QUESS delivered a strong performance in 1QFY23, with the 33% YoY growth in revenue driven by a strong 34% growth in Workforce Management. The strong headcount addition (~30k net) suggests huge growth visibility in FY23. EBITDA margin at 3.9% was in line, although down 100bp QoQ on elevated investments in Monster.com and salary hikes in 1QFY23. The management commentary on FY23 was very strong as demand continues to pick up. In GTS, IT demand remains strong, with the pipeline at 3x the capacity to onboard the workforce. The General Staffing business should benefit from a strong workforce addition in 1QFY23 and FY22. While we expect some growth moderation in GTS business after a strong FY22, overall growth in FY23 (~31% YoY) should exceed last fiscal’s levels (up 26% YoY). The company should continue to improve its margin from current levels, despite increased investment in Monster (INR1.1b). We expect a FY23/FY24 EBITDA margin of 4.2%/4.8%. This will translate in a PAT CAGR of 46% over FY22-24E.
OutlookThe company should be a key beneficiary of formalization and labor reforms over the medium term. Moreover, it should see a strong growth in FY23 on strong growth trends. Our TP of INR710 implies 17x FY24E P/E. We reiterate our Buy rating.
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