150% return in 1 year! Should you invest in India’s largest private sector employer now?

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India’s largest private-sector employer Quess Corp has managed to more than double investor wealth despite a bleak scenario of employment. The company’s scrip has climbed 150% to Rs 700.30 on June 4 from Rs 280.20 on June 8 last year. Market analysts are bullish on the stock and believe the company is a potential candidate for re-rating, considering the earnings growth potential.

Financials

The company posted a net profit of Rs 74 crore for the financial year ended March 31 as against a loss of Rs 432 crore in the financial year 2019-20. Its revenue from operations was at Rs 10,837 crore in FY21 as against Rs 10,991 crore in the preceding fiscal. Quess Corp has also announced its first-ever dividend at Rs 7 per share.

On the other hand, the business services provider on June 4 also reported a reduction in a loss at Rs 58 crore for March 2021 quarter. The company’s loss stood at Rs 630 crore in the same quarter a year ago. Its revenue from operations was at Rs 3,005 crore during the quarter under review as compared to Rs 2,995 crore in the year-ago period.

Should you buy?

Axis Capital is positive on Quess Corp with a price target of Rs 810, indicating an upside of over 10% from the current market price. The brokerage believes that profit after tax of the company is likely to be more than double in the next 3 years.

“FY22 started on a challenging note with certain businesses of Quess impacted by Covid 2.0. However, management indicated this to be transient and targets strong double-digit growth for all the businesses in FY22,” Axis Capital said adding a continued improvement in business fundamentals with an increased share of solutions based offerings are re-rating levers.

ICICI Securities has set a target price of Rs 900 for Quess Corp. “New dividend policy of around 33% free cash flow return over 3 years is a welcome move. It adds to investor confidence after a string of sub-optimal capital allocation decisions. Given the company’s earnings growth potential, valuations still remain attractive. Ongoing cleanup of the balance sheet, improvement in return ratios or cash conversion makes it a good re-rating candidate,” ICICI Securities said.