SQS India BFSI Ltd.|Q2FY15 Result Update | Above our estimate; Target revised upward to Rs.665 from Rs.494: Maintain HOLD :IndiaNivesh

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SQS Q2FY15 result was above INSPL expectation on all fronts. USD revenue went
up 8.6% q/q to $9.3mn (INSPL est. $8.8 mn) on back of 2.2%/6.8% Q/Q increase in
volume and pricing, respectively. Rupee revenue went up 10.0% Q/Q to Rs.564
mn (v/s INSPL est of Rs.533 mn). EBITDA margin expanded sequentially from 19.7%
to 20.7% in Q2FY15 on account of lower SG&A expenditure. As a result, reported
EBITDA was also above our estimates (to Rs.117 mn v/s Rs.106 mn INSPL est). SQS
reported forex loss of Rs.4.7 mn (v/s forex gain of Rs 5.7 mn in Q1FY15). As a
result, reported other income (Inc forex) went down to Rs 4mn (v/s Rs 11mn in
Q1FY15). During the quarter, tax rate stood at 31.2% [to Rs.32 mn] v/s 29% [to
Rs.42 mn] in Q1FY15. Reported net profit went up 13.2% Q/Q to Rs.71 mn. The
net profit was above our estimates due to higher EBITDA base; partially offset by
low other income (Inc forex). However, adjusting other income (Inc forex), net
profit increased 28.6% Q/Q to Rs.67 mn (v/s Rs.52 mn in Q1FY15).
Key Result Takeaway
Growth Across Key Geography
The strong $-revenue growth of 8.6% Q/Q was broad based. North America delivered
18.5% Q/Q growth followed by 12.9% Q/Q growth in Asia and 2.7% Q/Q growth in
Europe. In line with SQS strategy domestic business de-grew by 16.4% Q/Q, partially
offset by 11.2% Q/Q increase in international business. During the quarter, SQS
added one new client in $1.0 mn to $6mn category. The integration between SQS
parent and SQS India remains on the track. However, the full benefit of this
integration would be visible only after 18-24 months.
Cards & Payments & Insurance delivered growth
The healthy volume growth was largely delivered by Banking (Cont. 51.2% of Rev |
Up 19.8% Q/Q) and Insurance (Cont. 3.6% of Rev | Up 5.5% Q/Q) verticals. This
was partially offset by de-growth in Cards & Payments (Cont. 30.5% of Rev | Down
0.4% Q/Q) and Capital Markets (Cont. 14.8% of Rev | Down 1.6% Q/Q).
Top-10 clients delivered growth
SQS’s Top-10 client (Cont. 73% of Rev) reported 6.1% Q/Q $-revenue growth followed
by 18.1% Q/Q growth in Top-5 clients. During the quarter, Non-Top 10 client account
also grew by 17.8% Q/Q and contributed nearly 27% of the overall revenue.
Earnings Call Details
Thinksoft will conduct Q2FY15 Earnings conference call at 4 pm (IST) on Friday, 31st
Oct, 2014. India, Mumbai (Primary: +91 22 3938 1009, Secondary: +91 22 6746
8399), Hong Kong, (Toll Free) 800-964-448, Singapore, (Toll Free) 800-101-2045,
UK (Toll Free) 0-808-101-1573, USA (Toll Free) 1-866- 746-2133.
Valuations
At CMP of Rs.603, the stock is trading at P/E multiple of 18.1x FY15E and 11.2x
FY16E revised earning estimate. The current quarter performance indicates some
early benefit of integration between SQS parent and SQS India.

LINK
http://www.indianivesh.in/Admin/Upload/635503436304617500_SQS%20India%20BFSI%20_Q2FY15%20Result%20Update.pdf