Buy SQS India BFSI; target of Rs 1037: Axis Direct

Axis Direct's research report on SQS India BFSI

SQS India BFSI Ltd delivered a modest performance in Q2FY17, with the company’s earnings (PAT) coming in at Rs 5.9 Cr, down 43.8% Y-o-Y on account of higher other expenses and forex loss. In Q2FY17, revenue of the company increased 2.9% Y-o-Y to Rs 68.4 Cr while other expenses increased 70% Y-o-Y to Rs 17 Cr, resulting in contraction in EBIDTA margin to 15.2% (down 690 bps). Other expenses increased on account of new capacity and higher travel expenses. SQS India’s adjusted profit (forex adjustment) in Q2FY17 stood at Rs 7.8 Cr, down 13% Y-o-Y. Revenue contribution from parent (SQS AG) declined to 15.5% from 17% in Q1FY17 due to onsite engagement with parent and increased offshore business. The company’s revenue for Q2FY17remained nearly flat Y-o-Y, on account of Brexit, decline in onsite business leading to lower revenues and increased offshore contribution. Moreover, ramping down of projects by few European clients as the projects are coming up for completion and offshoring of the business resulted in lower contribution from Europe and lower revenue growth for SQS India.