| Quess Corp Limited | ||||
| Rating Reaffirmed and Withdrawn | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Analytical Approach For arriving at the rating, CRISIL Ratings has consolidated financials of QCL and its subsidiaries, collectively referred as the Quess group, as all these entities are under the same management with significant business and financial linkages. Associates and joint ventures, where there is no control, are proportionately consolidated to the extent of interest in these businesses.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The Quess group is one of the largest business services companies in India offering diverse services including staffing solutions, training, catering, facility management, security services and technological services. The group enjoys leadership position in the domestic general staffing and IT staffing businesses and is also one of the largest players in the Integrated Facilities Management (IFM) and is a leading human resources (HR) payroll services provider in India. It reported a strong revenue growth over the years, with consolidated revenue estimated at over Rs 12600 crore in fiscal 2022, aided by healthy cash flow in the domestic staffing business. The associate base in the general staffing business also increased substantially over the years, supported by geographical expansion into Tier 2 and Tier 3 cities and steady addition of clientele. The group continued to maintain its market position as a leading private sector employer with more than 4 lakh full-time equivalent employees in India. Revenue is expected to grow at a healthy rate over the medium term also because of the group’/s established market position and also due to increasing formalisation of the job sector.
The Quess group also has a diverse customer base of over 3,000 enterprise clients, with majority of them availing of multiple services. Further, large and reputed customer base spread across diverse sectors (such as banking, financial services and insurance, information technology (IT)/IT-enabled services, retail, telecom, fast moving consumer goods, industrials, healthcare & education and logistics sectors) results in relatively low revenue concentration risk and helps overcome the risk of slowdown in any particular industry.
The working capital cycle has been managed prudently, as reflected in gross current assets of 73-85 days over the three fiscals ended March 31, 2021. Despite healthy revenue growth and significant amounts of taxes deducted at source and held with the IT department, the Quess group funded a large part of its working capital requirement from internal cash accrual without relying much on debt. Moreover, most contracts (almost 75%) are on collect-and-pay basis with customers which ensures that cash flow is not stretched.
Further, the group has strong technological capabilities and has been continuously investing in technology and is doing technological rollouts that enable it to efficiently manage employees and monitor productivity. Thus, operating margin is usually better than the peers in the respective segments.
Financial risk profile is likely to remain strong, marked by adequate adjusted networth, healthy capital structure and low net debt to adjusted networth ratios. In the past, the group raised sizeable equity through its initial public offering (IPO) and institutional placement programmes (IPP). Consequently, adjusted networth is expected to remain strong at over Rs 2,400 crore as on March 31, 2022. Gearing and total outside liabilities to tangible networth ratios are also expected to remain comfortable at 0.3 time and 1.96 times, respectively as of March 31, 2022. The group made sizeable acquisition until fiscal 2020 that are primarily funded with equity. CRISIL Ratings believes that investment in acquisitions will not be significant over the medium term leading to sustenance of its healthy capital structure.
However, sizeable capital raised by the group was used for acquisitions in the past 4 years, is expected to result in moderate return on capital employed (RoCE) ratio of around 15-16% in fiscal 2022. Interest coverage ratio is also estimated to improve to 7-8 times in fiscal 2022 (from around 4-5 times earlier) mainly because of reduction debt during the second half of fiscal 2021.
Weaknesses:
The manpower staffing industry comprises several unorganised and organised players in the domestic market. Thus, there is intense competition among the large players and the numerous unorganised players that have regional presence and offer the same services at lower cost. This results in pricing pressure for organised players, which have to incur high overheads to maintain quality of services and staff. Also, the business being largely service oriented, involves engagement of manpower, and most players in this industry face the risk of high attrition rates, driven by the intense competition among players to poach trained manpower. Issues relating to workforce availability can also adversely impact the group’s relationship with clients and therefore its revenue flow. However, this is partly offset by the group’s strong market position and superior technological capabilities.
Some subsidiaries acquired by the Quess group are still in the investment/growth phase and may need continued operational, managerial and financial support till they scale up and manage on their own. QCL has a moral obligation to support these entities both on an ongoing basis and during distress.
The group invested over Rs 136 crore to acquire controlling stake in Terrier; considering the significant potential for growth in the security services business, the entity might require funds to support its growth. Further in Monster.com and DigiCare businesses, continuous investment in technology and/or regular fund support may be required for their growth. However, the Quess group had taken various steps including exiting non-profitable businesses and long gestation period projects to improve its operating cash flows; some of these businesses include Quess East Bengal FC, Trimax, and Dependo Logistics, which reported significant losses in the past. Also, the group has announced dilution of stake in Monster.com (where it was making losses) and the funds raised will be utilized for Product Development and Marketing in various markets. Future acquisitions, the funding mix and the entity’s operational performance will remain key monitorables. |
Liquidity: Strong The Quess group has strong financial flexibility, supported by robust networth base, healthy net cash accrual, moderately utilised bank limits and unencumbered cash & cash equivalent balances. Cash accrual is expected at Rs 350-500 crore per annum over the medium term, sufficient to meet the yearly term debt obligation of Rs 50-80 crore (excluding lease liabilities). Average bank limit utilisation was moderate at around 50% during the 12 months through October 2021. Cash & cash equivalent balance of Rs 494 crore as on September 30, 2021 also supports liquidity. Current ratio is estimated to be moderate at 1.33 times as of March 31, 2022. |
Outlook: Stable The Quess group should continue to benefit from extensive experience of its promoter and established relationships with clients. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company QCL was incorporated in 2007 as IRIS Capital Solutions Pvt Ltd in Bengaluru and started its operations as an HR services company. The name was subsequently changed to IKYA Human Capital Solutions Pvt Ltd and later to QCL in 2013. QCL has pan-India presence with 65 offices and also has operations in North America, the Middle East and South East Asia, through its subsidiaries and associate concerns. The company provides staffing solutions, training & development, IFM services, security services and technology solutions. From fiscal 2020 onwards, the Quess group consolidated its operations into three business segments – workforce management, operating asset management and global technology solutions.
QCL is currently promoted by Mr Ajit Isaac and Fairfax Financial Holdings Ltd (Fairfax; rated BBB-/Positive by S&P) – through its subsidiary Fairbridge Capital Mauritius Ltd. In 2013, Fairfax, a Canadian insurance conglomerate, acquired majority stake in QCL through its Indian subsidiary Thomas Cook (India) Ltd (TCIL; ‘CRISIL A+/Negative/CRISIL A1’). QCL had subsequently come out with its IPO in 2016 and got listed on the Bombay Stock Exchange and the National Stock Exchange of India Ltd in July 2016. QCL had also done an IPP in fiscal 2018 and with these TCIL’s stake in QCL had come down significantly. During fiscal 2020, QCL was demerged from Thomas Cook (India) Ltd (TCIL) and Fairfax currently holds about 32% in QCL.
For the 9 months ended December 2021 the group reported profit after tax of Rs 254 crore on revenue of Rs 9914 crore as against Rs 216 crore against revenue of Rs 7874 crore in the same period of previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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This Annexure has been updated on 04-Mar-2022 in line with the lender-wise facility details as on 05-Jan-2022 received from the rated entity.
Criteria Details
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