Lets take the Business Wise audited financial results of 2015 for this analysis. Though this has been prepared for 15 months I would still like to use it as it as this would most likely be the result for 2016, apart from the KUONI deal.

Businesses Performance for 15 months ending in March 2015.

 in cr

Financial Services

Travel Services

HR Services

Vacation Ownership

Total (Including Common Assets)

Capital Employed


























Common Expenditure


PBT (including minority interest)


Why would a business that earns only 5.01% EBIT be such a sort after business ? Logically if this was the true state of affairs Prem Watsa would have been running around acquiring businesses in the Forex space and ignore the Staffing Services altogether. The truth is the comparison above is that of apples and oranges.

Revenue Recognition policy across the business segments :

Financial Services – Lets assume TC exchanges a 100$ for rupees with a customer and it makes say, 150 rupees on this 6,400 rupee transaction, the business recognises only 150 rupees as sale, i.e its gross revenue is only its commission and any other charges if any. Therefore when we look at the EBIT of 52%, you know that the business (without common expenditure) has an operational cost of only 48%.

Travel Services – When TC books a ticket or a package for a customer for say 50,000 rupees and it earns say 2,500 as commission and profits share from its vendors, it too recognises only 2,500 rupees as sale and not the entire 50,000.

Vacation Ownership –  Apart from the one time Admission fee, the company simply recognises sales on a proportionate basis. Here too like in the other two examples, there is no confusion.

HR Services – Lets Quess provides say 100 employees for say 20,000 a month, and Quess pays its employees 15,000 a month, if it had used the same policies as above it should have recognised (20,000-15,000)*100 = 5,00,000 as revenue. However, Quess recognises (20,000*100)= 20,00,000 instead, which throws up extremely narrow EBIT margins. We don’t have access to the actual figures of Quess, however, i would be willing to bet that their EBIT margins in the regular method would be in excess of 35%.

Now why Quess is doing that, or why Thomas Cook is allowing Quess to follow this policy is another question, but it just looks like Ajit Isaac is simply hiding his king from unwanted attention !

11 replies on “Is Prem Watsa deliberately downplaying Quess Corp’s margin ?

  1. Hi Nitin,

    Good point. I can try to explain some reasons as per my understanding.

    1. All People services business does the same. Follow same accounting policies. Their competitors are having only 3- 4% margin.

    2. Since this is blue collar job . if you announce very huge margin, employees will start asking for their share. Example, Go to Wonder-la, their employee union gives you cheat while entering the complex. This is only happened after listing. Earlier it was not their. Blue collar guys get carried away so show less margin. The other businesses are not people centric.

    However you have brought good point.


  2. Good observation, In an interview to CNBC Ajit said they are looking at listing in FY16 and are exploring fund raising plans next. He clearly said that are making a very high ROC and EBIT of 68-70cr as of last year.

    I guess IKYA is a business that had a dream run initially and it too is closing(or soon will) in on the curve(ultimate slowdown) or reverting to 30 odd growth %(much better than many).

    Can skill India have any impact on them?

  3. Hi Nitin,
    How did u arrive at the revenue recognition policy ? I cant find it anywhere. Pls let me know the source

  4. @Nitin
    Thanks, got it.
    But I don’t find any discrepancy there. In FS/Travel/Vacation, revenues is commission.
    Similarly, candidate fees in revenue in staffing/recruitment business. Why should they net it with their staff expenses.

    Admin/personnel exp is a part of Operating exp at both the places.


  5. Well, still confused.
    Lets come to Quess – There are 4-5 types of services being offered here all different in nature, That makes it difficult to streamline the revenue recognition there as they do it in FS/Travel etc

  6. Hey Nitin,

    with regards to Quess, we had word with management and its to do with accounting rule/standard that dictates booking of revenue. agreed its not right way to look at margin, as revenues are inflated, they are booking throughput rather then actual revenue.

    regard SageRaj

  7. Factor the inflation that reflects in the salary payout… The same inflation shows up in Quess corp Gross revenue which as per the management is the growth the company achieved.

    Actually speaking the net margin is so low that a 100 basis point swing in gross margin will have a huge swing in the PAT which by itself is very thin

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