Quess Corp Ltd

NSE:QUESS

Earnings Call Analysis

Quess Corp Reports Strong Earnings Growth

Quess Corp has seen robust performance this quarter, reporting an 11% year-on-year revenue growth to INR 4,748 crores, fuelled by a strong hiring environment and 235 new customer contracts. The company's profits exhibited a remarkable upswing, with profit after tax (PAT) soaring by 79% to INR 71 crores and earnings per share (EPS) up 71% at INR 4.85. EBITDA increased by 21% year-on-year to INR 164 crores. Particularly impressive was the Global Technology Solutions (GTS) platform, with a 23% EBITDA growth year-on-year, and the Operational Asset Management (OAM) platform, delivering a 26% year-on-year EBITDA growth. These results are underpinned by a solid operational consolidation and the company's ability to scale profitably.

Strategic Expansion and Revenue Growth

The company has experienced robust expansion in recent times. For instance, the Security business has taken on substantial contracts in the Infrastructure and Manufacturing sectors, resulting in an anticipated headcount increase of 8% to 10% in Q3. Their Infra business in telecom enjoyed a record first half in terms of revenue and EBITDA, surging by 40% and 43%, respectively, compared to H1 FY '23. Additionally, the Product Led business Foundit witnessed a sales increase of 35% year-on-year and 20% quarter-on-quarter, with India being a significant driver of this growth. Despite facing international market challenges, the launch of an AI-driven product, Foundit 2.0, slated for public release by the end of Q3 FY '24, is expected to positively impact sales and enhance price realization.

Corporate Responsibility and Workforce Dynamics

The company has also been proactive in creating societal impacts through employment, with 37% of new joiners being first-time entrants into the formal workforce and 18% female. The firm focuses on providing entry-level employment for the youth, with a median age of newly hired associates being 25. Moreover, the executive team reaffirms their commitment to maintaining operational discipline and aggressive sales to ensure the realization of benefits from their efforts in the forthcoming quarters.

Financial Performance and Growth Projections

Financially, the company is on an upward trajectory with an 11% year-on-year growth in revenue and a 3% growth quarter-on-quarter, amounting to INR 4,748 crores in Q2. EBITDA rose by 21% year-on-year and 6% quarter-on-quarter, with margins improving to 3.4%, a 10 basis points increase from the previous quarter. The company's profit after tax soared by 79% year-on-year and 47% quarter-on-quarter, and the earnings per share increased by 50% quarter-on-quarter to INR 4.85. Stringent cash management and debt reduction have led to the lowest gross debt in the last ten quarters, and a healthy cash flow conversion rate of 62% in H1 FY '24 further bolsters the company's financial health.

Platform-Wise Revenue and EBITDA Growth

Delving into platform-wise performance, the Workforce Management generated a revenue of INR 3,315 crores, growing at a rate of 13% year-on-year and 3% quarter-on-quarter. Notably, the IT Staffing and APAC Professional Staffing, despite global economic challenges, mitigated downturns through cost reduction strategies. Other platforms like the GTS and Operating Asset Management also reported double-digit annual growth in both revenue and EBITDA, indicating sustained profitable growth.

Strategic Initiatives and Tax Developments

From a strategic standpoint, the company has undertaken structural simplifications, such as acquiring the remaining stake in subsidiary Stellarslog and integrating it into its workforce platform. This consolidation aligns with the company's strategy to scale effectively. Additionally, the company is making headway in resolving various tax matters, with multiple proceedings underway and positive expectations for outcomes within the financial year.

Outlook and Guidance

Looking ahead, the company has set a positive outlook with several significant milestones anticipated. There is a strong expectation of breakeven for the North American operations and the Foundit platform by the end of this fiscal year, reflecting a commitment to turning around investments into profitable ventures. Margin improvement is also on the horizon as the company's high-margin segments continue to thrive, with expectations of a slight margin increment in the forthcoming quarters.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good morning, and welcome to the Quess Corp Limited Q2 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Balaji Subramanian from IIFL Securities Limited. Thank you, over to you, sir.

[Balaji Subramanian, analyst]

Thank you. Ladies and gentlemen, good morning, and thank you for joining us on the post results conference call for Quess Corp. I'm Balaji Subramanian, and it's my pleasure to introduce the senior management team of Quess, who are here with us today to discuss the results.

We have Mr. Guruprasad Srinivasan, ED and Group CEO, Mr. Kamal Pal Hoda, Group CFO; Mr. Kushal Maheshwari; Head - Investor Relations and Strategic Finance; Mr. Lohit Bhatia, President, Workforce Management; Mr. Pinaki Kar, President, Global Technology Solutions; and Mr. Sekhar Garisa, President, Product Led businesses. We will begin the call with opening remarks by the management team. And thereafter, we will open the call for a Q&A session.

I would now like to hand over the call to Mr. Kushal Maheshwari to take the proceedings forward. Thank you, and over to you, Kushal.

[Kushal Maheshwari, executive]

Thank you, Balaji. Good morning, everyone, and thank you for joining our Q2 and H1 FY '24 earnings call. The information, data and outlook shared by the management during the call is forward-looking, but subject to prevailing business conditions and government policy. All forward-looking statements are subject to economic growth or other risks faced by the company. Please refer to Slide #2 of the investor presentation for the safe harbor clause.

With that safe harbor clause, I will now hand over the call to our Group CEO, Mr. Guru. Thank you.

[Srinivasan Guruprasad, executive]

Thank you, Kushal. Very good morning to each and every one on this call, and thank you for joining us today. For Quess, profitable growth has been the key theme for the year. Our effort towards consolidation of our operations and growing the high-margin segments across the platform have shown positive results in this quarter also.

In Q2 FY '24, we added over 21,000 associate headcount and closed the quarter with a total employee strength over 547,000. During the same period, EBITDA has grown by 21% year-on-year and 6% quarter-on-quarter, respectively, demonstrating the economies of scale inherent in our business model, which has helped us to deliver the nonlinear growth in this quarter.

Every platform has delivered interesting growth on year-on-year and quarter-on-quarter basis. Key financial highlights are as follows: We have recorded a revenue of INR 4,748 crores, a growth of 3% quarter-on-quarter and 11% year-on-year. EBITDA stands at INR 164 crores, growing by 6% quarter-on-quarter and 21% year-on-year. GTS continued its profitable growth trajectory with INR 104 crores EBITDA in this quarter. OAM platform also achieved an EBITDA of INR 35 crores, which is a growth of 14% quarter-on-quarter and 26% year-on-year on the back of a solid operational streamlining. With this, PAT has improved by 79% year-on-year to INR 71 crores. Corresponding EPS has shown an increase of 71% year-on-year at INR 4.85 per share.

Let me walk you through the business update and some areas of Q3 focus areas for us. The hiring environment was positive across sectors with Industrial, Logistics and BFSI driving the hiring activity. One significant exception was IT sector, where the hiring activity has plateaued due to global headwinds. Our sales engine continues to deliver sustainable revenue growth. We acquired 235 new customer contracts in Q2, setting us up well for growth in coming quarters.

Now let me move on by platform. To begin with Workforce platform. The headcount of the platform, Workforce platform, has reached 430,000, adding 26,000 associates during the quarter accordingly. Revenue saw an increase of 14% year-on-year and 6% quarter-on-quarter. Sourcing contributed to 32% of new hiring, up from 27% last quarter, signifying our mode in terms of having a strength in our hiring engine.

Workforce Management's growth journey has been recognized in international forums. Quess has now become the world's 46th largest staffing company by revenue as per staffing industry analyst ranking. We were ranked 54 a year ago.

Now moving on to specific to General Staffing. We added 25,000 headcount during the quarter, led by Manufacturing, BFSI and FMCG sectors. New 83 client contracts were added during the quarter. Open mandates by end of September were at 38,000, driven by festive season hiring, specifically in Ecommerce and Logistics during the festivities around.

Our vertical focus strategy has continued to give us great yields which, with the headcount growth in Manufacturing and BFSI, stood at 13% and 5% quarter-on-quarter. We have added about 24,000 headcount in these 2 sectors in H1, and we are confident of similar momentum in Q3.

The first associate per month gross margin profile, also known as gross margin platform, stayed stable around INR 700. We have invested in sourcing and support teams for the growth of this business in H2 and FY '24, '25, given the large distributed project in Manufacturing and Industrial, driven by a marginal decline in terms of core to associate ratio.

IT Staffing business, the Indian IT Staffing and Selection business continues to remain impacted by headwinds. Open mandates have remained flattish on a quarter-on-quarter basis. We were close to about 1.12K against 1.1K in terms of the open mandate. In such an environment, we'll continue to focus on the niche profiles and bring in more IDC controls to drive margins.

Moving on to GTS platform. GTS delivered sustainable revenue growth with 23% EBITDA growth year-on-year and 4% quarter-on-quarter. All 3 constituent business in GTS clocked their highest ever EBITDA in this quarter. The platform has shown consistent margin improvement over the last 5 quarters, increasing by 183 basis points in the period, once again demonstrating the economies of scale in action. The highlight, under GTS, pipe-specific platform, to start with Conneqt. Conneqt continues to maintain its momentum with order book over INR 100 crore ACV closed during the quarter. This sets us well to sustain revenue momentum in coming quarters. BFSI segment accounted for almost 50% of new sales with strong recovery in Manufacturing and Service sector evident during the quarter.

The growth momentum in CLM business of Allsec continues with 18% year-on-year. This was driven by an excellent 21% year-on-year growth in North American market in Q2. Our Non-Voice BPM business grew by 34% year-on-year with Collection business growing by 35% year-on-year, and Finance and Accounting Transaction Process business growing at 66% year-on-year.

This is on back of sustained investment over last 3 years to create a platform-based digital solution, to create a differentiated solution in the market. In our BPM business, the customer experience segment, as part of the Allsec, EXM vertical in Allsec has strengthened its market leadership with 3.8 million payslips processed during the quarter with a quarter-on-quarter growth of 3.5%. The vertical has added 21 new logos in the quarter, led by international sales, setting up well for customers for coming quarters.

Going forward, the focus is as follows: Sustaining and accelerating the momentum of Non-Voice BPO in Conneqt and continued operational excellence for margin expansion as we drive volume growth; leveraging on excellent growth momentum in North America market for Allsec and CLM business and growing a nascent health care practice around current anchor clients; accelerate new HRO product and platform over the next few quarters to consolidate market leadership and market expansion, especially in international markets.

Coming to OAM platform. The platform registered top line growth of 8% year-on-year and 2% quarter-on-quarter. And EBITDA grew by 26% year-on-year and 14% quarter-on-quarter. The platform has focused on delivering profitable growth. IFM saw a revenue growth of 3% quarter-on-quarter and EBITDA growth of 8.5% during the same period. Major sectors contributing to the growth are government and services. And added to that is Industrial.

The business added 22 new customer contracts during the quarter. Focus on execution saw IFMS getting recognized by 2 major clients for outstanding service delivery support. Going forward, focus on housekeeping continues to be on Healthcare, Public Infra and Industrial, as we continue to see traction coming in into Q3 in this space. F&B business saw a gross margin improvement of 10% quarter-on-quarter and 33% year-on-year in Q2. The improvement in gross margin has been brought by improving operational efficiencies and mobilizing of contracts won during Q1. We expect the growth momentum to continue in Q3 on back of new contracts in education and health care.

Security business saw a flat headcount in Q2. As we continue to pursue profitable growth, the business bagged a couple of major contracts in Infra and Manufacturing vertical towards the end of Q2. As a result, we expect to increase our headcount by 8% to 10% in Q3. The active Infra business in the telecom sector had a good quarter for its best-ever H1 in terms of revenue and EBITDA. The business had revenue growth of 40% and EBITDA growth of 43% when compared to H1 FY '23.

Moving on to Product Led business. Foundit had another good quarter on the business and the product front. Sales grew by 35% year-on-year and 20% quarter-on-quarter, by Enterprise -- I mean, 20% driven by Enterprise sales in India. The revenue in the quarter remained flattish on account of longer tenor deals and lower consumption in international markets, which contributed 35% to our business, continued to face some level of headwinds due to macro conditions. We successfully launched our disruptive AI-driven product, Foundit 2.0 for private beta customers with a very positive feedback. This will be open to all customers by end of Q3 FY '24, positively impacting the sales and price realization.

Our operational metrics on both candidate and recruiter side remains positive with job posting and 6 months active users up by 10% quarter-on-quarter. CSAT continues to remain healthy at 92% with NPS scores at an all-time high, validating the work that we have been doing on product. EBITDA achieved is as per annual operating plan. Foundit remains on course to deliver breakeven by Q4 exit.

Moving on to general updates. Quess continues to drive positive change in lives of our associates. Among the associates who have joined us in Q2, 37% have entered into formal workforce for first time. 18% were female workforce. Median age was 25, providing entry-level employment for youth.

Before I hand over to Kamal, I, along with my team, would reassure you that we will continue to focus on operational discipline and aggressive sales, and we will reap the fruits of all our efforts in quarters to come. As we are nearing to festival of light, I also take this opportunity to wish you and your families, happy Deepawali, and wish you all happy and prosperous New Year in advance.

So I now hand over to Kamal and we'll come back to question and answers.

[Kamalpal Hoda, executive]

Thank you, Guru. Good morning, everybody, and thank you for joining us today. I extend a very warm welcome to everyone who has logged into this call. I hope you had a chance to look at the investor presentation and financial results for quarter 2, uploaded on our website.

Let me now walk you through this quarter's financial performance. We saw healthy growth across all our platforms during the quarter, with revenue growing by 11% year-on-year and 3% quarter-on-quarter to cross INR 4,748 crores of revenue in quarter 2. Our net headcount increased by 21,000 in this quarter.

EBITDA stands at INR 164 crores, a growth of 21% year-on-year and 6% quarter-on-quarter, with an EBITDA margin at 3.4%, a growth of 10 basis points quarter-on-quarter. That increase in EBITDA margin is driven by customer margins drive across businesses, including cost to serve reduction that we started a couple of quarters back, and also reduction of burn in Product Led business.

Profit after tax grew 79% year-on-year and 47% quarter-on-quarter on account of healthy EBITDA growth across all the businesses, increase in other income by way of interest on tax deferred, and deferred taxes in the quarter. Consequently, our EPS in quarter 2 has seen a 50% jump quarter-on-quarter to INR 4.85 per share. Our commitment to cash management and debt repayment continued in this quarter with gross debt reducing to INR 473 crores, lowest in the last 10 quarters, with a reduction of INR 45 crores during the quarter. Our DSO further reduced by 1 day compared to March '23 at 56 days, and our OCF to EBITDA is at 62% for H1 FY '24.

Platform-wise updates. Workforce Management. Revenue stands at INR 3,315 crores, registering a growth of 13% year-on-year and 3% quarter-on-quarter. Growth is predominantly [indiscernible] with key sectors being Manufacturing, BFSI and Retail.

IT Staffing and APAC Professional Staffing has remained muted for last few quarters due to global headwinds. However, we have ensured to mitigate the downturn through cost actions. EBITDA has seen a good growth of 5% quarter-on-quarter and 10% year-on-year at INR 87 crores. EBITDA margin percentage has seen a nominal 5 basis point increase quarter-on-quarter on account of cost initiatives coupled with VAS, value-added services, push.

Coming to GTS. Revenue stands at INR 584 crores with an EBITDA of INR 104 crores and annual growth of 11% and 23%, respectively. This translates to a quarter-on-quarter growth of 4% each. You might recall that this platform crossed an EBITDA of INR 100 crores in last quarter, and it continued its profitable growth with an EBITDA of INR 104 crores in Q2 with a sustained margin of 18%. Non-Voice Services revenue at INR 188 crores is a good growth of 34% year-on-year and 6% quarter-on-quarter. This can be seen in revenue per employee growth year-on-year, which now stands at 113,000 versus 104,000 a year ago. Our EXM vertical's total new sales exceed 50% in international geographies, leading to its profitability. Our subsidiary, Allsec, has surpassed a market cap of INR 1,000-plus crores with a CAGR of 23% from our initial investment in 2019.

Moving on to operating asset management. Revenue stands at INR 705 crores, a growth of 8% year-on-year and 2% quarter-on-quarter. The growth is due to gain of traction in integrated service offerings for public -- for existing clients and new contract signs, key sector being Industrial and Public Infra, Healthcare and Education. EBITDA stands at INR 35 crores, a growth of 26% year-on-year and 14% quarter-on-quarter. Margin increase is aided by a return of Food business post academic holidays in quarter 1 for education sector clients, plus consolidation of low-margin clients in Security and Facility Management businesses.

Platform's EBITDA margin thereby has seen an increase of 40 basis points to 5%, and is now at competitive sustainable levels. Our Telecom business has shown a healthy growth backed by strong 5G rollouts across all operators in India and also deeper penetration of 4G.

Moving on to Product Led business. Revenue stands at INR 143 crores in Product Led business segment with a growth of 13% this quarter. EBITDA loss, excluding noncash income costs, reduced by INR 5 crores and now stands at INR 16 crores in Q2. In Foundit, a new product launch with improved price realization and focused approach to Enterprise business, coupled with re-orienting marketing to data privacy approach will get us through our commitment of breakeven by Q4 FY '24. Breakfix services business saw good growth in revenue and margins as Q2 generally is a season for spare parts driven by revenue across partners.

Income taxes paid. There are a few developments in tax matters from the last quarter. For FY '17/'18, our appeal is at ITAT, and the next hearing is expected in the current month. For the year '18/'19, the DRP hearing has been completed and the final order was passed from 30th September 2023. The adjustments for this year are also in line with the previous year.

For the year '19/'20, the tax office had proposed special audit in line with the previous 2 years. Basis our representations, this move was dropped and the draft assessment order was passed by the tax office on September 29, 2023. The company has filed objections before DRP against all the injustice proposed by the tax office on October 27, 2023.

Moving on to some other corporate updates. Conneqt, MFX and Greenpiece merger update. As part of the approval of the scheme of amalgamation dated July 7, 2021, Quess has filed for approval of the scheme with NCLT. Honorable NCLT has admitted the petition and hearing was completed on October 30, 2023. The final order is awaited from the honorable NCLT in this quarter, and we expect transaction to complete within this financial year.

With this, I open the floor for questions and answers.

[Operator]

[Operator Instructions] The first question is from the line of Mohit from Guardian Capital.

[Mohit Mehra, analyst]

I wanted some...

[Operator]

Sorry to interrupt, Mohit. We are not able to hear you clearly.

[Mohit Mehra, analyst]

Can you hear me now?

[Operator]

Much better, sir. Please proceed.

[Mohit Mehra, analyst]

So I wanted some more clarity on this INR 143 million write-off that we have done. So what is it for?

[Kamalpal Hoda, executive]

Mohit, can you elaborate the question, which write-off are you referring to?

[Mohit Mehra, analyst]

Sure. So on the standalone income statement, there's an exceptional loss of INR 143 million, which is a write-off for SLPL, yes, what is that?

[Kamalpal Hoda, executive]

So Mohit, as part of the structure simplification, there are multiple steps that we had taken in the past and continue to do so. We had acquired -- we had a 56% stake in one of our subsidiaries, Stellarslog, where we have acquired to balance full stake and revalued the company on the date of acquisition. Basis which the investment in that company has been mark-to-market at the fair value as of the date of the balance stake acquisition, and which is where -- which is the write-off in the standalone.

[Mohit Mehra, analyst]

So what does this subsidiary do?

[Srinivasan Guruprasad, executive]

Okay. See, Mohit, way back, we invested in a platform-based business, which is into the gig tasking program. We invested in this way back in '21 January. And we held 53% in this company. So basically, what they do is there are taskers on one side, it's a gig platform, where we match the task doers and the task givers, any specific task to be executed, like it could be onboarding of a merchant or completing a mystery audit at store. So it's a gig platform.

And we integrated that business back into Quess as part of the Workforce completely, because post our acquisition, we incubated the business and giving the full power of Workforce to it makes much more meaningful for it, as well as it can accelerate well. So we integrated that back into Quess in this quarter. And as we said, the business has an annual revenue valuation of about INR 7 crores. And this was the right time for us to integrate into Quess. So...

[Mohit Mehra, analyst]

Got it. And where is this recognized in the consolidated financials?

[Srinivasan Guruprasad, executive]

Workforce.

[Mohit Mehra, analyst]

Okay. So it's not in other unallocated expenses, because then if you exclude this, the Workforce Management margin could be actually higher than what you have posted. Is my understanding correct?

[Kamalpal Hoda, executive]

Mohit, so it is, from a segment representation perspective, part of the Workforce Management. But in the current quarter, we have not had any losses to be consolidated. What happens is it was, any which ways, a subsidiary for us, where we were consolidating this company for all the prior years. The operating profit having passed in already consolidated, just in the standalone, when we are further acquiring the stake, the investment has been revalued at the present market value. In the present quarter, there are no consol -- no losses, which have materially affected the WFM results.

[Mohit Mehra, analyst]

Okay. Okay. Got it. Second question was on your Workforce Management. So I was just not able to reconcile these 2, 3 things. So one is your per associate per month contribution is flattish while your ratio for core to associate, that has weakened, but still the EBITDA spread is up a little bit. So how do I actually fit all 3 of these facts together?

[Srinivasan Guruprasad, executive]

Okay. One, I'll start explaining on the core to associate. Then I'll loop in Lohit also to come in. See, what happens is we -- I mean, the core to associate is dependent on the number of core headcount that we onboard to serve the associates. So during July -- during June up to Diwali, it's a season, and we will have more recruiters, the field force that we will be bringing into the system to manage or to fulfill the mandates -- open mandates that we have. For example, as of September 30, I called out in my speech as well, our open mandate size is about 38,000, even in -- despite of a bit of turbulence in the market, we still have specific demand coming in from Manufacturing, Retail and BFSI segment, we still stand at about 38,000 open mandates.

Now if you look at Manufacturing as a segment, it is doing really well and the kind of open mandates that we are getting, generally, post season, we used to downsize the number of recruiters, because post Ecommerce sale and season completes, we used to offload a few headcount. Now what we are doing at this time, we are not offloading the headcount. We continue to actually recharge and continue to keep that team, so that the demand coming in from other sectors -- because being the largest in the country, our demand size is also going up.

And we'll continue to keep this team, which is where the core to associate is not reducing, which means it will have impact on revenues being added in Q3 and Q4. So which is why you are not seeing -- the season decline and offloading of those recruiters are not happening this time. And we are continuing to keep them. So which is where you are seeing core to associate slightly plateauing, which is a good thing to happen for Q3 and Q4.

So now let me get Lohit to add.

[Lohit Bhatia, executive]

Good morning, and thanks for that question. While Guru has explained it well, let me just summarize what you said, because your questions are 3 broad things. Why is WFM, in some ways, flattish; core to FTE ratio has gone downwards, while the margin increased and the EBITDA has marginally gone upwards. So you've to see it from the perspective that WFM broadly has 3 businesses. There's the General Staffing India business. Core to FTE ratio reflects only that business. It does not reflect the other businesses.

In fact, Guru very well articulated and explained that the core to FTE ratio has marginally gone down because this is the time of the year when you, a, invest for season, and you've seen the rock solid growth of 26,000 head count that we've already achieved in Q2 on the back of 17,000 headcount in Q1. So we are already up about 43,000 people in the first half of the year.

This year, we will particularly continue to carry this, because Manufacturing and Industrial investments is a little more gestational investments and it's long term. Unlike the recruiters, which work out of branches, in Manufacturing, they have to work from the field or closer to the customer, which is the manufacturing plant location. And similarly, there has to be account management in plants, which have to be given for manufacturing.

Coming back to your second point, in spite of this headcount going up, gross margin remaining flattish at INR 700, again, that INR 700, let me remind you, is only for the General Staffing India business. If you come to Professional Staffing business. Professional Staffing average gross margin has now crossed INR 14,000. I'm talking about the India business, it's at about INR 14,300. We are at -- 35% of our book size in Professional Staffing today comes from medium margin to high margin, which could be anywhere between 10,000 to 15,000 headcount platform, going right up to 50,000 headcount platform and more. That also contributes.

And the third element. In spite of all of this, we've remained -- we've been able to grow and inch upwards. That is where I bring the international context. In spite of the global headwinds, our international business has remained very steady. And on top of that, we've been seeing increase in revenue in our Quess North America and reduction in cost. The 2 elements have given us a reduction in the burn in this quarter as far as Quess North America is concerned.

So that's how you'll have to see the entire business taking the 3 broad elements into consideration. Overall, I think WFM has done a very steady result for all the 3 categories, which is India GS, adding stellar headcount and customers; India Professional Staffing, which has grown; and international, which has remained steady. I hope that kind of explains the context.

[Mohit Mehra, analyst]

Yes. Makes sense. So what is the loss in the North American business? I think it used to be INR 4 crores, INR 5 crores. Is it lower than that? Can you give some number? Because you had guided for breakeven by the end of the year, right?

[Kamalpal Hoda, executive]

Yes. So Mohit, you're right. So this was INR 4.5 crores in quarter 1. This has been brought down to INR 2.5 crores in quarter 2, and we are confident of breaking even within this financial year.

[Mohit Mehra, analyst]

Okay. Okay. Perfect. And the monster cash burn, are we still on track for ending that by the end of the year?

[Kamalpal Hoda, executive]

Yes. We explained that within both Guru's comments as well as my comments that we are confident of exiting this year with a breakeven in Foundit.

[Mohit Mehra, analyst]

Perfect. Perfect. Can I just ask 1 more question?

[Lohit Bhatia, executive]

Can I ask you to come back in the queue, so that other people can ask their questions?

[Mohit Mehra, analyst]

Got it.

[Operator]

The next question is from the line of Gunit Singh from CCIPL.

[Gunit Singh, analyst]

Congratulations on a great set of results. So I mean, looking at the results in Q2, can we expect this to be the base going forward so that, I mean, this would be the benchmark or the minimum quarterly revenue that we can expect going forward from here on?

And my second question would be regarding the operating margins. So currently, we are operating at about 3% margins. But in FY '22 and before that, we were operating in the range of 5% to 6% operating margins. So I mean, what is the reason for this decline in operating margins over the years? And can we expect to reach those margins back again? And if so, by when? And I mean, what would be the margin guidance for the rest of the year and for FY '25?

[Srinivasan Guruprasad, executive]

Sure. Gunit, as I alluded in my speech, our effort on consolidation of our operation and the high-margin segments doing well, both GTS and OAM, it's playing out well in terms of its nonlinear growth to our EBITDA, which we always emphasized and now we can see the real results coming on too, by scale of economies coming in too.

So -- I mean, that has really accelerated if you look at 26% growth in OAM in terms of EBITDA, 23% in GTS has -- I mean, in terms of coming back to sustaining of our margins is something that we are quite confident about. And these are pure business -- I mean these are business contributions which are coming in. There are no any one-times or seasonal spike in this. So that gives us the confidence to say that, yes, we will be able to sustain.

Adding to that, our largest growth also comes from the low-margin business, which is also staffing, and we are also leaders where we can't stop that team, and they will continue to deliver. The higher growth coming in from that will have it blended where we are currently at blended margin of about 3.4%.

So as is where we are, we are able to sustain. And as and when our investments that we have made in Foundit and North America will start turning positive, which we are confident the way the trajectory looks like and we have delivered it in Q3 and Q4, we can definitely see slight improvement in margin coming in.

[Kamalpal Hoda, executive]

Yes, just to add to what Guru said, Gunit, you have, comparison point being FY '22 from a 5% to presently 3.5%, couple of reasons. I think one Guru already captured that General Staffing, which is a 2.2% margin business, has been going fantastic, growing fantastic for us, and it's a business which is a negative working capital business, and it's an annuity business. So that has been growing very well for us. There are also contributions from high-margin businesses, which you see in the current quarter, which is GTS and OAM, which has gone up -- on a quarter-on-quarter, they have gone up reasonably well. GTS has gone up quarter-on-quarter, 4% on an absolute basis in EBITDA and OAM has also gone up 14%.

The other thing, which is actually a very good investment for us is Foundit. While it is mathematically looking at a lower EBITDA margin on an overall basis for us, but if we actually operate the investment, we're already at 4% plus margins on a consolidated basis. And with expected breakeven in Foundit by end of this year, the expected breakeven in North America this year and some of the restructuring that we are doing, Stellarslog acquisition, we are bringing our losses continuously down and the margin uptick will obviously be there in the coming quarters.

[Gunit Singh, analyst]

All right, sir. That is heartening to hear. And I mean, do we have any guidance for FY '24, at what level of revenues would we want to end the year? And I mean, what kind of growth are we looking at internally for FY '25?

[Lohit Bhatia, executive]

Typically, Gunit, we don't give any guidance. I think the management has given quite a lot of inputs for you to do your modeling. But for our overall mix, I think the overall view of the management is positive from here in terms of overall business performance and margins.

[Gunit Singh, analyst]

All right. So I mean, in terms of optimization that we are doing currently, and we are breaking even in 2 of our businesses. So I mean, by the end of FY '24, can we expect to be in 4% plus operating margin range?

[Lohit Bhatia, executive]

It's a little difficult to tell you right now, but I think the management's intent and the guidance is that we would like to breakeven by the end of this quarter. And as to that, Guru has already told you that our biggest business driver is General Staffing. So how it contributes to the overall margins will shape up the overall consolidated margins, which is a little difficult to guide you right now sitting at the end of Q2. Probably by next quarter, they will be able to give you a better guidance.

[Operator]

The next question is from the line of Rishikesh from RoboCapital.

[Rishikesh Oza, analyst]

Sir, my question is with respect to the Product Led business. How are we looking to grow here quarter-on-quarter? And at what revenue level will we achieve the breakeven by this year-end?

[Kamalpal Hoda, executive]

If you see the historical trends as well as what we've reported numbers for Q1 and Q2, on a Y-o-Y basis, we have grown consistently at 35% despite a challenging external environment. On a sequential quarter-on-quarter basis, we grew 20% from Q1 to Q2. Historically, our H2, Q3 and Q4, has been significantly higher than H1. As you know, we are in [indiscernible] subscription business, which means the base effect of last year's H2 will help us grow faster in this year's H2. So we expect the growth to continue in H2 proportionately, as we did in the last year's H2, as the base effect kicks in as well as the new product launch happens.

Our new product, as Guru mentioned, Foundit 2.0, is now in public review with several customers using it and all of the customers will be on the new platform towards the end of the quarter. That delivers 2 things for us, improves our competitiveness in the Enterprise segment, which we called out; and secondly, our ability to price up on whatever offerings we are giving to the customers.

So all of this -- a combination of the base effect in H2, new product that is being launched and the uplift that we will see in terms of ability to price better, all of this will ensure that we will continue our growth journey in H2. And combination of growth and slight optimization of cost will lead us to breakeven by end of this year.

[Rishikesh Oza, analyst]

Okay. Sir, could you also touch upon the Workforce Management EBITDA margins? I think there was the U.S. business burn, which you had said that it is at peak now. And I think in a couple of quarters, we had some visibility that there should be some visibility on 3% margins for Workforce Management. So could you also touch upon that?

[Kamalpal Hoda, executive]

Yes, Lohit -- so North America, I have already verified that the burn has come down from INR 4.5 crores in Q1 to INR 2.5 crores. And we are confident that by the end of this financial year, we will have no more losses to consolidate on North America. On the overall depreciative margin, Lohit, do you want to comment?

[Lohit Bhatia, executive]

Yes. So like Kamal rightly said, one of the drivers for margins in WFM at the moment is North America. As that turns positive, obviously, that's a clear direct uptick for us. And that INR 2.5-odd crores, as we did now, closer to INR 4.5 plus crores last quarter, is sequentially coming down, and that will definitely aid WFM.

I must repeat this is an investment for the future. WFM, for its size, for its volume, for its margin profile, needs a market, which is steady state for the next couple of years, decades, which is both large as well as not just volumetric, but it's also a high-margin market, and that's why the investment in North America.

Having said that, I think the other 2 elements of India business is professional staffing on one side, which is primarily IT, versus non-IT business, which is General Staffing. General Staffing works at a 2% EBITDA margin rate, Professional Staffing works upwards of 7% or 8%. We've been seeing about 4 to 6 quarters of tough headwinds from the IT business with some green shoots, which have come in September for sure; one, our Permanent Recruitment business has again turned back into the black and has started giving us positive EBITDA with the growth of permanent and lateral hiring.

The second green shoot continues to be the margin improvement there. The third green shoot is the GCCs, where we are very actively pursuing and bagging more contracts from there. So these are the play. Mix makes a huge, huge difference for us. You can see 2% versus 7% plus. The mix itself aids many of these things.

[Rishikesh Oza, analyst]

Okay. Also, we have some -- we have an aspirational EBITDA margin, where we talk about 6%, which you also used to do before. Okay. So once we achieve breakeven on our North America and Product Led businesses, fair to say from next year onwards we should see likely around 1.5% EBITDA margin improvement per year?

[Kamalpal Hoda, executive]

See, Rishikesh, what I would advise you or guide you is that our absolute EBITDA will improve over the coming quarters. But when you focus on EBITDA margins, it is a little difficult for the management to guide, because as Guru has already told you that our biggest growth driver is General Staffing. And Lohit has already told you that it's a 2% EBITDA margin business. So when you focus on margins, you lose out on the absolute EBITDA growth that the business has been delivering. And overall, on a year-on-year basis, our absolute EBITDA has increased by 21%. So which is what I would guide you. Even though our EBITDA margins have not improved, but our absolute EBITDA has grown by 21%.

[Operator]

The next question is from the line of Vidit Shah from Spark Capital Wealth Management.

[Vidit Shah, analyst]

Just a couple of questions from my side. One is on the North America business, you've alluded to improvement in EBITDA -- EBITDA losses. But could you shed some light on how the revenue trajectory out there is? How are we growing, because that's one of the key growth drivers going forward, right, that we are planning on tapping?

[Srinivasan Guruprasad, executive]

Thank you, Vidit, for your question. I would ask Lohit to give his inputs on this question, please.

[Lohit Bhatia, executive]

So on an extremely small base, the revenue has gone up by about 92% this quarter. The cost has gone down by about 30%, as we had already kind of explained last call itself, and both these things have overall reduced the investment or the burn by about INR 2 crores quarter-on-quarter for this quarter. At this stage, we are at the juncture of coming closer to a steady state revenue run rate and staffing headcount addition, which should give us the breakeven at a country level or a business level by the end of the year as already explained by Guru and Kamal.

I must also add that this is a market which operates between USD 1,500 gross margin platform to as high as about USD 4,500 if you work in the niche profiles. And I think that's how we are building up ourselves with good customers.

[Vidit Shah, analyst]

Sure. So what was the exit in 2Q in terms of revenue, that rate that we can look at? And I remember we had got a couple of S&P 500 sort of customers. Have we added to that list? Or are times tough in IT staffing in U.S.?

[Srinivasan Guruprasad, executive]

Vidit, at the moment, it is very insignificant in terms of the revenue and the losses, I mean, one that we are doing there. We have less than 10 headcount that we have deployed. So as it becomes substantial, we will start probably declaring it. But we are also getting our feet right there in terms of how do we ramp up and how do we set the delivery structure. So we are in the right direction, but I think we'll have more to share as we come into Q3 and Q4.

[Vidit Shah, analyst]

Okay. And maybe one for Kamal in terms of the income tax matters. Just some clarity on the latest verdict that came in at the end of September. I sort of missed your opening remarks. So could you just explain where we stand at?

[Kamalpal Hoda, executive]

So Vidit, I did cover it in my commentary also. See this tax matter that is going on for us, it's for multiple years. So for '17/'18, we came out of DRP, and we are in Tribunal, and the next hearing for ITAT is within this month. So that will be the first set of hearing.

For '18/'19, the DRP hearing was completed and the final order was passed on September 30. This order was again in line with the previous order where principally, the 80JJAA and the depreciation on goodwill was disallowed to Quess. And we've taken very similar grounds and we're now going into Tribunal, so this will follow the course of what '17/'18 would be.

For '19/'20, there was a proposal for doing special audit for Quess, which was again proposed by department in line with the previous 2 years, but we were successfully represented with all the facts and the department has dropped the special audit. This is the first year that there's no special audit for Quess and the draft assessment order has been passed by the tax office themselves. Again, the order is in line with the previous 2 years, where they have principally taken out both the matters. We have taken the course of going with the DRP because we want to be consistent with our stand and the legal recourse that we have taken.

[Vidit Shah, analyst]

Okay. So all the orders are consistent in some of the -- that's the understanding correct, right?

[Kamalpal Hoda, executive]

That's correct.

[Operator]

The next question is from the line of Mohit from Guardian Capital.

[Mohit Mehra, analyst]

So I know that this is a small amount, but I just wanted to understand how was the Vedang stake that we have valued? Is it like much higher margin than the normal operating asset management business?

[Kamalpal Hoda, executive]

Mohit, Vedang is a subsidiary which we continue to hold. Prior to this acquisition also, 92.5% is with us. And the balance stake is with Mr. Ashish, who is running this company as a CEO. And in terms of share purchase agreement, which was there since 2017/'18, had laid out how the rest of the acquisitions would be done, basically, put option, which is there. So there's no fresh valuation that has been done. For this, just it will be earlier share purchase agreement that we've followed the course. Ashish continues to hold 3% in this company post the acquisition and he continues to run this company, and this company is going through a fantastic phase of 5G transition, and he's leading this company in a very robust manner.

[Mohit Mehra, analyst]

Okay. Okay. So let me just put it another way. So can you give some clarity about the EBITDA margin that is posted by this business, because I think it would be higher than our OAM business, because...

[Srinivasan Guruprasad, executive]

Yes. This business on an average delivers anywhere between 9% to 10% of EBITDA margins.

[Mohit Mehra, analyst]

Okay. Okay. Then it makes sense. Okay.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for your closing comments.

[Srinivasan Guruprasad, executive]

All right. I would like to once again highlight that we are very well placed across platforms to maintain our growth trajectory. And with this note, wishing you all, again, the festivities around Happy Deepawali and a prosperous New Year, and look forward to interact with you soon. Thank you so much for joining us today.

[Operator]

Thank you, members of the management team. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.