Ajit Isaac on what Quess Corp demerger, the value unlocking and rationale
Synopsis
Ajit Isaac, CMD of Quess Corp, explains the rationale behind the demerger, emphasizing the need for a simplified structure and renewed focus. He discusses the targets for each demerged entity, including international expansion, revenue growth, and margin improvement. Bluspring is positioned to capitalize on the opportunities in India's evolving economy.
Ajit Isaac: I will start with the third part of the question: what is the rationale? The key thing to look at here is that our business is now 17-years old and so we are no longer a startup. It is a mature business and over the years each of the business verticals have become scaled, mature, and market-leading entities and each one has its own rhythm, its cyclicality, and nuances.
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But just to scratch that point further, you also mentioned that you are looking at improving the profitability. Return on equity is something that you are targeting to improve further. What is that target figure in mind and what is the plan with respect to expanding international presence? Which business will be focused a lot more on international?
Ajit Isaac: Our north star has always been 20% as an ROE for each of our businesses. Before our IPO, we were at 26% and we think we can get back to 20% for two of the three demerged entities in the first one or two years after we demerge. And the third, it could take a little longer. The component of international business will be most for Digitide, which will be the IT business. We have a focus on enlarging the international presence, particularly in the BPM space and a lot of investment in terms of management resources, time and our structure and our strategy will go into that.
What is the outlook on revenue visibility as well as EBITDA in Digitide because you have set a very aggressive target of $1 billion revenue for Digitide alone. What drives that kind of confidence and what do you think is going to throw up the numbers?
Ajit Isaac: We have got three businesses in Digitide. First one is our BPM business. The second is an Insurtech business and the third one is a HRO business. Our BPM business is the largest of the three. It is largely a domestic player right now, but with a growing international presence, so we think this is going to be the basis of growth for the company. We are at about $300 million of revenues today and we think it can grow by about 20% every year.
We have averaged that almost for the last three years, so there is a confidence from past experience in this business that we can grow by about 20%. So, organically, we can reach about $700 million in about five years’ time and the balance $300 million will come through a combination of inorganic growth and also some new service lines that we can develop over the next few years.
I wanted to talk about the staffing business also. You are expecting a 30% EBITDA contribution to come in from the international business there. Given that there have been headwinds with respect to the entire staffing momentum, not only in India, especially IT, but globally as well. What kind of headwinds do you envisage in the staffing business specifically?
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In the Middle East, we also have more than 1,000 people right now and margins are close to about in the high-teens there. So, there is potential to ride on the economic boom that is happening in Saudi Arabia and Dubai right now to secure more professional staffing contracts in the Middle East too.
Ajit Isaac: Bluspring is a company that will leverage opportunities emerging in a new India. The amount of the scale of change that is happening in India today is unprecedented. There are three or four sections of change which I want to briefly highlight before getting into some specific numbers. There is a farm to non-farm movement that is taking place.
Every year, about nine million new non-farm jobs are created. There is a movement from the informal to the formal sector. Formal workforce share has grown from 9% in 2018 to almost about 15% today. And similarly, there is a growth from the unorganised to the organised sector. The number of GST registrations have also grown. So, all of these changes contribute to a larger workforce and a larger set of services. On the other side is urbanisation and manufacturing. We find that today, 40% of India will be urbanised by 2030 and anywhere you look around (13:55) there is construction going on. It could be metro railways, it can be airports, it can be highways, it can be ports, it can be public utility places, places of public convenience, etc. All of these places need maintenance and that expanded capacity that India is creating is what is creating the opportunity for Bluspring.
As our economy goes from 3-4 trillion to about 5 trillion, the penetration of business services will also expand from about 1% to 5%. So, we are the largest business services organised player in the business services space and we think that a large share of the opportunity could come our way. So, these are sort of the tailwinds that we have got.
But in Bluspring specifically, our margins are at about 5%. We think we have a potential to increase our margins, expand our margins by about 100 basis points, so our profitability, EBITDA margins could be around 6% or so and growth here could be around 20%. So, business here is in three verticals. One is in facilities management.
The second one is in telecom infrastructure. We maintain telecom towers and installations related to network infrastructure. And the third one is an operating asset maintenance business in the industrial space where we maintain power plants, steel plants and large industrial equipment and now increasingly in renewable energy too. So, all of these are sunrise areas of growth and we think we can ride on new India and the emerging opportunities that are coming from there for Bluspring.
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