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Stock pick of week: Market has started recognising improvement in Quess Corp's fundamentals

Massive headcount addition of 65,000 during the first nine months of 2019-20 and lower mark-ups in recent contracts indicates Quess Corp’s strategy for market-share gains in general staffing.

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Last Updated: Feb 17, 2020, 11.01 AM IST
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Quess Corp’s operational matrix is also showing improvements. For example, it has started collecting receivables from clients more aggressively.
The continuing growth momentum at Quess Corp got reflected in its third quarter numbers. Its consolidated revenues grew 36% and net profit rose 15% year-on-year. With 11% increase in sales and 15% increase in net profit, its performance was strong on quarter-on-quarter basis as well.

The lower net profit growth on y-o-y, ie compared to revenue growth, was because of the increased contribution from general staffing. Massive headcount addition of 65,000 during the first nine months of 2019-20 and lower mark-ups in recent contracts indicates Quess Corp’s strategy for marketshare gains in general staffing. Due to this aggressive strategy, the company has already replaced TeamLease as the market leader in this segment. General staffing looks robust in fourth quarter also because of the ramp up in some of the large deals signed in third quarter. However, please note that this aggressive market gain share strategy is pulling down overall margins and, therefore, the net profit growth will be lower than revenue growth.

Performances are also improving in other divisions. Things are slowly improving at Monster, the job portal acquired by Quess Corp two years back. Due to the restructuring of the sales team, its loss run-rate has come down from 10% from 18% on q-o-q. Things are expected improve further in the fourth quarter due to the recent release of recruiter search feature.

Quess Corp’s operational matrix is also showing improvements. For example, it has started collecting receivables from clients more aggressively. Debt reduction (Quess Corp reduced debt by Rs 90 crore during the third quarter) is another positive factor worth mentioning. Quess Corp plans to concentrate on its core business now and to reduce liabilities towards unrelated businesses. For example, the contract with Quess East Bengal Club will be terminated in May 2020 and there won’t be any liability from there. Since the focus now is to stabilise recent acquisitions like Monster, the management doesn’t plan any new acquisition in the near future.

As per the consensus estimate, Quess Corp’s net profit is expected to grow by 36% between 2019-20 and 2020-21. The stock market has already started recognising the improvements in its fundamentals (see graphic) and the same is expected to continue in the coming quarters as well. This is because even after the recent rally, Quess Corp is still quoting at a significant discount to TeamLease.

Analysts’ views
  • Buy: 9
  • Sell: 1
  • Hold: 1

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Selection Methodology
We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it.
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