Quess Corp Ltd

NSE:QUESS

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Quest Corp Limited Q4 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, and over to you, sir.

[Balaji Subramanian, analyst]

Ladies and gentlemen, good morning, and thank you for joining us on the post results conference call for Quess. It's my pleasure to introduce the senior management team of Quess who are here with us today to discuss that as well. 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; Mr. Anand Sundar Raj, President, OEM; and Mr. Sekhar Garisa, President, Product-led businesses. We will begin the call with opening remarks by the management team. And thereafter, we'll open the call for a Q&A session.

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

[Kushal Maheshwari, executive]

Thank you, Balaji. Good morning, everyone, and thank you for joining our Q4 FY '24 and full year 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 policies.

All forward-looking statements are subject to economic growth or other risks raised by the company. Please refer to Slide #2 of investor presentation for the Safe Harbor clause.

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

[Srinivasan Guruprasad, executive]

Thank you, Kushal. Good morning, everyone, and thank you for joining us today. During FY '24, we focused on profitable growth and our year-long initiatives have resulted in our best operating results, leading us to achieve the highest ever quarterly and annual EBITDA. We had a number of projects throughout the year. that have helped us to achieve our results.

This is our seventh consecutive quarter of sequential increase in EBITDA reflected in predictable and nonlinear growth of 46% in EBITDA versus revenue growth of 15% during the same period same time. Also, EBITDA margins have expanded by 80 basis points since Q2 FY '23, enabling us to close the quarter at an EBITDA margin of 4%.

Our initiatives in cost reduction and productivity improvements resulted in a reduction of FTE headcount from 5,500 in Q1 to 5,300 in Q4. Our investment in technology and process automation have complemented the productivity improvement project that we ran in association with BCG.

We added 149 new contracts with an ACV of INR 232 crores during the quarter bringing the total number of new contracts signed during FY '24 to 737. We declared a final dividend of INR 6 per share aggregating to INR 10 per share for full year.

Our prudent capital allocation policy has resulted in a cumulative debt repayment of INR 700-plus crores and dividend payout of INR 488 crores in last 5 years. We added over 10,400 associates and closed the quarter with a total employee strength of 5 lakh 67,000 by headcount.

Key financial highlights for the quarter are as follows: we recorded a revenue growth of INR 4,910 crores, a revenue of 11% year-on-year growth. We delivered highest ever quarterly EBITDA at INR 195 crores with 28% year-on-year growth.

The improvement in margin is mainly driven by 3 following parameters: consistent margin improvement in GTS platform driven by focus on international geographies and high-margin segments, reduction in founded burn, operating leverage in OAM platform.

Coming to annual financials. FY '24 stood at INR 19,100 crores, 11% up against FY '23. Annual EBITDA increased by 18% year-on-year INR 694 crores and PAT grew up by 26% year-on-year to INR 280 crores. OCF to operating EBITDA ratio stood at 67%. We achieved a gross debt reduction of INR 162 crores, and the net cash position improved by INR 150 crores during the year, along with a DS-4 day reduction by 4 days to down to 53 days.

A few business updates across platform, starting from workforce management. The headcount of the platform reached 4 lakh 22,000 including F&F of 32,000 processed during the period, adding 65,000 associates during the year. Driving the revenue growth of 14% year-on-year despite of competitive pricing pressure and a significant flat fee business model, our EBITDA margin has stabilized at 2.6%.

Contracts during the quarter with overall ACV of INR 150 crores and overall new contract addition for the year of 398 by count.

Moving on to specific to Comtel staffing. The business added 10,000 associates in headcount during the quarter, led by retail and manufacturing and Telecom segment. The business added 16,000 associates in headcount, excluding full and final associates who are in full and final process. During the year, we have crossed 400,000 milestone. We are now among the top 5 global IT staffing -- the global staffing companies by headcount and are starting to become the largest staffing company globally.

Business added 78 new logos in Q4, taking the financial year total to over 274 crores. Among the clients added during the year, 30% have used outsourcing staffing for the first time. Evidence that the long-term trend towards outsourcing and formalization is becoming the industry now. Our vertical-focused strategy has continued to yield dividends.

Four of our verticals, that is BFSI, retail, telecom and manufacturing have ended the year with 50,000 head count of associates with BFSI crossing 120,000 associates. Our manufacturing vertical has been a key growth driver in FY '24, adding 22,000 headcount, up by 47% during the year.

In FY '24, we sourced 28% of our due hiring and 54% of all associates onboarded were deployed in Tier 2 and Tier 3 cities, reflecting our strength in extensive sourcing deployment across geographies.

Coming to IT traffic. The softness in overall IT industry is reflected in the fact that aggregate headcount of top 5 IT companies declined by 11,200 in Q4 and 69,000 in FY '24. Addition to the IT workforce in India has been the most -- mostly through GCCs, who now employ about 1.6 million. We expect this trend to continue, along with stabilization in hiring in IT services companies.

Open mandate has seen a very marginal increase to 1,100 positions against 1,000 positions in December; '23. As we advance, our focus continues to be on capturing a larger market share in GCC.

Moving on to GTS platform. GTS continues its trajectory delivering an EBITDA growth of 19% year-on-year and 5% quarter-on-quarter. Shift in business mix through increased share of higher value services and favorable geographic mix has supported EBITDA margin expansion increasing by 208 basis points year-on-year and 46 basis points quarter-on-quarter.

The highlight of the platform are as follows: Conneqt, our PBM business continues to maintain its momentum, crossing a milestone of INR 400 crores revenue in Q4. Business closed the order book or in INR ACV of INR 64 crores. During the quarter, adding 9 new logos in the process. The key drivers were BFSI, manufacturing and retail segment.

Non-voice BPM process continues to grow significantly with a growth rate of 4% quarter-on-quarter and 22% year-on-year. This is largely driven by our collection business, which clocked 24% growth year-on-year. The growth momentum in CXM business of Alstonine to continue with a healthy growth rate of 29% year-on-year and 10% sequential growth.

Higher international business outperformed with a growth rate of 39% year-on-year and 13% quarter-on-quarter. International business now accounts for 74% of overall CXM revenue in Q4 against 69% in the same period last year.

In platform-based services, vertical in Alset added 11 new logos in Q4 with total ACV of INR 7 crores. International business accounted for 59% of total ACV added reserves, 31% for the same period last year. The vertical processed -- this vertical process 155 A pits in Q4, a growth -- similar to CXM vertical. International business share increase to -- increased to 23% in Q4 FY '24 from 31% in the same period last year.

Moving on to operating asset maintenance. Our focused initiative on margin expansion and productivity improvement led to an increase of 18% in EBITDA margins against the revenue of -- a revenue increase of 7%. The platform has recorded a margin improvement of 106 basis points year-on-year.

I would like to give you some highlights specific to OEM business. OAM has added 40 new customers with ACV of INR 30 crores during the quarter. healthcare, public utility and BFSI are being the key drivers. Food and Beverage business saw a gross margin improvement of 19% on an annualized basis.

In Security Services, our sales pipeline remains robust with 26 new contracts with an ACV of INR 23 crores in Q1 -- between Q4 and Q1. Industrial and IT services are being the key drivers for security business. Telecom active infra business closed the year with best ever revenue and FY '24 revenue and EBITDA has shown a growth of 30% and 32%, respectively.

Moving on to product line business. Founding has achieved its operational breakeven during the year, in Q4 quarter, with production in burn, the sales grew by 9% year-on-year and 13% quarter-on-quarter driven by enterprise sales and B2C sales. We successfully launched our disruptive AI product, Founded 2.0 for SCA markets, Asian market. And migrated 100% of our single geography user customers to 2.0, enabling our customers to experience the new product.

Our operational metrics on both candidate and recruiter aspects remain positive with consumption up by 18%, NRR above 100%, profile update up by 31% quarter-on-quarter and highest-ever indexed profile added in Q4. CAT continues to remain healthy at 91%.

Other corporate updates. In our associate -- I mean, in Quess, our associate our most effective brand numbers to our customers. I'm happy to announce that in a recent conducted survey in -- between Q3 and Q4, our pulp survey covering 156,000 associates, 88% have rated themselves as very satisfied or satisfied, up by 85% compared to the previous year.

78% of our associates are definitely likely are very likely to recommend costs to their peers. This means a lot to us, and we will continue to work towards further improving the associate experience.

During the quarter, we announced 3-way demerger of Quess Corp into 3 different independent listed entities, which -- with each one of them -- with each one capable of executing its individual business strategies. We are confident that it will significantly augment the value creation journey going forward with each business getting enhanced management focus and pursuing an optimal capital allocation strategy. We have filed the scheme of demerger with stock exchange in February '24 and moving on track.

I'll now hand over call to Kamal to give you more insights on financial updates. Thank you.

[Kamalpal Hoda, executive]

Thank you, Guru. Good morning, everyone, and thank you for joining us today. I'm pleased to share with you with all of you that we are exiting the financial year on a high note backed by our strong financial performance with highest ever quarterly and annual EBITDA.

Our ability to maximize market opportunities evident in our results, and we are seeing a solid momentum picking up in last 4 sequential quarters. Our FY '24 revenues stand at INR 19,100 crores, a growth of 11% year-on-year. Such increase came across all platforms in contributing sectors being BFSI, manufacturing and retail, primarily.

EBITDA grew at 18% in FY '24 to INR 694 crores, a sequential year-on-year expansion in margin by 22 basis points. Such non-unit growth came from margin expansion and cost initiatives taken across platforms including reductions in founded losses year-on-year.

PAT delivered for the year was INR 280 crores, a growth of 26%. PAT has grown by 24% year-on-year. This is backed by strong EBITDA growth across platforms, aided by lower effective tax rates from the merger of subsidiaries during the year.

Our cash conversion continues to be strong with operating cash to EBITDA at a healthy 67% aided by a reduction of 4 days in DSO, which now stands at 53 days. Our gross debt is at its lowest level in the last 5 years, ending the year with INR 359 crores of gross debt, a reduction of INR 162 crores during this fiscal.

With our full recommended final dividend of INR 6 per share during the quarter, our total dividend for the year dropped to INR 10 per share. With this, the return to shareholders in the last 4 years has been INR 488 crores in form of dividends.

Let me now walk you through the quarter's financial performance by platform, starting with workforce management. Revenue stands at INR 2,176 crores, registering a growth of 14% year-on-year and 1% quarter-on-quarter. Growth is predominantly in general staffing business with key sectors being manufacturing, BFSI and retail.

EBITDA has seen a growth of 2% quarter-on-quarter and 6% year-on-year at INR 91 crores. EBITDA in percentage has been flat at 2.6% throughout the year. The cost pressure on account of wage inflation with flat margins in staffing businesses have been offset by an increase in wallet share of value-added services in that platform.

Coming to DTS, INR 588 crores revenue drop for the quarter, an increase of 6% year-on-year and 3% quarter-on-quarter. On PAT continues its growth momentum in CSM business with 10% growth quarter-on-quarter. Our domestic BPM business in that also showed a revenue growth of 4% quarter-on-quarter.

EBITDA stands at INR 113 crores, a growth of 19% year-on-year and 5% quarter-on-quarter. Such nonlicense in profitability as a result of change in geographical mix with bias towards international revenue, coupled with high-margin businesses.

Moving on to operating asset management. INR 695 crores revenue drop for the quarter, a growth of 4% year-on-year and 2% quarter-on-quarter. Investment in sales in previous years in this quarter have resulted into good sales balance and conversion for the quarter. Facility management, including food services and telecom and good growth during the quarter.

EBITDA stands at INR 39 crores for the quarter, a growth of 29% year-on-year and 6% quarter-on-quarter. Marginal rated by statin business mix, led by food and telecom businesses, coupled with operating levels.

Product led business. Revenue dropped for the quarter was INR 119 crores, a degrowth of 90% quarter-on-quarter. While founded sales has grown by 13% quarter-on-quarter and 9% year-on-year achieving highest ever quarterly sales of INR 50 crores. Founded breakeven during the quarter has led to EBITDA losses, excluding noncash ESOPs reduced to negative INR 3 crores, helping us meet our commitment to investors.

Our Plastic business has seen some degrowth in spare services revenue during this quarter. As part of our strategy to focus and nurture our core businesses, we completed our divestment of our BFSI business, Defective at November 24, with an IRR of 15%.

Moving on to tax updates. There are no material updates from the last quarter as the hearing for the respective SSM in high-tech have not been one. For financial year '17, '18 year and '18, '19, our appeal is at Ide, and the next hearing is expected in July '24. For the year '19/'20 and 2021, the company has filed objector DRG against the addenment supported by the tax office and the hearing for '19/'20 is scheduled in the current month.

A few corporate updates for the year. In line with our leader sector simplification strategy, implementation of main of our owned subsidiaries, Connect, NFX, Greenpice approval was completed during the year. You are aware that our good approve proposal to demerge the business into 3 independent listed entities. Each one capable of executing its individual business strategies.

We believe that this will enable value unlock for our shareholders in medium and long term, scale the businesses to new hit enhanced management focus, follow on optimal capital allocation strategy and attract separate Investor Day. We have filed a scheme of demerger with stock can in February 2024, and we are progressing well on our plan.

With this, I conclude our financial results and pass it back to the moderator for taking your questions. Thank you.

[Operator]

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

[Balaji Subramanian, analyst]

Okay. So congrats on a great quarter. So I have a couple of questions. So you did mention the drivers behind the margin expansion OAM and GTS segment. So going forward, how should one look at the margin profile and especially the balance, which you intend to strike between revenue growth and margins?

The second question would be on the 4-day reduction in DSO, which you talked about, which nearly adds INR 200 crores to last year. So what exactly drove this? And is this the new normal going forward? Or do you see room for further improvement?

[Srinivasan Guruprasad, executive]

Thank you, Balaji. For your first question on margin expansion in GTS, I would request Pinaki to give us inputs followed by Anand. And for the question on DSO and Kamal will give us inputs. Over to you, Pinaki.

[Pinaki Kar, executive]

Thank you. So as per the margin expense on logic, let me take back a bit, if you go back even 16 quarters that 2020 marks to be precise, we had given it a kind of drivers that because we are at 16% margin that tend, and around that than we told that DS-16 to 18% kind of a way, they've done certain factors. So I think we are mostly at 18% in this quarter. We have just done a bit on that sense.

But to take back on that, the reason the drivers for data fee and they are not seasonal, they are structural. One is the geography mix. Obviously, international is get GTS with better margins than the domestic business.

And if you see customer quarter-on-quarter, for example, also, we are at 24% in terms of interaction business in Q2, an 69% at this point last year. So there is a 500 basis point improvement there. And the growth in international business year-on-year has been 39% is into also overall growth of 20%. So the issue is put more towards that business.

Number two, from a business mix perspective. Even in the VXM business, which was mostly domestic or the new bookings, just show you that it's a leading levator for the future. New bookings, 39% has been international in this quarter, against 37% at this stage last year. So the new grouping is portend for the future also shows that from a geographic mix perspective as all that in 2.

Next, we get into now the service mix in terms of the more higher value services. So you'll find the transaction processing, we fear the collections in Conneqt. That growth is 24% in collection business, which is higher than the overall growth of the business on a weighted average.

Similarly, the digitally-driven businesses, it is the scale Conneqt platform or the virtual sales office from the interactive outbound businesses, the growth case on that has been more than the vanilla kind of businesses. So from a mix prospective also, it is getting more towards the software as a service platform as a service kind of businesses. So these two are structural.

The third is obviously right solving the cost structure, which we do on a regular basis. There is the ID has been pretty steady at a stable rate over the last 4 quarters. So hopefully, the combination of these 3 business growth of the right geographies, more disproportionate share from the higher value services and rationale is in the cost base, especially in the SG&A at this total level. All 3 should continue what the margin should be in the kind of range that we are seeing today. On first to the.

[Srinivasan Guruprasad, executive]

Thank you, Pinaki. I'll give a pass on to Anand to give his input on the OAM platform.

[Anand Sundar Raj C, executive]

Thank you, Guru. As Guru mentioned in the last few quarters, the leverage for focus on internal efficiency and we walked on few customer contracts. And consistently, the last 3 quarters, we are seeing the real from. Having said that, you also know some of our business within OEM have seasonal in in place, but we are broadly confident on an annualized basis. We are on trend.

[Srinivasan Guruprasad, executive]

Thank you, Anand. Kamal, if you can just give me a cue about the operating cash flows and the improvement in BSDs.

[Kamalpal Hoda, executive]

Sure. Thanks. So Balaji, as you know, we have a mix of businesses and the reason for reduction in DSO days and reporting the committed at is actually First and foremost, this disciplined working capital management policy that we've been running for last now more than 18 months, which was alluded in his speech.

Secondly, the mix. So we have the advantage of two of our business, which is still so where 70% of the business collect and pay and founded there most of the collections are advanced before delivering their services. Vis-a-vis other businesses like CTS and operating asset management, we have the working capital cycle is a bit higher.

So as and when this mix changes a bit more towards telecenter and advanced collection businesses, we are in an advantageous position to bring down our DSO and improve our OTS.

And third is the divestment that we did during the quarter of business which was a business with a higher at a combination of all 3, that has led to this reduction in DSO. And the second part of your question that whether it's in a sustainable level, we do believe we will continue this disciplined working capital management across the group. We'll be able to even further improve from the presenters.

[Operator]

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

[Deep Shah, analyst]

So there has been a lot of substantive improvement on the manufacturing front -- on the industrial front. And you've seen a lot of reports coming out. You also allude a bit to one of the reasons for your growth in WFM. So 2 questions here. First, is there any scope for better in economics here given that there is massive demand coming in? And second, just in your thought, how do you see this segment? Today, it is 14% for us, it was 10% last year. Would this be 20% produce the drip next total. So some color on that would be useful.

[Srinivasan Guruprasad, executive]

Thanks for the question, Deep. the way to look at it is, I think it's very clear that India is in an investment phase, and I'm sure I think it will reinforce as we come out of the elections. If you look at the segment where the investments are happening pretty sharp in terms of the infrastructure, public utility and the CapEx, which is being invested into. And all these segments should definitely have a very intensified labor or employment-related -- manpower-related activity that is on to gain traction. And manufacturing is one among them where it is attracting a lot of investments. And there are a few hubs where we are already actively working in manufacturing clusters.

So if you look at manufacturing by headcount, we are almost close to about 70,000 in terms of deployment, which also I called out very specifically in my speech. We anticipate this investment and the trajectory would continue at least 2x to 3x of GDP in terms of the base GDP growth the way it is going on. So that's the kind of growth that we would definitely see. So let me get Lohit add more to this.

[Lohit Bhatia, executive]

I think that's a good question and an important question for India, like Guru rightly said. Obviously, manufacturing is being attracted from all over the world, and there are different segments of modern manufacturing that we are seeing every day, which is coming to India. One large change, which is happening is that manufacturing, which traditionally remained in the MSME segment, barring a few large core investments in core sector.

Today, mega plants are coming up with 1,000, 5,000, 10,000 and even more people beyond that. In the last 2 years itself, we've doubled the business from 33,000 headcount to almost 70,000 headcount now. This is a business, which is growing at almost 47% to 49% CAGRs.

You are right, it's the third largest segment for us. And do we see this becoming even bigger? Yes, absolutely. One aspect in Guru's commentary also you would have heard is something called job sports. We've come out clearly by saying that we have to get closer to the hubs away from the cities where traditionally the staffing office is operated to industrial hubs and industrial areas where the industries exist, where the new investment is coming. And that's exactly where we can do a matching between the job seeker from the hinterland of India or from the agricultural part of India to the industrial part of the movement.

We have coupled this with a lot of technology investments in these centers, and we are obviously aiding and growing our sourcing capabilities and growth as well. So this is a segment, which we continue to very closely watch. And yes, to your point, that can it become even bigger than what it is with a considerable market share for us? Yes, absolutely.

[Deep Shah, analyst]

Sure, sir. Sir, anything on EBITDA here? Is it very different? Or could it be better than, say, the otherwise price-taking mechanism that we are currently in?

[Lohit Bhatia, executive]

So in traditionally manufacturing unlike the Services segment, you have to grow on the basis of not just your sales capability, but your sourcing capability. The customer expects 100% of the new talent to be brought in by the company. So first and foremost, it's not everybody's game.

It can only be done by firms, which have very, very solid housing capabilities and technology, which can aid such sourcing along with the human capital that we've deployed. We have almost 500 people in general staffing who are field recruiters. And that's a massive number that we carry besides the technology that we've been creating for the last 7 years, and we continue to invest in.

In services, you're right, there's a lot of transition business also which comes along or a lot of migration business, which comes along. Manufacturing doesn't come along with transition or migration business.

Over the life of manufacturing, the unit metric is slightly better, though initially, it starts a little on the lower side because you don't get migrations, and you have to do it with your own sourcing capability for which you have to put investments.

So early days when you start, it would slightly aid lower. But as it catches up at each of the plant, you start to get heft in terms of numbers. The unit metric starts to improve and become better. Over time, it can definitely beat the services economies as well.

[Deep Shah, analyst]

Understood. Very useful. Sir, the second question would be on founded. So Tanda on the near breakeven that you stated on your presentation, how should we look ahead, your recruitment is going through a difficult time. What should we think about, say, found it for next 2, 3 years? Would we run at breakeven? Are you okay to make some losses in marketing if required? Whatever your thoughts are, just better understand, given there are massive headwinds in this space.

[Srinivasan Guruprasad, executive]

Sure. There are some headwinds in the space, like you said, with hiring coming down in some sectors. But as the conversation in the last 5 minutes was, there are also sectors where hiring is happening at a very healthy pace. So I found it our objective is to make sure that we have enough business and customers coming in from across the sectors. And therefore, there's a concerted push to ensure that our volumes from non-IT also compensate for whatever limited reduction we will see in IT tax rate.

Our starting point, which is we're just on our journey of growth. So given our size and new products coming into the market and our ability to gain market share with customers that we are already present in. While there are headwinds in the market, we are very confident that we are at a size and position in the market where it shouldn't impact us too much.

For the last 3 years, despite the headwinds in the market, we improved at -- so upwards of 40% and to any reason why we shouldn't aspire to go at a similar base.

With respect to your question on profitability, yes, we moved from about INR 95 crores that we lost in FY '22 to about 55 this year. And the objective clearly is to ensure that this number goes down to 0 in FY '25, which is going to be taken care of primarily coming from growth. And most of the costs have stabilized in the system. As you know, subscription-led business driven by product.

A lot of costs in terms of product development, et cetera, are front loaded. We've gone through that phase. And from this point onwards, we don't expect our cost structure to very significantly apart from cost of sales. And therefore, whatever growth comes in the business is going to be sufficient for us to be able to maintain an operational breakeven for the year.

[Operator]

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

[Unknown Analyst]

Congratulations team for a great set of numbers. First, on the FM side. If you look at last 4 quarters, we have been able to maintain our margins at 2.6. We understand that the IT side of the business is not taking up an ageless in North America which were likely to getting turned around the pipeline of this year -- sorry, in the fourth quarter, how should one look at margins now going forward given any color on the IT side and the North American operations? If you would like to give us some color on that part?

[Srinivasan Guruprasad, executive]

Thank you, Chetan, for your question. I request Lohit to give his input on this question, please?

[Lohit Bhatia, executive]

First and foremost, I'll just take a minute to say that there have been key milestones already achieved this year by our WFM business, and we are proud of the platform that they've created today. We crossed the 400,000 mark in active headcount base. Overall, WFM has crossed the 450,000 mark. We are poised for a long-term growth in WFM, which we've already stated as part of our demerger plan to become the world's #1 staffing company by volume, by headcount and eventually also to grow our profitability along with it.

In this year, there were challenges that we were facing. There are global headwinds and geopolitical scenarios, which have obviously shrunk the business and margins coming out of the IT industry. Particularly, within the IT industry also, it was the IT services. How that impacts our business and portfolio and WFM is, we did 2 large businesses in Indian IT: one is the contract staffing business, as you know; and the second is the IT permanent recruitment business.

IT permanent recruitment business itself on a year-on-year basis has lost around INR 17 crores from where we were 1 year ago in FY '23, what we delivered to EBITDA, to what we eventually delivered in FY '24. In spite of that, the core businesses, the stocking businesses with its focus towards niche digital and predominantly in GCC as a segment in India, has been able to offset some of those losses.

To your point on margin pressures, yes, WFM, especially with general staffing continues to remain a tight margin play. We've been very proud that in spite of the fact that we've consistently grown our headcount in revenue, we've been able to now maintain the margin at about 2.6% as we speak.

With no further burn anticipated in U.S. operations for WFM, we feel this would inch upwards by another 20 basis points coming closer to about 2.8% going forward. Medium term to long term, we would like to take this to 3% or so.

[Unknown Analyst]

Sure. And just on the booking side, the tax rate, tax outflow because of the deferred item was negative this quarter and last quarter. How should we look at tax rate for FY '25?

[Srinivasan Guruprasad, executive]

Yes. So Cameia, the tax rate, frankly pointed out, effective tax rate for FY '24 is closer to around 5% as compared to FY '23, very close primarily because of the mergers that we did during the current year and some of the benefits that flow along with it.

Guided for next year will be in a range of 10% to 11% effective tax rate because of the business mix that we've yet present.

[Operator]

The next question is from the line of Miraj from Arian Capital.

[Unknown Analyst]

Congratulations on a great set of. I had a couple of questions, but starting off with a clarification to the previous question that you just answered, you mentioned the tax rate would be 5% or 10% time is that?

[Srinivasan Guruprasad, executive]

No, 5% is what FY '24 was. The next year's guidance would be 10% to 11%.

[Unknown Analyst]

Okay. Understood. Sir, I had one -- the one point I wanted to understand that we have a vision to reach a 5% consolidated EBITDA margin but to achieve this, I wanted to understand what are the legs that we need in our business? So one would be the workforce management business reaching 3% EBITDA margins and found it is where we already are cash burn stock. So are these the only 2 factors that will help us achieve the 5%? Or is there anything else although that needs to be kept in mind?

[Srinivasan Guruprasad, executive]

So that -- I think 2 big levers we already pointed out, founded, obviously is the biggest one, which from a year-on-year perspective, as we have clarified on the call that we will move from minus 56 to net 0 between FY '25. And then with the volume growth going into FY '26, founded to contribute with good margins to the overall margins.

In the other 2 platforms, which we did not discuss is where actually we've been seeing good margin trajectory. So the GTS business has almost reached an upward of 13.5% EBITDA margin and which Pinaki explained the continuity of the same and the favorable geographic mix that we have got into.

As far as the operating asset management business, two businesses to point out there, which have been doing very well for us and helping us in our margin trajectory upwards is the food business, which is going -- which has grown year-on-year. And the telecom business, which is in wet with the 5G implementation across the country. That business also contributing to the overall margin trajectory.

So these are some of the business-specific levers. There are a lot of operational levers productivity and the tech investments that we have done over the last 12 to 18 months, which we'll continue to do and monitor the operational performance to move towards the trend of expansion of margins.

[Unknown Analyst]

Understood. If I'm not wrong, the international business in Global Tech Solutions, that would attract close to 30% margins. And currently, we are doing 18.5%. So what kind of mix are we looking at over here? And what kind of elevated margins would we see at that mix?

[Srinivasan Guruprasad, executive]

Thanks, Mila, for your question. I think Pinaki would be able to give you a better color and better sense on the margins for this business. Pinaki, if you can give some inputs?

[Pinaki Kar, executive]

Yes. So on what even what you expect to see the 30% begin on the international and get that. At the same time, that mix if I take even in the ESL business, that basically the payroll business, it's our outsourcing business in. Also, one can give that kind of margins. So it's more of a business mix issue. Obviously, geography is a percentage of that. But even in the core domestic business like Conneqt, which is almost 100% or 95% ministry. Where also we are inching closer to this overall margin at 18.5% that we are actually reporting at an overall level.

So those at the price that you see. Overall, from an investor perspective, the margin even of the car companies currently are between 13% to 20% that's on the fee. So that's the range of possibility, right? So what more natural companies or these companies are a deeper time. To drive on all parameters that we committing a particular number, the range of possibilities are there.

[Srinivasan Guruprasad, executive]

Just to add to that, Viraj, that if you look at international business mix is -- has moved from 45% to 57% compared to last year, specifically, in Alta. So what happens is while we have a push on -- sales focus on international business. There is also a domestic business, which aggressively being sold and pursued and good order books and ACV.

So we have to balance between both. So I think where we are today, we'll be able to probably, I think, sustain anywhere between 17% to 18% EBITDA margins to continue with both the mix coming into.

[Unknown Analyst]

17% to 18% would be sustainable being ahead. And just to reiterate this, put it in a different manner. Somewhere close to 5% would be achievable in FY '26. So would that be clear in?

[Srinivasan Guruprasad, executive]

We don't give a guidance on that specifically. But if you look at from 3.42% when we started earlier, we ended up at 3.9% and on an average. So I think on a forward basis, the 32%, 35% basis points is where we would anticipate considering all the mix, but it was tough to put a number here.

[Unknown Analyst]

Okay. Understood. And just one final question.

[Kamalpal Hoda, executive]

So Viraj, what we can say is that there will be an absolute growth in EBITDA. But as you know, it's a combination of consolidated businesses with very different margin profiles for different businesses and different growth profiles. So it's something very difficult for the management to give you a guidance on EBITDA margins per day for the next 2 years. But obviously, as stated, we would be definitely growing the absolute EBITDA on a year-on-year basis.

[Unknown Analyst]

Right, right. Absolutely. I understood that part now. So okay. And one more thing, sir, when is the tentative NCLT filing? Or is it already done?

[Srinivasan Guruprasad, executive]

So Viraj, we did announce the theme on February 16, 2024. And since then we have applied for steady, that's the first step. And we are on course, once we receive the SEBI approval, then we can fill the first motion to NCLT. So we expect the overall process from start to end to be a 12- to 15-month process. And we just started. We are probably just 2.5 months into the process. But as of now, we are on course.

[Operator]

The next question is from the line of Yash from Calian.

[Unknown Analyst]

Yes. Sorry, I have joined the call late, so I don't know if this has already been talked about. So I just wanted to get a sense of the revenue guidance for the GTS and the OAM business going forward like 2 years?

[Srinivasan Guruprasad, executive]

So for the revenue guidance on GTS, I would ask Pinaki to give you some color on the business and how it's going forward. And for the OAM business, I would ask Anand to give his input. Anand, we can start with Anand for OAM business.

[Anand Sundar Raj C, executive]

Okay. So this is on here. So in the current financial year in FY '24, we grew at 7%, okay? So this is on back of certain operational levers we worked on. on the print profitability, as we discussed in the past quarter.

So I think we look for growth beyond these numbers. There are a few more activities we are doing in terms of bringing the profitability. As of now, the order book looks strong for this financial year, which we already -- in the Guru's commentary has been explained.

[Srinivasan Guruprasad, executive]

Thank you. Thank you, Anand. Pinaki, if you can give us some inputs on the GTF on plans for the next year.

[Pinaki Kar, executive]

Firstly, I'll be careful not to use that on revenue guidance because I don't think we give revenue guidance for test if you just go by what happened in the past and go the last 3 to 4 years, consistently, we have tried to -- internally, you are trying to grow at 20% plus we see some that we have been successful. Some years were just falling short. But you'll find in that is around 18% over the last 3, 4 years.

And there are macro issues, there are any other issues. But as we try to grow into more profitable segments or business for international business and that kind of policy. So we always start to actually should add on that kind of now. But I not call that guidance, but that is what we have tried and mostly have been successful over the last 3, 4 years.

[Operator]

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

[Unknown Analyst]

One question on the product line business. Now the DG business is excluded -- but this quarter, that we will see INR 120-odd crores revenue reported. So my question is basically whether that is the CTG revenue is part of this part of revenue this quarter?

[Srinivasan Guruprasad, executive]

Yes. Q2 revenue is part of the quarter because 31st March is when we completed the transaction. almost annualized revenue from DG for your commission was close to around INR 370-odd crores on a full year basis.

[Unknown Analyst]

That will get out of in the faster run rate in found will be the -- largely the revenue for the segment going forward, plus the growth, whatever you deliver?

[Srinivasan Guruprasad, executive]

Yes, absolutely.

[Unknown Analyst]

Right, right. Okay. And on the working capital side, anything you want to highlight the DFO you already mentioned, we also see similar -- some contraction in the cable side as for the year. Anything you want to call out how the business is shaping given the mix, whether it will be favorable going forward on. Whether there is scope for further improvement in DS decline.

[Srinivasan Guruprasad, executive]

So Jiten, I explained all the 3 reasons as to why we were able to reduce the DSOs and bring it to the present levels. I repeat myself we do not get it. So basically, it's a combination of business mix, effective working capital management that we did throughout the year and also divestment of QD, which was a higher DSO business for us as compared to the other businesses. We believe that these are sustainable levels. And obviously, with such a large mix of businesses we have, there's always an opportunity to improve a certain percentage points from the present closing number.

[Operator]

The next question is from the line of Niraj from Arian Capital.

[Unknown Analyst]

I just wanted to understand something on the founded business model side. I believe in the commentary, we just mentioned that the hiring through founded has kind of slowed down in some sectors. But we have a subscription-based model. So how exactly do we anticipate growth coming in over the year because already we have a subscription-based model, it's an annual or a monthly model, that would automatically result in more revenues. But how does hiring factor in over here?

[Srinivasan Guruprasad, executive]

Thanks, Miraj, for the question. So when we say we are a subscription model, the way it works is, on the recruiter side, we charge them for the number of profiles used that they buy from us. When hiring goes down and the activity of hiring goes down, so typically, people would not want to view as many candidates for their hiring cycle. And so they might buy lesser inventories. That's how usually the slowdown in hiring activity impacts subscription.

They might buy less inventory from us when they come up for renewal. However, the point I said earlier in my commentary was that at this point in time, we are still small enough to say even if the overall hiring activity goes down, driven by our superior product at this point in time once we launch, we still expect to grow our share of wallet with the customers that we are serving as well as being able to acquire new customers.

So overall, what the companies might be spending on hiring might go down. But given our size scale and the new product, we still expect us to grow healthily over the next 1, 2 years.

The second side of the coin is we also get revenues from candidates. And based on the demand supply metric, sometime the jobs are higher, you get more revenue from recruiters. When the jobs are lower, you get more revenues from candidates. Accordingly, this year, as the jobs went down, our revenues coming in from candidates have grown significantly.

So there are 2 ways to make we make money as a platform from recruiters as well as some candidates and that's how the competitive dynamics play as the job market is a core of cost of.

[Unknown Analyst]

Understood. And could you also just give a small idea about which sectors are currently the largest contributors in founded for hiring?

[Srinivasan Guruprasad, executive]

So IT remains a very large sector for us from a revenue perspective because historically, we have been known for us 2019. However, we have a very stated and intentional plan to grow our business in low IT specifically the focus sectors that we've picked up in terms of BFSI, retail and manufacturing. And we have intentional activities and go-to-market plans around these industries, and everyone from the Board is watching revenues in terms of what is the contribution coming in from non-IT. But if you take revenues at this time now, IT is the biggest contributor to the revenue.

[Unknown Analyst]

Understood. So would that be a differential in the charge that we may be two different sectors? Is that different? Or would that be equal for everyone?

[Srinivasan Guruprasad, executive]

So there are multiple pricing plans available. These are by industries, by geographies, et cetera, and I can get into the details of the pricing plans, but they're transparently available. But essentially, you can assume that the price that the companies are reputed space dependent on whether it's IT or non-IT or in places, whether it's geography. So there are -- people can buy plans for a particular state or particular country because we also offered in Southeast Asia, et cetera.

[Operator]

The next question is from the line of Balaji Subramanian with IIFL Securities.

[Balaji Subramanian, analyst]

Yes. So this is just on your healthy FCF generation and gross debt also coming off. So how should we see payouts going forward? And then is there an intent to step up dividend payments or consider doing a buyback or something? That would be it.

[Srinivasan Guruprasad, executive]

Sure. So Balaji, we have our stated capital allocation policy and the dividend policy out there. The first and foremost priority is to reduce the debt over which we have done. Last 5 years, cumulatively, we have reduced INR 700 crores of debt. In the last financial year, we've reduced INR 150 crores of debt. And the gross debt right now is at around INR 370 crores, which for our scale and size of our business is at a comfortable level.

On dividend, since last 2 years, we paid INR 8 per share as dividend. And this year with the proposed final limited staff to and rupee. So we'll continue to do 3 things: optimize our operating cash flows, retire as much debt as possible and return the balance money to the shareholders, in line with our stated dividend policy.

Operator, if you can check if there are any further questions.

[Operator]

[Operator Instructions] The next question is from the line of Raghuram as with your India Ventures.

[Unknown Analyst]

Yes. I just wanted to check on the GTS side only. One was about like how you guys have mentioned about the ACV. In the XM vertical of Allsec, that's a significant sales pipeline of INR 37 crores of ACV that's been mentioned. And CXM also the that seems to be in the pipeline is about INR 40 crores. Is that something that's sustainable going forward? Or is it just a onetime kind of a thing that seems to be happening in that business?

[Srinivasan Guruprasad, executive]

Thanks, Raul, for your question. I'll ask Pinaki to give you the inputs.

[Pinaki Kar, executive]

Thanks for the group for the question. And you not consistently also what we have done that over the last few years that most of the sales pipeline that has been there were not onetime as those were generally long-term kind of programs where we take both the segments, the CXM and XM separately here. On CXM, the customer experience and -- most of the pipeline are North America Century multiyear kind of cases. So we have mentioned the ACV figures.

So as and when we contracts really start that. So hopefully, it will play out the length of the contract in terms of the number of years that you will be there for because you know the nature of that business in CSM, especially North America is generally long term.

On the CXM side, again, most of the business pipeline that has been there or the contracted revenue that is there. The ACV figure that we have given is for enterprises. Mostly, those are enterprises with the payroll transition we are doing, right? So like absent any completely unforeseen circumstances, it goes also are supposed to be long-term contracts and -- as and where our income is in.

And from a structural growth perspective, this is how we are actually driving the sales and we are seeing the mix getting more into international, gaining XL. So obviously, with the dollar revenue coming in, we translate back to IR. So that effect also we are getting. So that's the reason for that kind of late.

[Unknown Analyst]

But my question was more from a for the last 3 or 4 quarters that if you go back in Allsec, it was Aves of normally about INR 7 crores to INR 10 crores in EXM on a quarterly kind of basis. When I see INR 37 crores, it's -- so it's a very, very encouraging number. Just to keeping in mind what has happened in the last 4 quarters or something. So that was the main reason why what happens.

[Pinaki Kar, executive]

You know that industry actually, what happens is that we pursue deals for 2, 3 quarters, especially on CXM, you'll find that we are a bit longer, right? So sometimes the fruition comes after 3 or 2 or 3 kind of quarters. So -- but if you want to translate that's what I'm saying, I can assure you more about the sustainability of that revenue going forward. But some quarterly pluses and minuses of ACV booking would be there because that's also a function of when a customer concludes the contract in terms of a booking rates.

So obviously, I will not say that you extrapolate INR 37 crore every quarter. At the same time, it would not be INR 5 crores to INR 7 crores also, right? So -- but revenue would be more in the range that you are seeing now in terms of books.

[Operator]

Ladies and gentlemen, that was the last question for the question-and-answer session. I now hand the conference over to Mr. Kushal Maheshwari for closing comments.

[Kushal Maheshwari, executive]

Thank you for the engaging discussions over the call. I would like to hand over to Mr. Guruprasad for his closing remarks.

[Srinivasan Guruprasad, executive]

Thanks again for joining us for our Q4 earnings call. I would like to once again highlight that our consistent effort towards new logo addition, SG&A rationalization and operations -- sharp operational execution will continue to be robust, and we will continue to scale new heights in coming quarters. Thanks for joining.

[Operator]

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