Quess Corp Q4 Results Review - Expect Growth Moderation In FY24 On Weak Macro: Motilal Oswal

Motilal Oswal Report

Quess Corp Ltd. delivered a weak performance in Q4 FY23, with 17.1% YoY growth in revenue. The headcount addition was good at ~6,000 net. The Ebitda margin at 3.4% was in line with expectations. Margin expansion was negatively impacted due to ongoing investments and headwinds in IT staffing.

The management indicated a weak macro environment. The demand for IT staffing remains under pressure on slow hiring. We expect FY24 growth to remain slower, due to macro headwinds. IT staffing will continue to be adversely impacted from the slowdown in IT Services space. With growth expected to rebound in FY25, we estimate a revenue compound annual growth rate of 17.5% over FY23-25.

Ebitda margin expanded 16 basis points to 3.4% (inline), primarily due to cuts in selling, general and administrative spending, partly offset by investments and headwinds in IT Staffing.

The management maintained its guidance for the product-led business to Ebitda break even by Q4 FY24, with margin recovery expected over subsequent quarters, considering that a significant portion of the investments have already been made.

While the margin pressure continues, with Quess Corp’s focused efforts on improving efficiencies, we expect Ebitda margin to gradually improve to 3.8%/4.4% for FY24/FY25.

Accordingly, we expect a profit after tax compound annual growth rate of 80% over FY23-25, on a low FY23 base (down 35% YoY on poor margin performance).

The tax disallowance of 80JJAA deduction by the Income Tax Department is expected to remain as an overhang on the stock.

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