Business services provider Quess Corp is looking to be a simpler balance sheet company by cutting down on its number of subsidiaries.
In an interaction with Moneycontrol, Subrata Kumar Nag, Group CEO, Quess Corp, said that they want to cut subsidiaries to less than 30, over the next few quarters.
"The process to have a simpler balance sheet will begin from Q3FY20 on wards. The merger of four wholly owned subsidiaries is in progress. Additionally, a few other Indian/overseas entities are either being merged or converted to branches," he said.
While Nag said that a majority of consolidation processes will begin in Q3 and Q4 of FY20, it may go into the next financial year. He added that this will depend on the regulatory clearances.
Quess posted a 5 percent year-on-year (YoY) increase in its September net profit at Rs 65.03 crore. Nag said that the profit growth was muted due to the adoption of IND AS 116 from April 2019. This had an adverse affect on Q2 net profit and resulted in a dip of Rs 5 crore.
He added that Quess has taken a decision that over the next 18-24 months, the company will not look for major acquisitions.
"We will try to consolidate our position, increase cash conversion to cross 50 percent, bring ROCE and ROE to pre-IPO levels and pruning down the debt," he added.
Reducing debt
The company's EBITDA grew by 44 percent YoY to Rs 161 crore in Q2. Nag added that the EBITDA margin crossed 6 percent for the first time (at 6.1 percent).
He emphasised that Quess' focus would be to reduce debt and improve cash conversion. The cash conversion rose by 1,300 bps to 49 percent on a YoY basis. Nag said that the improvement was driven by continued focus on collections.
"This generation of cash has helped us reduce our gross debt by Rs 375 crore in Q2. Gross debt stood at Rs 920 crore during the quarter, while net debt is Rs 272 crore. We hope to become a debt-free company over the next couple of quarters," added Nag.
Quess has also taken steps to rationalise inter-company loans and advances, which stood at Rs 560 crore in the previous quarter. Nag said that they have been able to resolve most of the inter-company loans. The company reduced Rs 117 crore by repayment & conversion into Compulsorily Convertible Debentures (CCDs).
A further conversion of another Rs 274 crore into CCDs is underway.
Thomas Cook demerger
With respect to the Thomas Cook India de-merger, Nag said that this is expected to be completed by Q3FY20. This de-merger scheme has been approved by shareholders and creditors of Thomas Cook India and Quess. Further, TCIL has received approval from NCLT Mumbai.
NCLT hearing for Quess is scheduled on November 7. Post the de-merger, Quess will be directly held by Fairfax Holdings (~33 percent), with public shareholding going up to ~44 percent (from ~28 percent) currently.
Post the Thomas Cook India de-merger, Rs 74 crore of the loan to Heptagon, a tech company backed by Quess, will be converted to equity. Due to this, Quess’ inter-company loan balances will reduce to around Rs 95 crore.
Emerging businesses
Among the emerging businesses of Quess, Nag said that they are hoping for an operating breakeven for jobs site Monster.
In Q2FY20, Monster saw a 53 percent YoY increase in job views to 2.6 million and 24 percent YoY increase in site visits to 12.8 million.
While there are talks of a slowdown in an economy that will spill into new jobs, Nag said that they have not seen any such slowdown in Monster and their staffing business. He clarified that despite the consolidation, Monster will continue as a standalone entity.
In the September quarter, Amazon also invested Rs 51 crore into Quess Corp’s subsidiary Qdigi Services. Nag explained that they will use Rs 12 crore of that investment immediately for Digicare.
Digicare is the group’s after-sales service provider for electronics and consumer durables. The investment, added Nag, will be used to expand Digicare's pan-India presence.
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