Business services provider Quess Corp is looking at making an active inorganic play in coming years as the Fairfax-backed firm looks to broaden its service offerings and improve the stickiness with customers by offering digital services. The Bengaluru-headquartered company said it has enough financial muscle to pursue more acquisition opportunities in coming years.
Growing inorganically has been one of the focus areas of the firm, which has acquired 22 entities with various service capabilities in the past 10 years. From a pure play human resources management firm, it has diversified into areas like facility management, technology solutions, internet business and industrial segments, among others, in the last decade.
"We remain flexible in our approach towards acquisition. Typically, we buy companies with a margin of safety and with good cash generation ability. As far as ticket size is concerned, we don't have anything particular in our minds and will look at a company with respect to opportunities for expansion of our platforms," said Ajit Isaac, the chairman & MD of Quess Corp.
Quess Corp, which got listed on bourses in July 2016, currently counts Fairfax as its largest stakeholder. Fairfax holds 49 per cent in the company through its Indian subsidiary, Thomas Cook (India) Ltd.
"We have around Rs 9.90 billion of debt and Rs 8.80 billion of cash reserve. So, on a net basis, our debt stands at around Rs 1.10 billion. Apart from the low debt level, around 35-40 per cent of our operating profit is translated into cash reserve, which is likely to be in the range of Rs 1.8 billion to Rs 2 billion. So, this puts us in a good position to fund our acquisitions," Isaac said. The company follows Fairfax's guiding principle of creating long-term value in the case of all its acquisitions, he added.
In FY18, the company reported Rs 61.67 billion in revenues with an operating profit of Rs 3.54 billion. The company's operating margin, however, stood at 5.75 per cent, which makes it a good case to improve further.
"With the platformisation of our offerings, we hope that we will be able to increase our margins. From around a two per cent kind of margin reported in the HR management services space, we have moved up to the mid-five range now and our aspiration is to reach eight per cent in coming years," the chairman said.
In order to improve its overall operational efficiency with optimisation of costs, Quess has roped in Accenture to identify ways of boosting margin. The company is looking at improving operational efficiency by reducing duplication of roles in acquired entities, apart from offering a digital experience to its clients.