikely to move higher, given its valuations.

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