Buy Quess Corp For Target Rs.290 By Emkay Global Financial Services Ltd
Quess reported a mixed operating performance in Q4, with revenue declining 0.9% QoQ, but rising 6.5% YoY to Rs38.9bn, albeit below our expectation. EBITDAM increased 20bps sequentially to 2.2%, largely driven by operational discipline, cost optimization, and a better portfolio mix. Segment-wise, General Staffing revenue fell 2.4% QoQ due to a marginal decline in Manufacturing, the impact of labor code implementation, delayed client decision amid geopolitical instability, and supply shortage due to state elections. Professional Staffing revenue grew 0.7% QoQ on the back of GCC-led demand, while Overseas Staffing revenue was up 14.4% QoQ due to healthy momentum in the UAE, Malaysia, and the Philippines. The company expects Professional Staffing to sustain double-digit EBITDAM, driven by the value-accretive nature of GCC mandates and a growing portfolio of high-margin, niche-skills contracts. The management expects a recovery in General Staffing, with 10-11% headcount growth and 12-13% revenue growth in FY27. It expects EBITDAM to be ~2% in the near term and ~2.4% over the medium term (over 3Y period). Key focus areas for FY27: 1) scaling Professional and Overseas Staffing, 2) driving margin expansion across segments, 3) maintaining strong cash conversion, and 4) continuing capital allocation strategy. We largely retain our FY27/28E EPS, factoring in the Q4 performance. Retain BUY with an SOTP-based TP of Rs290.
Results summary
Revenue declined 0.9% QoQ, though it was up 6.5% YoY to Rs38.9bn. EBITDA grew 8.5%/28.2% QoQ/YoY to Rs864mn, with EBITDAM expanding 20bps sequentially to 2.2%. Net profit increased 16.6% QoQ to Rs641mn, aided by improved EBITDA and an exceptional gain of ~Rs5.9mn following the reversal of a labor code-related liability. The company declared a dividend of Rs6/sh (including a special dividend of Rs3/sh). What we liked: Margin beat, strong performance in the Overseas business, and healthy cash conversion (OCF/EBITDA of ~74%). What we did not like: Revenue miss
Sequential margin expansion in Q4, led by improved portfolio mix
General Staffing revenue declined 2.4% QoQ to Rs33.3bn, while EBITDAM increased ~30bps QoQ to 1.6%, driven by better operating efficiency and mix improvement, despite near-term demand softness. Professional Staffing revenue grew 0.7% QoQ to Rs3.3bn, with EBITDAM expanding by ~30bps to 12.8%, supported by portfolio rationalization, improved engagement quality, exit from low-margin work, expansion into high-margin digital and tech roles, and strong GCC-led growth. Overseas Staffing revenue was up 14.4% QoQ, with EBITDAM contracting by 70bps to 6.3%; growth was driven by core organic revenue growth, one-time pass-through, new customer additions, and FX gains. Overall, margin expansion was primarily driven by a higher contribution from Professional Staffing and a structurally improving Overseas portfolio.
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