Informist, Friday, Jun 14, 2024

By Apoorva Choubey and Anjana Therese Antony

MUMBAI - Quess Corp Ltd expects growth in Oct-Mar to be better than Apr-Sep across all its business verticals of workforce management, global technology solutions, integrated asset maintenance, and product-led operations, Guruprasad Srinivasan, executive director and group chief executive officer told Informist in an interview. The company also hopes to improve operating margins marginally during 2024-25 (Apr-Mar).

"H2 of FY25 is expected to be better than H1 for all businesses," Srinivasan said. While the company does not generally give a margin guidance, Quess Corp is certain of sustaining earnings before interest taxes, depreciation and amortisation margins of around 4%, and is hopeful of even improving this profitability by 20-30 basis points, through better productivity.

"We should be able to exit FY25 maybe around 4.2-4.3%," Srinivasan said. Quess Corp's margins grew 22 bps during 2023-24 to 3.63%, while profitability rose 24 bps on quarter to 3.98% for Jan-Mar. Global technology solutions and asset management operations, the two businesses that have a higher contribution to operating profit, have fared well in the last few months.

With the Indian economy likely to keep growing at a robust pace and the government thrust on capital expenditure expected to continue, Quess Corp sees significant growth from sectors such as manufacturing, retail, and banking and financial services.

Under the workforce management division, the general staffing business is growing at a healthy rate even as the staffing in information technology services is subdued, Srinivasan noted. Information technology companies have reduced staff by around 11,000 in Jan-Mar and 70,000 during the last financial year ended March. "As and when the IT sector recovers, the staffing segment will get a good lift," Srinivasan said, adding that some green shoots of recovery are likely to be seen in IT hiring trends October onwards.

Quess Corp is also focussing on the GCC or Global Capability Centers segment in a bid to capture some more share in the fast-growing space within staffing in India. However, the international IT staffing segment remains weak because of area-specific issues at places like Singapore, Malaysia and Philippines. While the company's general staffing revenues continued to grow at 17% sequentially in Jan-Mar, the overall workforce management segment's EBITDA and revenue growth was muted at 2% and 1%, respectively.

The company expects the asset maintenance business to also keep doing well this year with the growth in the Indian economy, while sharper focus on operational efficiencies, productivity and better delivery structures can help profitability profile improve further from 5.0-5.4% margin currently, he added.

Prospects for Quess Corp's other businesses, such as global technology solutions and talent acquisition platform, also remain robust. The company is looking to increase the contribution of the high-margin international business wherever possible.

The company expects Foundit--which has transformed from job portal Monster to the second-largest Indian player in the talent acquisition platform space--to remain profit-making at an operating level for Apr-Jun, thereby reducing cash burn. Quess Corp expects Foundit to turn profitable on a net basis by 2025-26, Chief Financial Officer Kamal Pal Hoda, who was also present, said.

In the last four years, the compounded annual growth for Foundit has been close to 40% despite IT services not doing well in the last one-two years. The company reported revenues of 191 bln rupees for the last financial year, up 11% from a year ago, while clocking the highest-ever EBITDA of 6.94 bln rupees, which was 18% higher.

DEMERGER

Quess Corp is also certain that its plans to demerge operations into three separate listed entities will not just lead to value-unlocking for shareholders but also drive higher return ratios, a simplified corporate structure and better decision-making. "From the standpoint of various platforms and business units having a strong market standing, it is the perfect time to simplify the corporate structure for the investor community...Today, Quess Corp doesn't have a competitor at a consolidated level," said Srinivasan.

The company's workforce management operations will be housed under Quess Corp, while Bluspring Enterprises will be a combination of two segments--the facility management and the product-led business, which includes Foundit. Digitide Solutions will focus on business process management solutions, and human resource outsourcing businesses.

For the interested set of investors, it will be easier to choose which businesses they want to invest in, when operations are separated, he said. Once demerged, financial parameters for each of the businesses will change, the return on equity will be different, and the cash generation will be far superior, he added.

CFO Hoda echoed this view. The first benefit of the demerger will be simplified corporate structure and enhanced management focus, he said. "When you have a dedicated legal entity with a dedicated leadership team for each and every business, it definitely gives a competitive edge," he said.

While the company is a market leader or one of the top three players in several product categories, Quess Corp's valuation currently has a conglomerate discount, which will be addressed after the demerger, Hoda believes. "There is precedence in corporate India that such demergers have unlocked value," Hoda said.

For context, Quess Corp's shares are trading at a price to earnings multiple of around 28-29 times on a one-year forward earnings estimates basis, which is far lower than the 36-37 times some smaller companies offering specialised staffing solutions and asset maintenance are valued at. However, the valuations are not exactly comparable as the company does not have a direct competitor. Today, the shares closed at 619.65 rupees on the National Stock Exchange, flat from the previous close.

Quess Corp had said in February that the demerger will be completed in 12-15 months. As the stock exchanges have confirmed that they have not received any complaints from shareholders related to the demerger scheme, the company expects a clearance from the Securities and Exchange Board of India shortly, following which the first motion application with the National Company Law Tribunal will be filed, Hoda said.

ASPIRATION

Quess Corp aspires to become the biggest player in staffing solutions globally over the next four-five years, Srinivasan said. The company is currently the largest player in general staffing in the country in terms of deployment with 400,000 people, while the global leader in staffing has a headcount of 600,000. "Our IT business has to grow 2x for this aim and the international mix needs to be higher at around 30% of the bottomline from the present 22%," he said.

For the business process management space, the company's vision is to make it a $1-bln digitised company over the next five-six years. At present, the headcount for this business is over 50,000 and the revenue is around $300 mln per year, Hoda said. End

US$1 = 83.56 rupees

Edited by Vandana Hingorani

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