Quess Corp IPO: Will it be Priced Reasonably ?

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Quess Corp is is a business services provider that operates across four verticals—

  • Global technology solutions ( Help customers automate business processes)
  • People services (includes general and IT staffing, recruitment, temporary staffing. Skill development)
  • Logistics &  integrated facility management
  • Industrial assets management services.

The company was earlier known as  IKYA Human Capital Solutions Ltd, and has evolved out of efforts  of Ajit Isaac, Chairman & MD, Quess Corp from year 2000 onwards. He formed PeopleOne Consulting which he sold to Swiss staffing giant Adecco in 2004. It was acquired by Prem Watsa owned Thomas Cook in early 2013 for Rs 256 crore. The deal marked an exit for India Equity Partners, which invested in  2008 and company was  rebranded as Quess  corp last year. Thomas cook owns 69.55% stake in Quess Corp and  Quess corp will become second listed firm for Canada’s Fairfax Financial group owned by Shri Prem Watsa.   Thus Quess corp is a step-down subsidiary of Fairfax Financial Holdings Group; held through its Indian listed subsidiary, Thomas Cook (India) Limited.. Originally, Quess Corp  was mainly  a staffing services firm but with many acquisitions after bong taken over by Thomas cook , especially after it came under Thomas Cook, it expanded aggressively and now provides solutions detailed above including recruitment, temporary staffing, IT products and solutions, skill development, payroll, compliance management,

The company closed the 15-month period ending March 2016 with revenues of Rs 2,573 crore and a net profit of Rs 68 crore. Between the period 2011 and 2015, Quess’s revenues have grown at a compound annual growth rate (CAGR) of 75%  percent, with net profits at nearly 153 percent.   Quess Corp is country’s largest player in IT staffing co. with over 1,300 clients , 43 offices in India  and operations across 8  countries.  The company was 1,20,000 employees and has made 9 acquisitions in last 8 years.  In initial years  the company had made plans and set a target to achieve 8 per cent margins by 2018 from 2 per cent four years ago, at a revenue base of 1 billion US  $  or 5,000 crore ( dollar rate at that time was Rs. 50/-) i.e. profit of 400 crore in 2018. However this seems difficult to achieve.

Shri Ajit Isaac, MD recently claimed that the company had grown 9x over the last five years, at a compounded annual growth rate of 65 %, and its return on capital employed (ROCE) stood at 28%. He said that till date the company had grown entirely out of internal accruals and never borrowed money to acquire companies. Also 95 % of the  revenues are annuity in nature, creating a good amount of  predictability on the  revenue flows. He said, the money from the IPO will give the company muscle do more acquisitions in the future.

It plans to use the money for repayment of debt (Rs 50 crore) as well as capital expenditure of the holding company and American arm MFX (Rs 70.68 crore); incremental working capital requirement (Rs 157.9 crore); acquisitions and other strategic initiatives (Rs 80 crore), besides other purposes. Majority of Quess Corp business (55 %) comes from its people and services unit, followed by global technology solutions (28 %), facility management (12 per cent) and industrial asset management (5 %).

The company equity capital stood at 113 crore and based on that EPS  stands  approx Rs. 5.  Nearest peer company  Teamlease reported a sales of Rs.664.18 crores and a net profit of Rs.9.14 crore  for the quarter ended March 2016  giving quarterly EPS of 5.71 and  for  the year ended March 31, the net profit of the company stood at Rs 24.8 crore, while total operating revenue was at Rs 2,504.91 crore.  With equity of 17.1 cr   the company EPS stood at 15.91 and  PE of about 55.

It needs to be seen whether Quess Corp will keep IPO price reasonable in line with some recent IPOs like Equitas, Ujjivan, MGL, Thyrocare etc. or keeps it expensive.

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