Buy Quess Corp; target of Rs 1170: Motilal Oswal

November 28
21:42 2017

Motilal Oswal’s research report on Quess Corp

Quess Corp acquired 51% stake in Tata Business Support Services, a provider of Customer Lifecycle Management and Business Process Management. The company would fit into Quess’ technology solutions portfolio (30% of revenue), strengthening offerings and providing cross-sell opportunities. Quess would pay INR1.53b in an all-cash deal, valuing TBSS at INR3b, implying a trailing sales multiple of 0.5x and EBITDA multiple of 5.4x. Valuations for the deal seem attractive given Quess’ current multiples of 2.5x sales and 46x EBITDA. Our FY19/20 estimates for revenue/EBITDA/PAT increase by 8/12/8%, thereby increasing our price target by 12% to INR1,170, implying an upside of 35%.

We value QUESS using DCF to arrive at a TP of INR1,170 (35% upside); our TP is up ~12% led by the acquisition. Valuations are rich, given its strong growth history and continued aggressive thrust on acquisitions. Over FY17-20E, we expect revenue/EBITDA/PAT CAGR of 31/42/62% (27/37/58% earlier), led by our assumption of 20% growth in organic business and incremental contribution by recent acquisitions. Long-term prospects stand bright, given high-growth opportunities, aggression shown on expansion and flawless execution.

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