Quess Corp IPO – What are the hidden factors?

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Quess Corp IPO – What are the hidden factorsQuess Corp IPO – What are the hidden factors?

Bengaluru based, Quess Corp IPO would open for subscription on 29th June, 2016. Recent Mahanagar Gas IPO got oversubscribed by 64 times (4 times by retail subscribers). Investors might be excited to invest even in this IPO.  Quest Corp Limited is an integrated business service provider in India mainly focused on emerging as the preferred partner for handling end-to-end business functions of their clients. The company revenues grew at 75% CAGR in last 5 years. This is the 12th mainline IPO in India in 2016. What are the positive factors in a Quess Corp IPO? What are the hidden factors about this IPO? Should you invest in this Quess Corp IPO or not? In this article, I would do Quess Corp IPO Review.

Also Read: Best Indian Stocks as per Warren Buffer Principles – Should you invest in them?

About Quess Corp Limited

Quess Corp Limited (formerly known as IKYA HUMAN CAPITAL SOLUTIONS LIMITED), is one of India’s leading integrated business service providers (Source: F&S Report 2016) focused on emerging as the preferred partner for handling end-to-end business functions of its clients. They offer comprehensive solutions including recruitment, temporary staffing, technology staffing, IT products and solutions, skill development, payroll, compliance management, integrated facility management and industrial asset management services. As of November 30, 2015, its clients include some of the world’s largest, reputable organizations, including more than 35 companies ranked in the 2015 Fortune Global 500 list.

Thomas Cook holds 70% of share holding in this company. Post issue, Thomas Cook shareholding would be reduced below 64%.

Issue details of Quess Corp IPO

  • IPO opens: 29-Jun-2016
  • IPO closes: 1-Jul-2016
  • Face Value: Rs 10 per share
  • Issue price band: Rs 310 to Rs 317 per share
  • Issue size: Rs 400 Crores on lower price band
  • Market lot: 45 shares and in multiples of 45 shares therein
  • Minimum investment: Rs 13,950 on lower price band
  • Lead Managers: Axis Capital, ICICI Securities, IIF: Holdings and Yes Securities.
  • Listing: BSE / NSE
  • Download Quess Corp IPO  Prospectus at this link.

Objects of the Quess Corp IPO issue

1. Repayment of debt availed by Company;

2. Funding capital expenditure requirements of the Company and its Subsidiary, MFX US;

3. Funding incremental working capital requirement of the Company;

4. Acquisitions and other strategic initiatives; and

5. General corporate purposes

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Company Financials (reinstated)

  • The company generated revenue of Rs 276 Crores  for the year ended Mar-11 and Rs 2,572 Crores for the year ended Mar-15.
  • The company posted a profit of Rs 1.73 Crores for the year ended Mar-11 and profit of Rs 67.7 Crores for the year ended Mar-2015.
  • Its restated EPS for FY 2015 is Rs 5.96 and last 3 years average EPS Rs 4.12

Quess Corp IPO - Financials

Reasons to invest Quess Corp IPO

  • Strong revenue growth of 75% CAGR in last 5 years.

Reasons not to invest in a Quess Corp IPO

  • It generates thin margins of over 2%. This margin would be wiped off with increase in costs.
  • Its business and operations are subject to various risks relating to its recent acquisitions, including risks relating to the integration of these acquired businesses with its existing operations. They may in the future continue to make strategic acquisitions to grow its business and further diversify service offerings. An inability to identify, complete and successfully integrate such acquisitions could adversely affect its business prospects, results of operations and financial condition.
  • Its Restated Standalone Financial Statements and Restated Consolidated Financial Statements for the relevant financial reporting periods are not comparable to each other, do not fully reflect the effect of its recent acquisitions on the relevant financial reporting period and are not representative of its future financial performance.
  • One of its Directors, corporate Promoter, TCIL and a Group Entity have been named as respondents in certain criminal proceedings
  • They are involved in certain legal proceedings, which, if determined adversely, may affect its business and financial condition.
  • An inability to recruit, train and retain qualified and experienced personnel who meet the staffing requirements of its clients may adversely affect its reputation, business prospects and future financial performance.
  • Its acquisition of Brainhunter Systems Limited may be challenged under Indian law.
  • An inability to manage its rapid growth and business diversification initiatives may disrupt its operations and adversely affect its business and growth strategies and future financial performance.
  • The loss of, or a significant decrease in revenues from, one or more of its key clients or primary markets may adversely affect its revenues, results of operations and financial performance
  • Company staffing business, which accounts for the significant majority of its consolidated revenues, is susceptible to unfavorable socioeconomic perception.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 17 onwards.

Also Read: Best Midcap Stocks that gave higher returns in 2016

Recommendation / Investment strategy – Quess Corp IPO

  • On the upper price band of Rs 317 and on FY15 EPS of Rs 5.96, P/E ratio works out to 53x. Similarly, on last 3 years EPS of Rs 4.12, P/E Ratio works out to 76x. Means company is asking issue price for
  • P/E ratio between 53x to 76x.
  • There are no exact listed peers. However, nearest comparison is Teamlease which is trading at P/E ratio of 58 times now. Hence Quess Corp IPO issue price looks on higher side.
  • The company posted strong revenue growth of over 75% CAGR in last 5 years. However, it operates with thin margins. Investors would not get benefitted by way of dividends as it generates small margins. Its issue price also looks higher. I would personally stay away from such high priced IPO.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy this IPO. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh
Quess Corp IPO – What are the hidden factors

Suresh KP
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32 comments

  3. Why don’t you consider FY16 earnings to compute the PE? If you take that, the PE comes out to be around 41 times, which is considerably lower than the above stated 53x and also Teamlease’s 58x.

    Reply

    1. Readers are my asset Ramakrishna. Thank you for your valuable comments. Pls share some of the articles on your FB. It would be biggest gift from you to me.

      Reply

  5. Very good and objective analysis. I have been working in Indian industry for more than 30 years. Recruitment in this country happens through contacts and references at middle senior level. There are recruitments of trainees from colleges. This leaves very little job for proffessional recruitment agencies. 

    Reply

  7. this ipo has a comparable pe ratio of 54x .. it shud be a subscribe rating for listing gains.. the growth will be dependent on industrial development and also suceptibke to advances in automation.. but in short term..it is a good buy.. low margin is norm in this industry.. teamlease has given fantastic returns.. company has little competition in the market.. investors shud definitely go for it..

    Reply

  10. A balanced review, there are very few people/ institutions who take a non partisan view. please keep it up

    Reply

  12. On other websites the P/E ratio is showing as 45 or around that figure, and is saying that since this figure is less than Teamlease P/E ration this IPO is worth investing. Can you please comment of that. Thanks

    Reply

  13. if revenue growth in FY2017 is 15%, then fair value is Rs.100. For justifying share value of 317, revenue growth should be 240% in FY2017, which is impossible. Premium on IPO is abnormally high.

    Reply

  14. Thanks for your report. This is helpful but other reviews say margins are good and this is a revenue recognition issue

    Any help on this?

    Reply

  15. thanks sir , very nice article . thanks for beware of such high pe and low margin ipos.
    please can you guide me on zeal aqua limited sme ipo ?

    Reply

  16. Hello sir,
    i have applied for Mahangar IPO through ASBA where money remains in bank account, now as the issue is oversubscribed six times,more than half of the money will remain in bank account ( as there will be no full allocation). can i use the same money to apply for Quess IPO ?
    i have Rs.3 lakh in my account , Rs1.92 lakh is locked by Mahanagar IPO, can i still apply for Rs 2 lakh (max allocation) for Quess IPO from same bank account without adding more funds ?

    Thank you for your wonderful blog.

    Regards,
    Anjali KS

    Reply

    1. Hi Anjali, If Rs 1.92 Lakhs is blocked for ABSA for Mahangar IPO, you cannot use it unless it is unblocked. Once the share are allocated to your account, balance amount would get automatically refunded thru ABSA  where such amount would get unblocked. Till such time, you cannot use it.

      Reply

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