Buy Quess Corp; target of Rs 480: Motilal Oswal

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Motilal Oswal 's research report on Quess Corp

Quess Corp (QUESS)'s 1QFY21 results were largely in line with estimates. Adjusted for businesses that remained completely closed (e.g., Excellus) and one-off COVID-19-related costs, underlying revenue, EBITDA, and recovery trends were reasonably resilient. Good cost rationalization, net debt reduction (by INR1b), healthy cash conversion (OCF/Ind-AS adjusted EBITDA = 152%), and the simplification of Terrier's holding structure are key micro-level positives. Recent unemployment data (e.g., CMIE) and hiring outlook surveys hint at quick and strong recovery in the job market. However, the back and forth on lockdowns across cities would mean some amount of uncertainty in the job market. Based on our learning in the immediate aftermath of GFC and the demonetization, this uncertainty would likely lead to the conversion of some otherwise permanent roles into temporary ones, consequently benefitting staffing firms.

Outlook

We expect 10%/24% revenue/EPS CAGR over FY20-22E. Using the Residual Income approach, we arrive at TP of INR480. We adjust the FY20 book value for an appropriate share of outstanding goodwill/inter-company loans on the balance sheet.

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