Quess Corp IPO hit capital markets on Wednesday with initial public offering (IPO) of 1,29,03,226 shares of Rs 10 each in a price band Rs 310-317 per equity share. The issue will close on July 1, 2016. At present, Thomas Cook India is the corporate promoter of the company holding 70 per cent shares of the company.
Staffing firm Quess Corp on Tuesday raised Rs 180 crore from anchor investors, including Kuwait Investment Authority.
Apart from Kuwait Investment Authority, Fidelity Investments, ICICI Prudential MF, HDFC MF, Nomura, Harvard Management Co, DSP BlackRock, Wasatch, Pictet and Grandeur Peak were among the anchor investors. The company allotted 56.78 lakh shares to anchor investors at the price of Rs 317 per scrip, according to a filing to the stock exchanges.
Here are 10 things you should know about Quess Corp IPO before subscribing:
1) About the company: Quess Corp, promoted by Thomas Cook, provides comprehensive solutions including recruitment, temporary staffing, technology staffing and IT product and solution, skill development, payroll, compliance management, integrated facility management and industrial asset management services. The company derives 86 per cent of its revenues from India while the balance comes from its international business. Over the past three years, the company has made several acquisitions which has fueled its growth and has shown good track record of improving the performance of its acquisitions.
Headquartered in Bengaluru, the Company has pan-India presence with 47 offices across 26 cities, as well as operations in North America, the Middle East and South East Asia. It serves over 1,300 customers across 4 segments namely, Global Technology Solutions, People & Services, Integrated Facility Management and Industrial Asset Management.
2) Objective of the issue: The company will use the issue proceeds for repayment of debt availed by the company; funding capital expenditure requirements of the company and its subsidiary, MFX US; funding incremental working capital requirement of the company; acquisitions and other strategic initiatives and general corporate purposes.
3) Lead managers: The book running lead managers to the issue are Axis Capital, ICICI Securities, IIFL Holdings and YES Securities (India).
4) Strengths: The company is a leading integrated business services provider in India providing comprehensive business solutions to a wide range of industries. As of March 31, 2016, its operations are spread across India with 47 offices across 26 cities in India. The company also offers certain services in a number of jurisdictions in North America, the Middle East and South East Asia. The company has established a track record of successful inorganic growth through strategic acquisitions to supplement its business verticals, diversify its revenue streams, and integrate such acquired businesses to further strengthen its service portfolio. It also has a track record of rapid growth as well as improved operating margins in recent years. The company believes that its client retention levels reflect its ability to deliver complex business processes across various industries, the value-added nature of its business services and solutions, and the quality of its consistent client servicing standards.
5) Risks: The staffing industry is highly fragmented with intense competition and lacks a clear cut leader accounting for dominant share in the employment services market. Almost 70-80 per cent of the industry is unorganized consisting of small players. Although Quess Corp is the third largest player in the industry, its lead over its followers is narrow. It faces stiff competition from these companies as well as other small players, thus leading to lack of pricing power. According to market experts, slowdown in economy can restrict the company’s growth as it provides temporary staffing solution to various sectors like manufacturing, logistic, telecom, hospitality, IT/ITes etc. which are dependent on economic growth.
6) Growth Opportunities: According to Angel Broking, Quess Corp has presence in high-growth business verticals like temporary general staffing, payroll & compliance outsourcing, professional IT staffing, facilities management, etc. under different brands. As per a report by Frost & Sullivan, the market for these segments in India is expected to grow at a CAGR of 19-24 per cent over 2014-19. Further, the penetration level of temporary staffing is low in India (0.1 per cent, which is among the lowest in the world), and is likely to improve from hereon on account of increasing need for cost efficient structures. Thus, the brokerage house expects the company to benefit from increasing demand for manpower across industries on the back of its strong management, healthy track record and presence in diversified business verticals which would help it to enhance its market share and increase revenue.
7) Financials: Over the last four years, the company has reported a strong revenue CAGR of around 52 per cent and PAT CAGR of around 94 per cent which was largely fuelled by its strategic business acquisitions and by strong growth across business verticals. Going forward Angel Broking expects the company to report healthy growth on back of increase in industry penetration. Further, the company’s profitability is also expected to increase due to its focus on increasing the share of higher-margin businesses in the revenue mix.
8) Acquisition and turnaround: Quess Corp has completed a turnaround of Avon and Magna Infotech with both acquisitions having grown considerably in terms of revenue and operational profits since the time of acquisition, according to Monarch Networth Capital.
9) Valuation: According to Sharekhan, at a price band of Rs 310-317, the Quess Corp IPO is priced at 39.7-40.6x its FY2016 consolidated earnings per share (EPS) of Rs 7.8. Despite better margins and strong return ratios, QCL’s valuations at the offer price are at a discount to some of its nearest rivals. Improvement in profitability and operating cash flows will be the key performance driver for the company in the near-to-medium term.
According to Motilal Oswal Securities, the company is reasonable valued at a diluted P/E of 45x its FY16 EPS which is at a discount to its listed peer Team Lease which trades at 58x FY16 inspite of QCL’s better growth track record and superior return ratios.
10) Should you invest: According to Monarch Networth Capital, the only listed peer in the space, TeamLease trades at 57.4 x FY16 earnings while the Quess Corp would trade at 45.1 x FY16 earnings at the upper price band of Rs 317. The brokerage house believes Quess Corp has a superior business model owing to high margin IT business coupled with operational efficiencies in turn resulting in over 25 per cent ROE and ROCE. With an ever-increasing formal work force in India and growth in flexistaffing penetration, Monarch Networth Capital is positive on the growth prospects of Quess Corp and hence recommended a “Subscribe” to the IPO.
SMC Investment and Advisors believes a long-term investor can opt for this issue.
Angel Broking in a research report said, “On the valuation front, at the upper end of the price band, the pre-issue P/E works out to 40.6 times its FY2016 earnings which is lower compared to its peers (Team Lease is trading at 63.1x FY2016 earnings) and also has a better margin and ROE profile. Further, post the IPO, Quess Corp is expected to improve its operating margin significantly. Considering the positives and the company’s relatively lower valuation, we recommend a ‘Subscribe’ on the issue.”
(With agency inputs)