Neutral Quess Corp; target of Rs 450: Motilal Oswal

Motilal Oswal's research report on Quess Corp

Quess Corp (QUESS) posted 11.1% YoY revenue growth in 2QFY24, in line with our estimate. The headcount addition was strong at ~22k net. The EBITDA margin of 3.4% (+10bp QoQ) was in line too. This was aided by a recovery in margins for OAM (+50bp QoQ) and PLB (+600bp) businesses.  The management indicated a healthy demand, especially in BFSI and Manufacturing, while IT is likely to remain weak. While growth in WFM and OAM was slightly slower than expected, QUESS hired additional 22k individuals in 2QFY24, which provides good visibility for the near-term growth. We estimate a 16.6% revenue CAGR over FY23-25. EBITDA margin improved 10bp QoQ (in line) due to strong margin improvement in OAM and PLB, which was promising. The management reiterated its guidance for the PLB and American operations to achieve EBITDA breakeven by 4QFY24. We expect these investments to aid margins in FY25.

Outlook

Though QUESS should benefit from the medium-term tailwinds of formalization and labor reforms, the growth has already been factored into the valuations. We reiterate our Neutral rating due to full valuations, taxation concerns, and weak macro. Our TP of INR450 implies 12x FY25E P/E