QUESS delivered a 15.6% YoY growth in revenue, slightly below our estimate of 16.5%. The headcount addition was strong at ~14k net. The EBITDA margin at 3.3% was below our expectations of 3.5%. The margin was negatively impacted due to ongoing investments and headwinds in workforce management (WFM). The management indicated good demand in BFSI, manufacturing, and telecom, while the demand for FMCG and IT is expected to remain weak. QUESS hired an additional 14k individuals in 1QFY24. The company indicated that it made this hiring in anticipation of a strong festive demand in the next two quarters. This move provides good visibility for near-term growth and we estimate a revenue CAGR of 17.6% over FY23-25.
OutlookThough QUESS should benefit from medium-term tailwinds of formalization and labor reforms, the growth has already been factored into the valuations. We reiterate our NEUTRAL stance due to full valuations, taxation concerns, and weak macro. Our TP of INR440 implies 12x FY25E P/E.
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