BackQuess Corp’s new dividend policy gives hope to investors
Continued demand for high-margin IT staffing segments should aid overall growth, said the company
PremiumIn an attempt to allay investors’ concerns on capital allocation, Quess Corp. Ltd has announced a new dividend policy. The temporary staffing company would be using around 33% of its free cash flows to returnto its shareholders over three years, and has started by announcing its first ever dividend of ₹7 per share. “This move adds to investor confidence after a string of sub-optimal capital-allocation decisions," analysts at ICICI Securities Ltd said in a report on 7 June.
Since its listing in 2016, the company’s growth strategy has mostly been inorganic. The long time taken to turn around acquired entities and rising debt have made investors uncomfortable.
However, in the past two years, the management has held back on the major mergers and acquisitions front. Also, at the end of FY21, the company’s gross debt fell to ₹516 crore from ₹1,147 crore a year ago, aided by cash management, improved collections and an income tax refund.
It should be noted that the company had a net cash position of ₹99 crore in FY21, compared to a net debt position of ₹355 crore in FY20.
“We see the announcement of a new dividend policy as a positive, especially as this indicates the management is comfortable with its cash-generation ability," analysts at Motilal Oswal Financial Services Ltd said in a report on 6 June.
Meanwhile, in a post-earnings conference call, the company’s management said that in FY21, it saw a gross headcount addition of 60,000. While there has been a steady recovery in headcount additions, the management cautioned of pressure in Q1FY22 due to the covid-led lockdown. In the past three-four weeks, hiring momentum has faded in verticals where field sales were impacted or physical centres were shut, the company said.
However, the management is confident of a pick-up as the economy recovers in Q2, aiding its general staffing business. Continued demand for high-margin IT staffing segments should aid overall growth, it added.
The management reiterated its earlier outlook of achieving 20% return on equity and average annual growth of 20% in operating cash flow growth till FY23. A continued focus on debt reduction and a generous return policy should help achieve these targets.
In the past one year, shares of Quess have rallied 156%, outperforming competitor Teamlease Services Ltd, which has risen 95% in the same span.
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