Aug 01, 2016 12:21 PM IST | Source: CNBC-TV18

Quess Corp to focus on services and logistics business in FY17

Quess Corp, which recently ventured into the logistics business on back of strong client demand, will focus on last-mile delivery business.

Quess Corp reported a 36 percent growth in total income to Rs 991 crore while the profit after tax (PAT) rose 37 percent to Rs 24.7 crore. Margins of the company came at 5.3 percent in the first quarter of FY17.

In an interview to CNBC-TV18, the company’s CMD & CEO Ajit Issac said that the management is pleased with its first quarter performance post its listing in July.

Quess Corp’s headcount in Q1 went up by 20 percent. The loss-making subsidiaries - Brainhunt & MFX - have turned profitable in the quarter gone-by, he said.

The company is targeting 5 percent margin growth in its people and services business. It venture into the logistics business has been client-driven, Issac said adding that the focus will on last-mile delivery business. 

Below is the verbatim transcript of Ajit Issac's interview to Latha Venkatesh, Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Latha: Just take us through the numbers, how much of the revenues were added by the subsidiaries, how much was standalone entities growth?

A: The first point is that we are pleased with the performance of the company over the last quarter. It has been a quarter of a very high effort level since it coincided also with our initial public offering (IPO) April, May and June were the months when we were in the road shows and driving the IPO process, so in a sense the numbers have been reflective of the depth of the management team.

Our revenues have grown about 36 percent on a year on year (YoY) basis from the same quarter last year to about Rs 990 crore. Our earnings before interest, taxes, depreciation, and amortization (EBITDA) has grown from about Rs 33 crore to Rs 52 crore, which is a growth of about 59 percent for this quarter and profit after tax (PAT) has also similarly grown from 18 to about 37.

All this is contrasted against the headcount growth of about 20 percent to about 130,000 people now against the last quarter same time.So, what you seen really is non-linear growth in the company added to this is the fact that our EBITDA margins have expanded from what was 4.5 percent to 5.3 percent.

Our efforts in terms of margins expansion is showing results and lastly we had two subsidiaries which we had acquired last year Brainhunter and MFX which were turning in losses at the time of acquisition which have also turned around now.

This quarter they have made profits and although it is about a million dollar all put together. Clearly, the trend is positive and we are hopeful that by the end of the year they will be scoring market EBITDA margins and we are hopeful that this turnaround will continue in both these companies. So that’s the overall story for Quess this quarter.

Anuj: For your people and services business for example which saw really good jump in margins, what’s the sustainable growth rate or what’s the sustainable margin rate?

A: We are right now upwards of about 4 percent and we believe that we have the potential to be able to hold this margin level. We are also investing in more technology that will help reduce our cost of services. Ideally, we would be hoping for a margin level of about 5 percent in this business and that’s our internal goal in the people and service business.

Sonia: I was most interested in the decision that was taken by the board to enter into the logistics business, so you have approved the formation of two subsidiaries to focus on last mile delivery. What kind of expected revenues do you see over the next 2-3 years from this business considering that a lot of the logistics players currently are struggling to see revenue growth, what does the potential look like for Quess Corp?

A: This is an organic growth process for us. We have currently about 13,000-14,000 people engaged in e-commerce and related delivery services, about almost 8,000 of them are in last mile delivery services and we are currently delivering almost about 25,000 packets a day.

We have had inward bound requests from some of our partners, our clients that is to develop solutions that will help them transfer the entire responsibility of last mile delivery to us, around which we have been developing solutions.

So, this is clearly a client-led development and we have around brand of logistics called Dependo Logistics. We invested in a team that is a very high on energy - very bright set of boys from IIT who are developing solutions which will help us develop algorithmic solutions to common logistics problems things like right sizing bins and ensuring that packets of appropriate sizes fill up a bin, optimising route procedures and developing performance standards and metrics that will help reduce costs and increase efficiency levels of delivery of e-commerce parcels, so this is a solution led initiative built around the requirements of some of our clients.

Latha: Who are your top clients and if you can tell us what percentage of your business comes from the top 1, top 5 and top 10?

A: Our clients in the top 5 space will contribute about let say 20-25 percent of our revenues as of now. It is becoming more diversified as we had more revenue lines to our company.

Ideally, we like to have not more than 30 percent of our revenue comings from our top 5 clients and we will stay within that mark as we keep developing business.
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