Quess Corp Ltd

NSE:QUESS

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Quess Corp H1 FY '25 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions]. Please note that this conference has been recorded.

I now hand the conference over to Mr. Balaji Subramanian from IIFL Citi. Please go ahead, sir.

[Balaji Subramanian, analyst]

Ladies and gentlemen, good morning, and thank you for joining us on the post Q2 FY '25 Results Conference Call for Quess Corp Limited. It's my pleasure to introduce the senior management team of Quess Corp, who are here with us today to discuss the results. We have Mr. Guruprasad Srinivasan, Group CEO; Mr. Kamal Pal Hoda, ED and Group CFO; Mr. Kushal Maheshwari, Head, Investor Relations and Strategic Finance; Mr. Lohit Bhatia, President, Workforce Management; Mr. Gurmeet Chahal, CEO, GTS; Mr. Anand Sundar Raj, President, OAM. 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 like to now hand over the call from 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 Quess Q2 FY '25 and Half Yearly FY '25 Earnings Call. The information, data and output shared by the management during the call is forward-looking and subject to prevailing business conditions and government policies. All forward-looking statements are subject to economic growth or other risks faced by the company. The results and the presentation have been uploaded on our website.

Please refer to Slide #2 of investor presentation for the safe harbor clause.

With that safe harbor, I will now hand over the call to our Group CEO, and ED, Mr. Guruprasad Srinivasan for his opening remarks. Over to you, Guru.

[Srinivasan Guruprasad, executive]

Thank you, Kushal, and wishing you -- wishing everyone happy Dhanteras, and thanks for joining us today. Let me start by giving you an overview of this quarter before moving on to respective platforms.

I'm pleased to share that during the quarter, we crossed 6 lakh headcount, which is a milestone achieved by very few companies in private sector in India. We were at 350,000 levels during COVID in FY '21. And since then, we have grown the business organically at a remarkable scale and added close to 250,000 associates. Coincidentally, this also marks our 17th anniversary, and we take pride in scale, which we have achieved, particularly as one of the youngest companies in the world to reach at this level. Over the past few quarters, we have been consistently delivering predictable financial performance, along with broad-based growth across platforms.

We have been delivering healthy revenue growth accompanied by margin expansion which has resulted in nonlinear growth in profitability. Over the past year, we have identified key improvement areas and growth streams in our business segments. These focused initiatives have helped us to boost productivity and strengthen our key financial effects.

Moving on to quarterly financial performance. I'm delighted to share that we have delivered a steady performance with revenue of INR 5,179 crores and an EBITDA of INR 196 crores. EBITDA margin expanded on a year-on-year basis by 23 basis points.

Moving on the key financial highlights for the quarter. We reported a consolidated revenue of INR 5,179 crores, a growth over 9% year-on-year. We delivered an EBITDA of INR 196 crores, a growth of 16% year-on-year. Our year-on-year improvement in margin was led by production in founded cash burn levels and outcome of productivity and improvement initiatives, leading to cost optimization. For the half year period, we delivered a revenue of INR 10,182 crores and EBITDA of INR 384 crores. Margin for this period was 3.8%, reflecting a year-on-year improvement of 27 basis points.

Key financial highlights. We added 42,000 in headcount and closed H1 with about 609,000 employees on roads. Our net addition of 42,000 in first half of this year is significantly higher than the net additions of 56,000 that we added whole of FY '24. We reported a consolidated revenue of INR 10,182 crores, a growth of 9% on a year-on-year basis. We delivered EBITDA of INR 384 crores, a total of 17% on year-on-year basis. As of H1, Quess had its lowest gross debt levels of INR 253 crores with a reduction in gross debt by INR 117 crores and net cash position of INR 334 crores at H1 closing. Operating OCF to EBITDA conversion improved to a healthy 86%.

Let me now walk you through specific platform-wise updates. I would like to start off from workforce management. The platform headcount grew by -- grew to 498,000 with around 15,000 associates added during the quarter. This includes approximately 40,000 employees who are serving notice period over the last 3.5 years, headcount in both force has been doubled, from 239,000 in end of FY '21 to the current levels. Revenue for the quarter increased by 13% year-on-year and 3% quarter-on-quarter. EBITDA margin remained stable at 2.44% with the top line growth driven primarily by general staffing. The platform added 128 new clients during the quarter, contributing to an overall ACV of INR 100 crores.

I would like to share some more details specific to the general staffing. The business added 15,000 associates to its head count during the quarter, largely led by demand from BFSI, logistics, manufacturing and retail sectors. The pace of headcount addition was lower, mainly because of delay in festivity season hiring in Q2. Typically, the season starts in August, but this time, we witnessed that the season actually picked up in mid of September. At the end of Q2, we have 22,000 open mandates as we exit Q2, we have open mandates, which is about 22,000, largely from manufacturing, telecom and BFSI segments.

General staffing business added 74 new logos and -- during the quarter. We -- during the quarter, we also completed our vertical restructuring, both in terms of leadership and process we will continue to invest in strengthening our sales, account management and sourcing across each vertical. As I mentioned in my previous discussion, this approach helps us to augment our ability to offer customized sourcing, improve customer retention and optimize fulfillment, creating a competitive advantage in the industry.

Approximately 70% of our gross additions in Q2 came from Tier 2 cities and beyond. This is an indication of our industry-leading geographic presence and sourcing capabilities that we have developed across India. We have made significant progress with job spots which we had called out in our previous quarter as well. This is more to serve a recruitment hotspots for perspective job seekers -- prospective job seekers around key manufacturing clusters. Job spots in Hosur, Narsapura and Chhalkhan are fully operational. We have opened a new job spots in TIrupati in early October. We are witnessing strong interest from employers due to the proximity of job spots offices to industrial areas as well as the candidates since we facilitate easy walk-in.

Going forward, we plan to expand this other supply states in eastern and northern parts as we believe manufacturing vertical will be a major driver of headcount growth. The other base business as part of Workforce is the IT staffing. Headwinds in ITES sector continued in Q2 to extend it affected our hirings as well. However, the reported a growth of net addition of 240 that was supported by GCCs.

Over the past few years, GCC has increasingly established their presence in India. We streamlined our GCC operations by verticalizing key industries and strengthening our -- strengthening our sales and delivery expansion. In the current environment, when IT staffing remains subdued and demand appears to be stabilizing, we continue to focus on GCC and niche hiring to enhance our margin profile. Our open mandates are robust, exceeding about 1,400, which is 3x our monthly onboarding rate.

In terms of overseas staffing, we experienced a muted quarter. mainly because of largest market, Singapore is undergoing headwinds due to visa restrictions that is affecting our headcount growth. In contrast, our other major business region, which is Middle East registered strong growth we remain optimistic that given our strong presence and agile leadership in regions we operate, we will see upward trend in near term. Let me now move on to Global Technology Solutions platform.

GPS achieved a revenue growth of 2% sequentially and 7% year-on-year basis, with an EBITDA margin of -- for the quarter at 17.5% comfortably within our target range between 17% to 18%. The highlight of the platform are as follows: the customer life cycle management business continues to follow a strong trajectory, achieving 18% year-on-year growth and 4% sequential growth driven by domestic and international operations.

Also, CXM vertical registered a robust growth with over 70% of its business coming from international market during the quarter. while services in Connect clogged a growth of 14% year-on-year, led by demand from BFSI clients. Investments are made to enter the automation, analytics and Gene capabilities since CLM is expected to drive significant growth going forward.

The non-voice BPO business remained flat year-on-year, but experienced an 8% sequential increase in following seasonal weak in Q1. The collection business demonstrated a good growth momentum. Going forward, the margin improvement will be a key focus area. The EXM payroll business processed about 4.3 billion payslips in Q2 with 6% quarter-on-quarter growth and 13% year-on-year growth. The platform secured an order book over about INR 117 crores ACV, added 53 new customers in the process. Key driver for this growth was specifically from e-commerce and BFSI segment. Moving on to operating asset maintenance management.

The OEM platform recorded a revenue grow of 9% and an EBITDA growth of 6% year-on-year. Over the past years, the platform has strengthened its leadership and sales capability. Although margins have declared on a year-on-year basis, due to these investments but there has been a quarter-over-quarter improvement in margins as well from the sales penetration and push. Driven by growth in margin accretive business such as F&B and telecom active infra segments.

I'd like to share some more key highlights of OEM business. The OEM platform added total 48 new customers resulting into ACV of INR 44 crores in Q2. IFMS vertical was primarily driven by education and IT sectors. The F&B also improved as education and institutional resumed to post their academic tracks. The telecom active infrastructure business recorded its highest ever quarterly revenue, experiencing significant growth to the development of 4G and 5G networks by the telecom operators. Moving on to product led, which is now largely representing founded on the platform.

Founded business registered a healthy growth of 11%, while also decreasing its cash burn levels year-on-year basis. We are also experiencing significant traction and positive feedback on the foundit 2.0 platform from both candidates and recruiters. Recruiters have expressed their confidence and witnessed highest ever job on the platform, reaching nearly INR 9 lakh. CSAT score remains healthy at on the candidate front and number of active users from past 6 months have increased to 25 million.

I have an interesting announcement to make. We are excited to welcome Jaspreet Bumra, India's leading fast bowler and top-ranked player in ICC men's player ranking across all 3 formats of the game as brand ambassador for our staffing vertical. His exceptional journey in cricket driven by relentless dedication, resilience and pursuit of excellence aligns with the value that we champion at first workforce management.

Our demerger plan are progressing as per schedule. We have achieved -- we have received NOC from stock exchange. And the first portion with the NCLT has been completed with shareholders and creditors meeting scheduled on December 9. So the announcement of our demerger in February, we have been strategically investing in people, technology to enhance our leadership capabilities, driving improvement in both sales and internal process within each platform. With these investments and healthy financial and operating performance, we are confident that each of these 3 entities, Quess, Digitide and Blue Spring will become the market leaders in their respective industries.

I'll now hand over to Kamal to give you more updates on financial for the quarter. Kamal, over to you.

[Kamalpal Hoda, executive]

Thank you, Guru. I'll first take you through headline financial numbers before delving into segmental performance and other corporate updates. During the quarter, we delivered a revenue of INR 5,179 crore, a growth of 9% year-on-year and 4% quarter-on-quarter.

EBITDA stands at INR 196 crores, a growth of 16% year-on-year and 4% quarter-on-quarter. Our operating margin is at 3.8%, which is 23 basis points higher on a year-on-year basis, driven by business improvement and focused projects carried out in the last 1 year and reductions in founded growth.

On a sequential basis, the margin head steady. Profit after tax increased by 32% on a year-on-year basis volume growth of EBITDA and reduction of interest costs, while it declined 16% on a quarter-on-quarter basis to INR 94 crores due to one-off gains from divestment of LLC business and interest on tax refunds in the previous quarter. In the quarter is INR 6.1%, a 26% increase on a year-on-year basis, in line with the PAC growth.

For the half year period, EPS were at INR 13, up 63% year-on-year. One of our core focus areas in optimizing capital structure and improving sustained operational efficiency in our commitment towards debt reduction.

As of H1 FY '25, gross debt stands at INR 253 crores. We repaid INR 117 crores in H1 FY '25. Net GAAP position stands at INR 334 crores, improving 12% on a year-on-year basis. Our operating cash flow improved 78% year-on-year to INR 245 crores with operating OPM to EBITDA conversion at 86% on a half year basis.

Moving on to platform line updates, starting with workforce management. We delivered a top line of INR 3,747 crores. which is up 13% year-on-year and 3% quarter-on-quarter growth driven primarily by general staffing. IT staffing was steady led by BCP high. EBITDA for this quarter for this platform is at INR 92 crores, a growth of 5% year-on-year and 4% quarter-on-quarter basis. On a year-on-year basis, EBITDA margin has contracted by 18 basis points to 2.44%, due to muted growth in Singapore market and grade inflation and increase in general staffing revenue mix, which stands at 84% from 82% a year ago.

Moving on to Global Technology Solutions platform. The platform clocked a revenue of INR 625 crores, an increase of 7% year-on-year basis and 2% quarter-on-quarter basis due to robust growth in voice and platform-led businesses with improvements in the nonvoice business.

EBITDA margin was largely flat on a sequential basis at 17.5%. We continue our focus on higher growth from international geographies in ELM and a margin improvement in non-voice businesses. Coming to operating asset management platform. It delivered a revenue of INR 768 crores, a growth of 9% year-on-year and 6% quarter-on-quarter. Growth executed towards food and telecom intra. Operating margin for the quarter is at 4.84%, declining 14 basis points on a year-on-year basis. due to investments towards sales and leadership while it improved 4 basis points sequentially. In the product get business, adjusted for our divestments in QD, revenue for the quarter was INR 39 crores, a growth of 12% year-on-year. Founded sales growth was 11% on a year-on-year basis. EBITDA was a negative INR 8 crores with cash grow at significantly lower levels on a year-on-year basis.

Moving on to demerger updates. We are progressing on track towards the proposed 3-way demerger of Quess Corp. After we filed NCLT application in August post stock exchange approval NCLT on 22nd October is post the first motion applications, giving directions for convening meetings with equity shareholders and unsecured debt on nice December. Strengthening our internal processes and leadership are the key work streams before the demerger, and we are hopeful of completing the entire demerger process by. With this, I conclude our financial results and pass back to the moderator for taking your questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Mr. Balaji Subramanian from IIFL Securities Limited.

[Balaji Subramanian, analyst]

Sir, my question was while your consolidated EBITDA growth is 16% looks quite healthy. But I can see that a lot of it is driven by the loss reduction in the PLB platform. And the other 3 segments, the EBITDA growth is just in mid-single digits, like 5%, 6% on a Y-o-Y basis. And that is probably because of the OAM and GTS solutions seeing single-digit revenue growth.

So how do you expect -- what is the outlook going forward? So once the PLB business EBITDA positive later this year, how do you see the consol EBITDA trajectory in future? The second question on -- is on the core to associate ratio. So there has been a steady deterioration on that count. So when you go in so what exactly is happening there? And going forward, how should one think about it?

[Srinivasan Guruprasad, executive]

So I'll take this one. I think both the questions are interrelated. So let me take the first part of it. I mean you're right, product-led business, if you look at it, our burn in line to the plan and it is coming. Last full financial year, we had a cash burn of about INR 56 crores, and this year by H1, we are in the range of about INR 16 crores to INR 17 crores.

And as we enter Q3, it should further come down and exit of Q4 is when I think we'll definitely be in a breakeven stage. So we are on close to our plan there. And of course, it is also helping us to better our overall EBITDA percentages and back to EBITDA there. Coming back to specifically on the question that you asked for growth from WFM and GTS. So WFM, let me start with ASML has been by head count, if you look at last full year. Across Quess, we added about 56,000 of which almost, I would say, about 90% comes from WFM, which is specifically general staffing there.

And this year, by H1, we have added about 42,000, of which, again, in the same ratio comes from -- specifically, from the general staffing business. While we are mindful that core to associate ratio has to be healthy. But however, the size where we are and we got to invest more on to our sourcing engine because on an average, we lose anywhere between 5% to 6% through attrition and backfill has to be done. And the engine -- we have built this engine almost 10-year plus now very aggressive engine at cost in terms of capability of hiring faster, quicker to our customers. And we continue to invest in that phase a lot.

So few specific callouts there: one, of course, being Q2 being seasoned we have increased our recruiter base in general staffing. So 100-plus recruiters incremental that we have added plus we have job spots that we have been calling out, investing specifically focusing on to be precisely closer to the customers in Manufacturing segment. So there, we are investing plus verticalization that we have done.

As I called out in my previous Q1 as well, vertical strategy is extremely important and have to be more precise to the boundaries and about the customer operates. So for example, BFSI, we have 120,000 people, manufacturing, we are close to 70,000 people. Consumer, retail is almost about 200,000 people. So we are also building a tower specifically to focus and also focus growth by vertical. That's how we measure each of our businesses internally. So from that standpoint, these investments that we are doing, we are confident that it is going to realize well as we move forward. There is an interim that it will bring down the core associate. But however, as we move forward, each of the pillar in itself will have its strength to grow at a different percentage and phase as we move forward into FY '26.

Coming back to GTS there on course, GDS has been growing on high single digit, and that's also in line to our plan. We're not seeing any surprises there. And the ACV, if you look at for Q1 as well in Q2, pretty strong, the number of logos, almost INR 100 crores of ACV that they have signed in Q2 itself. In Q1 also, we had called out almost about INR 83 crores. So they're on course in terms of their plan. So I hope this answers core to associate as well as foundit and WFM question that you asked.

[Operator]

The next question is from the line of Vikas from Antique.

[Unknown Analyst]

So I have a couple of questions. The first one is, this quarter, headcount relation was lower than usual, 15,000 tires typically each quarter. Was this mainly due to -- we hired more than 30,000 in Q1. So there was some base effect.

And how should we anticipate headcount trends in the second half of the year? That's number one. And secondly, on IT staffing, in the presentation, it say GCC contribution in Q2 is at 68% by revenue. So it has actually declined from 70% to 68%. And I thought in the opening remarks, you said GCC again is better than IT staffing. So I was a little confused here. I mean can you please explain on that as well.

[Srinivasan Guruprasad, executive]

All right. So because with regard to the headcount. Yes, Q1 definitely was a good opening and we added 30,000 plus. And Q2, I think I specifically called out this time, we have seen season start a month later. So generally, we would have ramped up -- around the mandate should of come in July and ramp up the deployment would have happened in the month of August. We saw a slight delay there and the actual onboarding was done in the month of September so -- and it also benchmarks to the Diwali around. So because post Diwali after 3 to 4 weeks of Diwali, there will be a rehiring also that will happen. So specific hiring that came in to your question, first and foremost, a months delay.

So that has impacted the onboarding. And hence, we were able to achieve about 11,000 net adds. I mean, well, just to give you a while we have done 11,000 net add, the gross add will be at least 3x of that, so 3 plus time. So net add is what we will consider in terms of reporting. In addition to that, I mean, the sector that has given us a boost, specifically for Q2 is logistics supply chain we have seen slightly slow down and manufacturing also slightly slowed down.

So manufacturing should be impairing which should pick up in Q3 for us. So we are seeing mandates coming up from manufacturing for Q3. So on a quarter-to-quarter basis, I think -- I mean, overall quest we have been able to grow anywhere between 4% to 5%, and we would still continue to see that because both GTS and OEM will have a stronger Q3 and Q4. So from that standpoint, I think we'll be doing good in terms of our growth overall perspective. Specific to a, to clarify, our mandates, which are coming in majority mandates, almost 74% comes from GCCs. It's from GCC. We are not still seeing any green shoots coming in from ITS and IT services.

Part two is there is -- I mean GCC contributing to the revenue is about 52% -- sorry, 68%, GCC contribution to the overall revenue. And we should see, as we step into -- in fact, we are ahead of plan specifically to IT staffing within when we measure the business. in Q3 also, we are seeing a net add and quality mandate, which are coming in. So from that standpoint, the slowness is in WFM is only from international staffing, as I called out, specifically from Singapore. Otherwise, India, it is staffing on back of GCC, I think we are quite confident.

[Kamalpal Hoda, executive]

Lohit, would you like to add some more color on IT staffing?

[Unknown Analyst]

Sir, just one clarification also the GCC contribution in the presentation is 68% and last quarter, it was 70%. So I wondered that disconnect at why the contribution has dropped by 200 basis points for GCC.

[Kamalpal Hoda, executive]

So 68% is the overall contribution as it stands at the end of Q2. However, what Guru was mentioning was 74% of the new business is coming from GCC. So I think every quarter that number, you would see that it would eventually go up as the mix changes. I'd also like to add a few more points. I think we'd mentioned in the previous calls as well, that the entire mix for us is changing.

As we have -- if you noticed from the last 4 years from the pre-COVID time to today, I'll just give you some estimated numbers from 8,300 headcount. Today, we are close to about 6,000 headcount in the IT business. However, from the nice profile, and from the higher margin profile from a low base of less than 3% contribution then. Today, the contribution is over 15%.

And when I say contribution from higher nice margins, 15% is almost close to about 900-plus headcount out of the 6,000, which contributes upwards of 50,000 and 100,000 gross margin pattern. Our blended gross margin platform from this business is now at a record high of INR 19,000 per person per month. In comparison, you would remember that the general staffing business was between the INR 680 to INR 700 mark.

[Unknown Analyst]

Okay. So maybe I'll take it separately with Kushal. So I think in last presentation, it says GCC now contributes 70% of total domestic IT revenues.

And its says now 68%. So I was just getting confused. I'll take this offline. My second question is, last quarter, we indicated that EBITDA was impacted by seasonality and wage hike. And then we guided for margin improvement in Q2. Can you break down where specifically we have missed on margin improvement as we only saw a marginal uptick. And also, last year, we saw better margin performance in the second half of the year compared to the first half. Do we anticipate a similar trend this year as well? And what are the key drivers of that is the trajectory going forward.

[Kamalpal Hoda, executive]

Vikas, Kamal this side. So I'll pick up the margin question. You pointed out rightly, so quarter 3 and quarter 4 are better quarters to us from a margin standpoint. The reasons are primarily that in quarter 1 and quarter 2, some of our high-margin businesses go through a cyclity. So the food business in the operating asset management business, the telecom infra business are gaining the operating asset management business, which are better margin business within the platform. go through a bit of a downwind in Q1 and Q2 due to the nature of the business, and then they come back strongly in Q3, Q4, which also we are confident of this is the present pipeline.

Similarly, in our GTS business in Connect the collection business does much better in Q4. And also the payroll business in HRMS business in all sectors better in Q3 and Q4. So a combination of these factors give us better margins in Q3 and Q4. And hence, we are hopeful that from the present 3.8% margin levels that we are reporting right now, which should range towards 4% as we move into H2. Vikas, does that answer your question?

[Unknown Analyst]

Yes, Just one small clarification. I mean, so this -- the improvement in margins we have seen, which is a marginal this quarter from Q1 to 3. This is what we are anticipating or we thought we initially, we thought the improvement is going to be much better. So just -- I need one small clarification here and thanks a lot, and happy festive theme to the management.

[Operator]

The next question is from the line of Deep Shah from B&K Securities.

[Deep Shah, analyst]

So one is actually a bookkeeping question on the reclassification that we did between employee costs and finance cost. So I did read the note, but if you could explain a bit better. And then if this is going to be the way ahead? Or why was this done? That is first. Second, sir, we've seen a lot of noise or some substance on the JAI affecting your BPO, BPM business? Could you provide some more clarity on what are the first interactions you're having? Is it affecting our pricing power? Is it affecting number of seats? And how do you actually see this going ahead?

[Kamalpal Hoda, executive]

Sure. Deep, Kamal this side. So I will take the regard and then on the generate question, I'll ask Gurmeet to step in. So we did this reclassification after bestmarking of how good governance organizations are presenting it. So the accounting standards do allow our choice of accounting policy in terms of presentation of the interest cost on the defined benefit obligation to show it either in employee costs or to show it under finance costs, and we have chosen the latter as a change in accounting policy.

We have done this canthal been done with a retrospective effect because all accounting port changes have to be done in the retrospective side. It has had no impact on our profitability. It is just a change of presentation. So to the extent that it has impacted employee cost, it has had a very similar effect on the finance cost. So from a profitability standpoint, this has had no impact on the profitability of sales. From a presentation standpoint also, we have reclassified all our prior year numbers to give effect of this change so that the numbers are comparable for all prior periods.

On your question on generate any impact, I would request Gurmeet to respond.

[Gurmeet Chahal, executive]

This is Gurmeet here. So for us, generative AI is an opportunity. That's how we are approaching it. As an organization, as you know, customer life cycle management is a significant part of our business. We manage about 1 billion customer interactions every year. So that means about 3 per second 24/7, 365 days. So there's a lot of experience that is within the organization. So what we are doing is we are leveraging that experience, keeping the human in the loop and building assets -- assets around it, we are -- we will be launching an overarching offering called Pulse.ai, which to start with, will have 8 -- think of it as Lego blocks, which could be used in unison or individually.

We believe it will address couple of challenges that the industry sees in this regard. So first of all, which will help us bring elastic capacity into operations because of the predictability. Second, a 2x improvement in go-to-market for our e-commerce customers. Up to 3x growth in sales, we believe with the improved customer service a 30% uplift in NPS. And of course, all of this will also be able to deliver about 30% to 40% cost savings depending on how mature your underlying data assets are. Hopefully, that regresses your question.

[Deep Shah, analyst]

Yes. So sir, you plan to launch this. So will it be rolled out over the next 1 year? How is the rollout plan? And has it cate up to a large client or is this something that anyone can use it, or these are just very, very, very early conversations? .

[Gurmeet Chahal, executive]

Yes. So look, we've been kind of doing the POCs for the last 6 months. And then based on those POCs, we have been refining our offering. We plan to launch the first set in the coming quarter itself. And then gradually, we will roll it out.

[Operator]

The next question is from the line of Amit Chandra from SGFC Securities.

[Amit Chandra, analyst]

So my first question is on the margins for the WFM segment. So obviously, you have not provided the clarification, but former understanding the margins Y-o-Y has down -- has been down. And sequentially also, it has been almost flat, right? So this is despite the increasing contribution of which I suppose is at a higher margin. So can you assume that the general stocking the core general stocking margins have been coming down and still there is more spike on to the margins for the core segment within WFM? And also the sourcing component has been going up okay? And the transfer component has been coming down. So in general, if you can explain whether you're sourcing higher sourcing can also lead to lower margins?

[Srinivasan Guruprasad, executive]

Sure. I'll start with the margin. We were -- I mean, 2.6% that we partially come out in multiple pointers there. One is, of course, as part of the more process. We are also strengthening each of the platforms. So we are hiring the capabilities for the back office and a lot of that for each of the platform. Number two, specifically for WFM, I spoke about verticalization, we have been investing because the investment for future in terms of how each of these verticals are going to represent and will have a trajectory of growth. Just to give you an example, again, for us, the manufacturing is about 70,000. We intend to drive this and it has an opportunity in itself to cross about 200,000 over a couple of years from now, right?

So build that, you've got to get the right structures in place, the processes in place, the challenges that between sector -- between segment to segment is very extremely different. So to make those investments in IR being closer to customers, specifically when I take an factoring. When consumer retail hiring is extremely different than what we do for manufacturing. So from that standpoint, we are from future standpoint, we are strengthening the verticals. So verticalization will help us to get the competitive edge as we move forward. So that's the second investment post the demerger.

Third, GCC hiring for GCC was hiring for IT services is extremely different. So the quality of recruiters. We don't hire pressures here. There are minimum upward of about 3 to 8 years of experience and to hire them, to get them to striking ratio in terms of onboarding is something that, that you need a better quality of equates to handle it. The last one here is the international mix in terms of -- just to give you a overall -- overall WSM EBITDA, 50% comes from general staffing, 50% comes from all other staffing. So of which balance 50%, which comes from all of the staffing, 23% comes -- or 31% comes from international. So internationals comes at a very high EBITDA margin level. So Singapore currently not hiring has also got a few basis points down in terms of the EBITDA margin.

So from a margin perspective, the levers for us to work on to continue is, a, of course, international recovery. b, as we get volume coming in, in coming quarters, it should come back to the levels where we were. And then slowly, we should see how we can graduate from thereafter. So I'll pass on the next question that you had on sourcing or basically on sourcing versus -- yes, we have seen -- I mean, sourcing engine is doing well. So I'll hand over to Lohit to take this question.

[Lohit Bhatia, executive]

Before I come to the sourcing versus transfers, let me put some effective because I think there seems to be a concern on WFM margins overall.

At 2.4%, we are slightly softer by about 15, 20 basis points against our medium-term last couple of quarters at about 2.6%. Having said that, the business as large as 84% contribution coming from the general stocking India business at 2.44% margin, we are already beating industry averages by at least 2 the nearest anybody in the industry would be performing, would be at half the margin rates of what price is delivering at almost 50% higher headcount and revenue growth. So that's the first part.

Let's keep that in mind in context to the delivery from Quess. The second point, which I must add, as a team or WFM long-term margin trajectory in North Star remains at 3%. We have not moved away from that not start, but that's a long-term not staff for us. Where do we want to get into the medium term is back to the 2.6%, 2.65%.

What contributes is 3 large levers for us. The general staffing business, which hovers between the 1.9% margin. The international business, which erstwhile about a year ago prior to the regulatory and visa tightness in Singapore. International used to contribute between 6% to 7% EBITDA margin. And India, which used to again contribute between the 6% to 7% of professional staffing. The good news here is that while the decline of Singapore has completely been overtaken by our focus and advent into GCC as far as India professional staffing is concerned. Today, our India IT business is contributing upwards of 9% EBITDA margin, which is a record high for us for this business but unfortunately, it happened at the times when international or mainly Singapore has declined from 6.5% to 4.5%. So what would have otherwise aided in a 20 basis point margin expansion has just offset what has happened in Singapore.

So I just wanted to give that perspective. Guru is right about the verticalization, the investment in sorting and the other things. I'll come back to the point on sourcing versus Transfers. Transfers always add to immediate uplift in gross margin? It may or may not aid your margin percentage expansion because generally, large transfers also come at flat fee. And those flat fees, typically, if it's a collective pay actually drags your margin downwards. Sourcing on the other hand, is more sticky. Once you do sourcing, the customer cannot easily replace or that account cannot be easily replaced by somebody else because that's the investment that we are doing on those measures. .

Now the third element that we must add here is Quess has been looking into the manufacturing space for the last 3 years in a very serious manner. Today, we have about 70 to 75,000 people just in the manufacturing space, thanks to our verticalization. 65 dedicated core resources work here. As we expand in manufacturing, while our margin percentage might go up a bit, our core to FT ratios and other ratios might come down. I'm sure all of you understand when we are dealing with services customers managing 400 to 500 associates with 1 core is possible. But when you're managing manufacturing typically, you have to give shift supervisors, you have to give IR and ER professionals, you have to manage compliances at the factories, but typical core to FT ratio comes down to 100 to 200. So it's a blended mix Quess WFM is almost at the cusp of 500,000 professionals. Our long-term vision is to be 1 million. To be able to do that, we need to focus on our verticalization. This is not a short-term game. We are in here for the long term. So I hope you can see it with that perspective.

[Amit Chandra, analyst]

Yes. Thanks for the elaborate answer. So it is clear now. So the second is on the founded segment. So obviously, firstly, on the another breakeven part earlier, you mentioned that you're going to break even this year. in the first half, there is an EBITDA loss of around INR 16 crores.

So how we are going to navigate that? And secondly, on the investments and the sales growth. So some more clarity on how we are seeing because the sales have been almost flat sequentially. And whoever so it's not that encouraging, but how the various like metrics are panning out and how we can compete with giant here because in the platform business, it's a bit difficult to establish ourself when there is such a large player that is there in the system for so many years. So what initiatives we have taken and where we are there in those initiatives? And with those investments, how we plan to breakeven.

[Srinivasan Guruprasad, executive]

Sure. Amit, first and foremost, we keep getting question specifically on winner takes all market, which probably I think seeing that to be really true. What happens is the job site net job and don't specifically go after one specific platform.

So wherever they can maximize they will come on to that, which is also kind of proof in terms of the profile updates that is up by 61% year-on-year it formed from almost 3 million to be touched almost about 7 million in terms of the profile updates, but job postings have gone up by 141% year-on-year. And the 2.0 applications that we have launched, we have done quite a lot of pilots and the large customers have been migrated on this resumed very well. And RC said pipe from the candidate side is also almost 90% plus up. So these are a few, I would say, positive indicators why the platform will do well, and it is also reflecting on burn reducing by actual revenue increase that is happening year-on-year, we have grown about 12%.

Having said that, you are right, it is also slightly soft because of a few factors. So 60% of our -- the revenue comes from the IT sector, which in itself has reduced its hiring. So IT services contributes a major and even that segment has been 60% has come down. The second is placement agencies who are the second largest set of subscribers who come on to this and smaller staffing companies are still not spending as before.

So that's the second call out that we have seen. Singapore market, again, has an impact on founded because we cater to the Asia market as well so market. But there's still be see caution in terms of spending. It is also leading to longer sales cycles. And plus, of course, with the candidate services, which continues to grow, we have seen in India, specifically the candidate services growing and new product launch, which has been resumed well.

So IT services about 60% slowing down has impacted on our growth. It can do better as we release. I think as we step into the upcoming quarters, we are seeing good order book coming in for this. So winner takes all market, we have seen the other way around. So we are really not stressed about it. We are waiting for IT services to open up for this segment as well as the international boundaries as well. But otherwise, we are confident from the order book to see how the Q3 and moving towards the breakeven for Q4. Just to give you a little math there, our cost is around INR 45 crores per quarter, and we are hovering around INR 39 crores of -- INR 38 to INR 39 crores of revenue. So we are not too far from the breakeven. Hope that answers your question.

[Operator]

The next question is from the line of Deep Modi from Equirus Securities Private Limited.

[Deep Modi, analyst]

So based on the -- I have a couple of questions. So based on the commentary given by several IT companies and decent results calls, there is a gradual recovery in demand led by the decreasing interest rate. So whether we see improvement in demand in IT service within workforce management going forward as well. And is there any chances to improve the margin within Workforce Management led by this.

[Srinivasan Guruprasad, executive]

More or less Deep, this question has been answered, but I'll ask Lohit to give you some more color on IT staffing and the margins for workforce management. Lohit, if you can just give us some more inputs.

[Lohit Bhatia, executive]

So like I was mentioning that 3 large businesses that we are split into, there's the general staffing business, which is just covering around a little sub-2% EBITDA margin. However, it still continues to be nearly 2x the industry average and the nearest competitors.

The second large business for us is the international or the APAC business. International APAC used to be hovering between 6% to 7% EBITDA margin. However, subdued because of the last 1 year of regulatory and these are compliance issues in the Singapore market. And the third mix in the business is the IT staffing in India. IT staffing currently in India, we have about 6,000 resources, but consistently for last 4 years, we have been working towards higher and niche segments. We've changed our customer mix. We've gone after GCCs in a big way. hence, the slowdown of the IT services industry has not really impacted us. Rather, we have changed our mix towards the IT niche segments from the GCCs itself.

Today, our average open mandate and open book in IT business is about 1,500. You'd be glad to know that about 75% or 3/4 of them primarily come from higher margins and GCC itself is the open book, and that's almost 3x of our monthly onwards. So our monthly onboards being at about 500, we have an open mandate open book of about 3x that size.

[Deep Modi, analyst]

Okay. Okay. It clarifies. And my second question is how we leverage our opportunity on government's focus on job creation which was held in the month of July in the union budget. So is there any update on the fine print from government side and how we see the impact of sale in this stocking business?

[Lohit Bhatia, executive]

The employment-led incentive schemes as announced by the government in July have undergone a massive amount of consultation we have participated as industry leaders and as part of industry bodies with the government at various levels in various forums. According to our understanding, the government has taken consolidation from all the industry players aggregated all the points of view. And obviously, their focus continues to be to move from informal to formal. .

More importantly, the government is focused towards the right measurement that once the rules are out and hopefully, they should be out very shortly. Once the rules are out, the measurement has to be very simple, and it should be from 1 source of growth. So that's what the government is working towards. But at this stage, I mean, I would not be able to answer on behalf of the government. I can only say that the industry consultation has happened at the -- at appropriate levels. And we feel that we should hear about the rural guidance very, very shortly.

[Operator]

The next question is from the line of Chintan Sheth from Girik Capital.

[Chintan Sheth, analyst]

Just a bit on the days overall, we have seen from March to this quarter first half has increased a bit by 3 days or so if you can talk about how the -- even the collection has been pretty robust and cash flow has been pretty strong but if you can highlight anything to take away from that? And secondly, on the government incentives still which you talked about a bit just before that. Are we -- is still not implemented fully? Or what is the expectation in terms of debt or incentive scheme also one of the contributor to our overall margin profile going forward?

[Kamalpal Hoda, executive]

Sure. This is Kamal here. I'll take the question. So on DSO days, the DSOs actually has been flat. In fact, on a quarter-on-quarter basis, we have seen a 1 day increase in DSO, but on a March to September basis, it has been flattish. We have internally active working streams across all businesses. And on back of that, that we've been able to report a 86% OCF conversion to EBITDA, which has actually led to a significant reduction of our debt levels.

We mentioned in our commentary that INR 117 crores of debt repayment that we have done. So it's not at a very alarming level. As management, we are confident of bringing the DSO days further down. On the government incentives, I think Lohit did explain that so far, we are still awaiting the detailed guidelines from the government. And hence, there is no portion of our present reporting number, which includes these proposed government incentives because the ELAs are -- the detailed guidelines of the ELAs are expected next month. and that is when it should start impacting the business results.

So in the present H1 numbers, there are no impact of any incentives -- government incentive scheme.

[Chintan Sheth, analyst]

But by year end, you expect this to get implemented and some benefit to start accruing in the numbers that's fair to assume?

[Kamalpal Hoda, executive]

So Chintan as we explained on the call, there has been massive consolidation post the budgetary announcement. And we are hopeful and awaiting the detailed guidelines as to when it comes. The major impact is towards first-time employment, and it's also towards the direct benefit transfer, which should happen towards the fresh employment, and being the largest player in the industry in this space, we believe that it should benefit our business, but we await the detailed guidelines. And once the guidelines are out from the government side, we'll be able to comment more on this.

[Chintan Sheth, analyst]

Okay. And if we look at the change in the accounting on the employee and finance cost, if we add that reverse that the numbers in the EBITDA numbers will further have some flat on a sequential resolute improvement won't be that large, what is reported on -- after the adjustments, which we have reported during the quarter. One thing I observed was the A&P spend, which was elevated this quarter. likely related to the job postings and the hot spots, which we have talked about is part of that A&P. Is that correct understanding?

[Srinivasan Guruprasad, executive]

Sorry, can you repeat your last question again?

[Chintan Sheth, analyst]

The A&P spend for WFM has increased to 6.2% versus it was hoovering around 5.8%.

[Srinivasan Guruprasad, executive]

SG&A.

[Chintan Sheth, analyst]

SG&A, right?

[Srinivasan Guruprasad, executive]

Yes. So let me...

[Chintan Sheth, analyst]

Trend to continue, how should one look at?

[Srinivasan Guruprasad, executive]

Yes. So on the interest and the classification of interest costs on defined benefit obligation employee benefits to finance cost. I think I explained in one of the previous question as well that it has had no impact on our profitability. In fact...

[Chintan Sheth, analyst]

Correct. Correct. That I agree.

[Srinivasan Guruprasad, executive]

The accounting policy also, we have had a retrospective application. So the quarter-on-quarter EBITDA growth that you see is apple-to-apple comparable because in all our prior year numbers also, we have done a reclassification. On the SG&A costs going up, I think both Loren grow briefly covered that the investments that we have made in the verticalization across our sectors, and also due to festive hiring the additional recruiters that we hire leads a bit of an increase in our SG&A cost towards Q2 and Q3, and there it gets normalized back in Q4.

So we don't expect it to be at these levels and we hope that it will come back to the previous levels reported. Some of these also include investments that we are doing as part of a strengthening of the leadership and sales owing to the demerger process. So it's a combination of 3, 4 things that we explained over the call, but we are hopeful that we should be able to pull back the SG&A cost to be normal levels.

[Chintan Sheth, analyst]

It will also aid our margins, that can be even -- got it.

[Operator]

As that was the last question from the participants. I now hand the conference over to management for closing comments.

[Kamalpal Hoda, executive]

Over to you, Guru.

[Srinivasan Guruprasad, executive]

So thanks to everyone for joining us again for this Q2 earnings call. Your question and feedback have always been valuable and I would like to reiterate that we remain committed to grow the business across all operational and financial metrics, while unlocking value for our shareholders. So before we conclude the call, I would like to wish each 1 of you and your families agile full testing season ahead. Thank you.

[Kamalpal Hoda, executive]

Thank you very much.

[Operator]

On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.