Quess Corp surges 16%; hits 52-week high on three-way demerger plan

Shares of Quess Corp hit a 52-week high of Rs 580, as they surged 16 per cent on the BSE in Monday’s intra-day trade amid heavy volumes after the company announced a three-way demerger of its diversified businesses, to unlock value for its investors.

The stock is trading higher for the fifth straight day and has rallied 21 per cent during the period. It surpassed its previous high of Rs 539 touched on January 11, 2024. The average trading volumes at the counter jumped nearly 10-fold today. A combined nearly 3.6 million equity shares changed hands on the NSE and BSE till 09:59 am. In comparison, the S&P BSE Sensex was down 0.05 per cent at 72,389. The stock had hit a record high of Rs 1,303.15 on June 13, 2018.

The company is the largest workforce management entity in India, providing solutions to clients to hire and deploy staff, manage performance and outcomes, measure and upskill employees.

In an exchange filing, Quess Corp announced that its board of director plans to undertake a three way demerger of its diversified business segments, resulting in three listed entities with dedicated presence.

The three surviving entities will be Quess Corp Ltd (workforce management, 68 per cent of consolidated FY23 revenues), Digitide Solutions (BPM solutions, Insurtech and HRO business, 14 per cent of consolidated FY23 revenues) and Bluspring Enterprises (Facility Management, Industrial Services and Investments, 18 per cent of consolidated FY23 revenues).

The company expects the demerger to take next 12- 15 months to receive regulatory clearance. All shareholders will receive one additional share for each of the new companies, for every share held in Quess Corp.

The rationale for the demerger is to simplify corporate structure by separation of scaled platforms into independent entities, each with a strong market positioning and to enhanced strategic clarity and management focus to accelerate profitable growth. 

The demerger also helps to optimal capital allocation strategy for each entity to invest behind its strategic priorities, flexibility for each entity to pursue independent and differentiated strategies to drive value creation and ability for each entity to create a compelling investor proposition and attract investors, the company said.

According to Motilal Oswal Financial Services (MOFSL) view, the proposal should be beneficial to both company as well as investor. Over the last decade, Quess has expanded its presence across multiple business segments and is among the largest players across multiple services, which results in excessive demand on management bandwidth across diverse client requirements.

Moreover, given the breadth of Quess businesses, investors also struggle to appropriately evaluate all capabilities presence under the group umbrella. This proposal should help the company compare on comparable metric with listed players, which might be welcome by investors, the brokerage firm said.

Though Quess should benefit from medium-term tailwinds of formalization and labor reforms, the growth has already been factored into the valuations. The brokerage firm expects a gradual recovery in margins over FY25 and FY26, which should support earnings. MOFSL has a Neutral rating on the stock due to full valuations, taxation concerns, and weak macro. Currently, the stock is trading above the brokerage firm’s target price of Rs 560.