TeamLease Services Ltd

NSE:TEAMLEASE

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to TeamLease Services Q4 FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that the conference is being recorded.

I now hand the call -- conference over to Mr. Aniket Pande, lead analyst from ICICI Securities. Thank you, and over to you, sir.

[Aniket Pande, analyst]

Thank you, Ranjiv. Good evening, ladies and gentlemen, thanks for joining us today for Q4 FY '22 Earnings Call of TeamLease Services.

I would like to start off with thanking the management of TeamLease giving us the opportunity to hold this call.

On the call, we are pleased to have Mr. Ashok Reddy, Managing Director and CEO; Ms. Rituparna Chakraborty, Executive Vice President, Staffing; Mr. Sunil, Senior VP, Specialized Staffing; and Ms. Ramani Dathi, CFO.

We will start off with the remarks from the management, after which we will open the floor for the Q&A session.

Thank you once again for joining us today. Over to you Ashok, sir.

[Ashok Nedurumalli, executive]

Thank you very much, Aniket, and good evening to you all. Just in continuation of the published results, we've had a strong quarter on growth and have, overall, continued growth trajectory that we had over the last prior 2 quarters.

We've had a headcount addition of about 11,000 -- nearly 12,000 headcount. Overall, for the year, we've added about 57,000 associates, trainees this year. This is across the portfolio of staffing, specialized staffing, NETAP. And I think all businesses have been showing the recovery in the market, in the verticals and leveraging to the investments that we had made for growth.

This is also followed by a quarter-on-quarter improvement in EBIT and PBT in absolute terms and in percentage terms. And I think this is also aided by the fact that our Edtech business has scaled and has also become profitable this year, which is the call out that we had earlier.

I think the -- a large number of the other metrics on funding percentages, cash flow generation, cash position and all of those kind of stay consistent. We have maintained the discipline around invoicing, DSO collections and all of those parameters. We've added some core headcount in Q4 across businesses in anticipation and in line with the business forecast expected and indicated by client demand and also to factor that we will have some element of attrition that will come in, in Q1, so to be prepared on that front.

We were also -- we had provisioned, and we were in the process of transitioning the PF Trust closure. That has been completed, and we have migrated all of the PF Trust money to the RPFC and are in the process of transitioning the record so that going forward, all liabilities, all transaction processing on provident fund would happen with the authorities, and Ramani would cover a little more detail on that front.

So I think overall, our continued focus for growth, for profit, bottom line, margin improvement is something that continues to play out. We continue to make investments in headcount and in digitization that will aid the future element of the business. And I think we, at least, as indications are from the clients at this point in time, seem to have a strong demand in the current year, which we will work towards.

Just one other update. We are also inducting Rituparna as an Executive Director going forward on to the Board. And she will complement the element of the Board along with us as an Executive Director.

That's it from my side. Ritu will give a commentary, followed by Sunil and Ramani.

[Rituparna Chakraborty, executive]

Thank you very much, Ashok. I hope all of you are in good health and even better spirits at this time. Clearly, things keep changing. Under the looming shadow of our pandemic [indiscernible] was general staffing delivered a stellar performance for the year gone back by registering a near 35,000 additions to our associate base, which is incidentally also our highest-ever yearly net additions.

For the quarter alone, we added about 5,000 associates. Our revenues also went by over 30% for the year, and 3% on a quarter-on-quarter basis. In terms of absolute growth in associate database, our top 4 segments would be financial services, e-commerce, telecom and tech and consumer durables. E-commerce had registered incidentally over 300% growth over last year. Our sales aggression continued with us closing the year with over 270 new logo sign-ups, and 45 being in Q4 alone, with stand-alone usually the slow-moving quarter if we go back to historical records.

The accomplishment of the 6 businesses that I'm particularly proud of would be the brilliance exhibited in our sales hiring trends. While for the quarter, our hiring contribution to gross additions remains consistent as compared to the previous quarter at over 30% plus. However, for the whole year, we've delivered about 52,000 [ joinees ] who were hired by us, 53% of them hired through nonrecruiter channels.

On our FTE front, of course, our FTE did drop, which showed gains from reference. Our FTE ratio did drop in spite of the headcount growth on account of the [ payments ] in hiring we have done, anticipating attrition during the first quarter as the economy as well as new opportunities have started opening up in general. We are also looking at shifting some of our central processing to smaller locations to bring in greater efficiency and our cost of servicing.

So some of the additional hiring for the quarter was also on account of getting the backfill against anticipated attrition onboarded earlier and then moving down during the quarter to the smaller location. Coupled with the anticipated growth, we shall be on track towards a significant improvement in FTE during Q1 of this financial year. I'm sure some of you are probably already aware about the different insights we keep coming out with.

So just to share with you some of the insights from the employment market, I think based on our recent employment outlook, IT education services, e-commerce, health care, pharma, telecom are showing extremely positive signs around hiring, Tier 1 to be -- going to be having a much higher intent to hire. Bangalore, Chennai, Bombay are probably going to be the top cities with maximum demand coming in. Entry-level hirings are expected to increase quarter-on-quarter by about 10%. Sales and IT are clearly leading the path in terms of the kinds of jobs that are likely to come in.

Also, our jobs and salary primer, which was released last week, reveals an 8.13% medium increment across 17 sectors. We like to say IT, education services, health care, pharma, power and energy and BFSI being the most generous for their increments.

Looking ahead, the business is well poised for a robust growth in H1, and there is a clear visibility of a healthy pipeline and emerging demand across most of the customers. Interest of our prospects also seem encouraging. Few forward-looking sectors change, which will drive the future of the business, include rapid interest in formalization of workforce in FMCG and FMCD sectors. A lot of [ staff ] was going through dealers, [ off loans ]. I think employers are looking for legitimate yet flexible solutions. Massive capacity increase is expected in manufacturing, especially in electronics, which shall create a large number of employment opportunities including those of temp workforce. There is a growing shift towards higher diversity hiring, these in manufacturing or e-commerce. The innovation in our nonrecruiter -- nonrecruitment hiring mix shall help us be on top of the emerging demand from organizations.

[indiscernible] could lead to some separate hiring outlook in the emerging businesses. However, from H2 that should get corrected. E-commerce is looking at a twofold increase in workforce, and this is a unique opportunity. However, the strategy side between the new way, freshly funded delivery-driven organizations and a more established organization has made talent acquisition challenging. However, the investment need in our ability to move labor from smaller towns to where demand is shall continue to yield good results. And existing logos and financial services are expected to face aggressive expansion.

Overall, the business has a deep leadership bandwidth, complementing teamwork, established contextual mastery, specifically business around sales and hiring, and the emerging benefits of digitalization and profit improvement is well poised to witness an impact for the year ahead. Thank you.

[C. Sunil, executive]

Thanks, Ritu. Good evening, everyone. We are pleased to report highest ever growth in headcount, revenue and PBT in FY '22 for specialized staffing. We have made significant improvement in our market share in this ever-expanding addressable market, aided by supercycle of digitization. Our ability to deliver consistent business results despite external challenges validates our vision, strategy and capabilities.

We have worked closely with our customers as a strategic partner to solve the talent supply challenge and have successfully offered multiple solutions, which have helped us to increase valid share with the customers. Our strong brand result has helped us to successfully incubate new business lines, which will help us to continue the broad-based growth of our business.

Our revenue crossed INR 500 crore mark, reaching INR 531 crores in FY '22. Year-on-year, we grew 33 percentage on revenue and headcount. We also grew PBT by 30 percentage with a return of 8.4 percentage. The slight dip in PBT percentage compared to last year is primarily driven by investment in talent and technology to aid our future growth plans.

Our sales continue to fire on all cylinders, bagging 95 new logos in FY '22. With focused client centricity, we grew our strategic client count by 32 percentage year-on-year. We shall continue to improve the product portfolio mix, with a focus on expanding the overall margins as that's the most efficient part to deliver ambitious growth while building a profitable and differentiated business.

Now coming to Q4 FY '22 performance. Revenue grew by 50 percentage. Associate headcount grew by 33 percentage, and PBT grew by 29 percentage when compared with Q4 FY '21. The growth is primarily driven by our IT business in line with hiring activity in the IT sector.

On a sequential basis, which is comparing Q4 FY '22 to Q3 FY '22, we grew our revenue by 8 percentage and associate headcount by 4 percentage. And we improved our PBT by 50 basis points. So overall, the demand environment continues to be robust, and we are confident to continue delivering similar or better results in FY '23. Thank you.

[Ramani Dathi, executive]

Thank you, Sunil. Good evening all. Hope you and your dear ones have been well and safe. So for the financial year FY '22, we have had a revenue growth of 32% and EBITDA growth of 46%. We closed the year with an EBITDA margin of 2.19%. So our PBT for this year is reported at INR 117 crores, with 1.81% net margin, excluding an exceptional item, which I'll cover later.

HR services as a segment has turned positive, and it will continue to contribute to the bottom line next year. A large part of this HR services contribution is led by [ GMB's ] exit business. The overall DSO and cash flow conversion are at optimal levels. Funding exposure in staffing business is maintained at 14%.

So the exceptional item in this quarter is towards the PF Trust migration. We have created a INR 75 crore provision in Q2 of this financial year towards planning to work the PF Trust migration to EPFO. So our PF Trust manages overall 9 lakhs account holders, with a total portfolio size of INR 1,545 crores. As of 31st March, we have fully liquidated all the efforts under the PF Trust and transferred the project to EPFO. Effective 1st April, TeamLease does not carry any liability on account of administration or any portfolio management of the trust.

So we had initially estimated that this process might take a little longer, but we have opted for the fast-track migration, which has helped us to conclude this entire process within our short time span.

Yes. So those are the comments, and we can get started with the Q&A now.

[Ashok Nedurumalli, executive]

Aniket, we leave it to you for the queries.

[Operator]

[Operator Instructions] The first question is from the line of Aniket Pande from ICICI Securities.

[Aniket Pande, analyst]

I have 2 questions on margins and 1 on outlook. So Ramani, we saw a very strong addition in core employees in this quarter, and also there is strong improvement in your margins. So just wanted to get a sense from where the margin improvement has come.

Secondly, what is the outlook on specialized staffing given the higher attrition in IT sector? And can margin improve further from here, also?

[Ramani Dathi, executive]

Sure, Aniket. So firstly, in terms of overall margin expansion, all of our businesses have operating leverage with huge economies of scale. So that has led to margin expansion at EBITDA level. So this is also coupled with our investments in terms of digitization, technology and process automation. So that also helped us to improve productivity. However, by last quarter, we have increased our investments in expanding the team, especially in hiring sales and other departments, which is in line with the business outlook that we have for the next year.

Yes. So in Q1, there can be a marginal impact on the overall EBITDA and PBT margins because of the hiring that we have done in Q4. The full impact of cost will reflect in Q1 of FY '23. But having said that, from Q3 onwards, we'll have a consistent margin expansion quarter-on-quarter. So specifically, the margin expansion over the last 2 quarters is also contributed by HR services, which used to be marginally loss-making in the past and has turned profitable and will continue to remain so. Also specialized staffing growing at 30%, 32% year-on-year, that's also contributing to the overall margin expansion.

To your second question on specialized staffing, I'll request Sunil to answer.

[C. Sunil, executive]

Yes. Regarding the question on -- you asked about attrition. So the higher attrition, actually, in a way, it helps us to -- and from the contract shopping point of view, it gives us an opportunity to put in more bodies into the system since it's the fastest way to fill the gap. On one side, you have a high attrition, which is in mid-20s. On the other side, you also have new requirements coming in because of the super cycle of digitization. So in both -- on both sides, I think we will stand to benefit. We are fully prepared to meet the higher demand of requirements, and that's where we have invested in our talent and technology.

So we will be able to provide quick recruitment solutions. We already have multiple solutions apart from the plain vanilla contract staffing. We also do hire-train-deploy, and we also do contract to hire kind of solution we offer. So all these solutions will help to fill this gap. Yes. Thank you.

[Ashok Nedurumalli, executive]

Also, I think just an extension of that, there's no huge scope for margin improvement per se in specialized staffing. We are already at optimal margin with the current portfolio, but we are experimenting with additional verticals and additional opportunities that we could drive for growth. But I think sustaining the growth momentum for the specialized staffing is really what is going to be a key focus while we maintain the margins that are there currently.

[Aniket Pande, analyst]

I just wanted to get a sense of what was the PAPM in this quarter. And how do you see the PAPM trending going forward?

And my last question, Ashok, sir, any qualitative guidance on revenue and margins segment-wise for FY '23?

[Ashok Nedurumalli, executive]

So I think our PAPM front, we were at about INR 708, broadly staying above the INR 700 level. And I think that's something that we will continue to focus on. And obviously, there are market pressures on that depending on the mandate that we are pitching in for.

No specific callout on the FY '23 numbers per se. But like as was called out earlier by the Ritu and Sunil and if I were to stretch it to other businesses, we are entering the year with a very positive outlook from the customer's end around demand, around growth, around the need for manpower. So I think looking at that and hopefully -- the last 2, 3 years for us have been a quarter 1 impact of COVID. We don't have that at least at this point in time. Corporate clients are still bullish about playing forward core demand and playing forward for growth. So with that in mind, I think we should sustain a healthy growth trajectory on associate numbers, on revenues and also on the bottom line.

[Operator]

Our next question is from Vidit Shah with IIFL.

[Vidit Shah, analyst]

I had 2 questions. The first one was around the note for -- to the P&L about when you speak about the income tax authorities not allowing 80JJAA deduction in assessment year '20 and also the assessment for year '19. So can you shed some light on what has really happened here? And are they not allowing any of the deductions? Or is there a mismatch in the deduction about?

[Ramani Dathi, executive]

Sure. So we received a reassessment notice from the income tax department specific to 80JJAA. But there is no difference. There is no claim by the department in terms of the interpretation that we have taken or the calculation or the way that we have availed the benefit. So the entire challenge is on whether there is an employer-employee relationship between TeamLease, and its associate employees, which we are challenging at a petition level, trying to understand the grounds because clearly, for all practical purposes, we are the employer, we are responsible for paying salaries on time, making sure all compliances and statute reliabilities are being met. And also, there are previous court cases with similar interpretations, which are in our favor. So we have obtained sufficient legal opinions kind of supporting our understanding on this element.

So considering all of this, we haven't quantified this as a liability -- as a contingent liability. And also with the view that the auditors have taken, it's not -- it's been identified as a matter of [indiscernible].

[Ashok Nedurumalli, executive]

Yes. So I think that primarily, the only interpretation aspect that the authorities are taking is that the employees are not located in your office and working for mandates of clients. There's no double count of these associates with clients also taking them into their count and seeking a tax benefit or anything of that thought. So that's really where -- we are responsible for all salary payments, statutory reduction, statutory compliances and everything else, and that's the stand we are taking results of.

[Vidit Shah, analyst]

So that's how we -- I mean, given that you've received refunds in the previous year and assessments up to -- you note assessment year of '17, '18 has been completed, I mean, isn't that a precedent or precursor to them agreeing to the fact that 80JJAA benefits would be allowed to TeamLease under that?

[Ashok Nedurumalli, executive]

Yes. I agree with you. And that's the other aspect that we are trying to reiterate that we have, in the past, got refunds, acknowledgment of the benefit being applicable. We statutorily, technically, are the employer on account of everything being driven by us, but this nuanced element of a pick of choice that since they're deputed to work for other client requirements, they cannot be treated as employees. They're very adhoc, and that is really where we are taking the fight back to [indiscernible].

[Ramani Dathi, executive]

[indiscernible] on this element, Vidit, the fact that refunds have been released for the earlier years. And also, there are other companies are not exactly on 80JJAA model but in this kind of outsourced employment model, where there are cases in favor of the kind of claims that we are making.

[Vidit Shah, analyst]

Got it. Understood. Also, my second question was on this transfer to the EPFO. So you mentioned that everything other than the ILFS investment has been transferred. So what happens to the ILFS investment, if anything is settled at all? Does that come as a benefit to TeamLease at a later date? Or is that just 0?

[Ashok Nedurumalli, executive]

It could be a benefit. It's a little uncertain in view of the RPFC interpretation of closing the trust as is when we transition the money and the records. So to that extent there, as and when an ILFS settlement happens and the money comes in, it could go 2 ways. Vidit, uncertain at this point in time. The RPFC might ask us to transfer that money to them in excess of what we have already transferred, which is in line with the liabilities, or we could, at TeamLease, get that money back. So at this point in time, there is a grayness and openness to how that would play out. So we will take it as we go forward and update according.

[Ramani Dathi, executive]

So we have fully provided for the ILFS investment, Vidit. So as Ashok mentioned, since there is uncertainty around whether TeamLease can recover this ILFS investment after full settlement of our PF Trust, there is a question around that. So as of now, full provision is made. So in case any recovery comes, so that will be considered as an exceptional write-back.

[Ashok Nedurumalli, executive]

I mean it will be a positive below-the-line item for TeamLease. There won't be any additional liability for TeamLease.

[Vidit Shah, analyst]

But there will be -- it'll be a positive and also the hard cash coming into the company, right?

[Ashok Nedurumalli, executive]

Yes. Yes, yes.

[Vidit Shah, analyst]

Got it. So just as a follow-up to the trust, is there any additional expense? Like, is EPFO expensive for the company than the TeamLease trust? Like, do the charge -- can we expect other expenses or employee benefits to increase in FY '23 on account of [indiscernible]?

[Ashok Nedurumalli, executive]

So the administration charges by the provident fund department are higher than the inspection charges that are effectively charged, and that is an additional expense. But we are hoping to cover that over the next 1, 2 years in terms of the realization margins as we go forward. But at an immediate basis, there is an added cost that comes in.

[Vidit Shah, analyst]

So how much of that cost be for the employees?

[Ashok Nedurumalli, executive]

It will be about INR 70, at a [ 0.9% ]. We can get back to you with the exact working on that. INR 4 per employee. Okay. We'll get back to you later on.

[Operator]

[Operator Instructions] Our next question comes from the line of Mr. Manish Gupta with Solidarity.

[Manish Gupta, analyst]

In the event the income tax case was to go against you, would you be able to price this higher to keep your margins at a PBT level at the same level?

[Ashok Nedurumalli, executive]

No. We will not be able to, Manish. So I don't think the clients give us a leeway on pricing given the tax benefit that we have. So if we were to have a rejection of the benefit of 80JJAA, our PAT margin will be lower than PBT, and we will not be able to price it into our markups within the year.

[Operator]

Our next question is from the line of Sandesh Shetty with PhillipCapital.

[Sandesh Shetty, analyst]

Am I audible?

[Ashok Nedurumalli, executive]

Yes, Sandesh.

[Sandesh Shetty, analyst]

So my first question is, since you were transitioning in your other HR services from government contracts to corporate clients, has this transition been complete? And is there any further provision write-back, like -- is there any provision write-back in this quarter? And what is the outstanding provisions that we can expect from additional payments?

[Ramani Dathi, executive]

Yes. Sandesh, so the government training business is on [indiscernible] mode. However, over the last 2 years, because of COVID, the process got delayed. So we are still working with a few state governments, and we are expecting a full exit by end of FY '23. In this quarter, there are more reversals. However, between Q1 and Q2, we are expecting some collections, and there can be some write-backs on that account.

[Ashok Nedurumalli, executive]

So as of now, I mean, the government has still been quite keen that most of the training delivery happened in a physical manner, and hence, there have been delays in program implementation. But the government has extended accordingly the tenure of the mandate. But in a phased manner, we have not taken any new mandates. We are delivering to the existing mandates and looking to exit them as the delivery closes. No new provisions have been made. Earlier provision, collections have not yet come in. But as and when they do, there will be some expectation of the results.

[Sandesh Shetty, analyst]

Okay. And so there has been no write-back from the current quarter, right?

[Ashok Nedurumalli, executive]

No. And also majority of the business growth for Edtech actually been driven from the corporate student and university revenues in the current year. And that is really where the focus is.

[Sandesh Shetty, analyst]

Okay. Okay. And my second question was with respect to how the PAPMs are trending because we are seeing an unprecedented cost inflation on your client side, with respect to raw materials or the kind of inflation that has been taking this. So are you seeing pressure on your margins? Or you are able to pass it through the wage inflation, et cetera, to your clients?

[Ashok Nedurumalli, executive]

So for us, wage inflation is effectively not directly linked to the aspect of our margin because our margin is fixed in a large percentage of cases. We have a PAPM kind of a model. And in a few cases, we have the percentage model. So it is all very case-specific and industry-specific and volume-specific, Sandesh, that we have to negotiate the realization and factor that as sustainable going forward.

In the case of specialized staffing, where we work on a rate card model, there have been revisions in the rate cards to back up for the inflation in wages that has been happening and sustaining the margin levels thereafter. So I think it is very case-specific, industry-specific and kind of volume-specific that we are negotiating and broadly sustaining our realization.

[Sandesh Shetty, analyst]

Okay. And one related question with respect to that. [ In fact ], there is a wage inflation and the rising salaries, et cetera, so does that -- is there a case that you have to give away on the 80JJAA exemption because the salary limit crosses the government-set limit?

[Ashok Nedurumalli, executive]

No. We still have a large number of associates who still fall below the INR 25,000 level. So I don't think we are reaching that level where we run out of that runway in headroom, but Ramani can cover more details.

[Ramani Dathi, executive]

Sandesh, while the average salary is currently at INR 22,000, INR 23,000, the median salary is still at INR 18,000. So we still have a lot of headroom for us to hit the INR 25,000 eligibility criteria for 80JJAA level.

[Operator]

Our next question is from Ashish Chopra with Goldman Sachs.

[Ashish Chopra, analyst]

Yes. Just one question. So if this 80JJAA interpretation holds and -- like you mentioned, it will not be possible for you to probably pass it on because that's not how the clients price their contract. But considering that, were the clients to hire these associates on a temp basis on their own payroll directly, there is obviously no such maybe a difference of opinion, in which case, it's a pretty clean benefit of the 80JJAA the clients can have, right? So does that not create an arbitrage in terms of motivation for the clients to maybe go about it themselves?

[Ashok Nedurumalli, executive]

Actually, Ashish, even today, the clients have that opportunity to onboard resources at their end, and kind of take the 80JJAA benefit at their side. I mean leave aside the interpretational aspect, even if we lose it, they don't get it in the current scheme of things.

I think the quantum of outsourcing that corporates do is still a small percentage of the overall workforce. And it is for other benefits that they do that element of outsourcing and independent of the 80JJAA benefits and the like that could play out for them. So I don't think -- I mean, subject to that going against us or for us, it would drive the behavior of the customers to effectively look at employment purely on their roles because that opportunity exists even today.

[Ashish Chopra, analyst]

Fair enough. So any idea on the time line by when we can have a resolution or some clarity on the final opinion that maybe authorities take on this matter? Or that remains open-ended?

[Ashok Nedurumalli, executive]

I mean it's kind of a little open-ended since we are dealing with the authorities, and we are going to fight it at all levels. So I don't have an answer to that, Ashish.

[Operator]

Next question is from Manjeet Buaria with Solidarity Investment Managers.

[Manjeet Buaria, analyst]

I have one question on this 80JJAA aspect. [ It seems that it's mostly ] favorable income tax [indiscernible] on the litigation. What's the cumulative cash until, at least, between FY '18 to FY '22?

[Ramani Dathi, executive]

Yes. Manjeet. So assuming the refunds that have been released for the prior year also have to be taken into this. The total impact could be to the tune of INR 150 crores so far until FY '22.

[Manjeet Buaria, analyst]

And Ramani, is there any penalties and interest to be compounded in it as far as the [indiscernible] on the top of this INR 150 crores?

[Ashok Nedurumalli, executive]

I mean, ideally, not, Manjeet, because, frankly, I mean, we don't know how they will behave or act. It's not like we have broken any -- they're reverting to disallow provision on which they have released refunds. So ideally, you can't, first of all, make it retrospective and too retrospective with penalty.

[Operator]

Next question is from Aasim Bharde with DAM Capital Advisors Limited.

[Aasim Bharde, analyst]

Firstly, I had a question on the PAPM level that we talked about. So the INR 708 level is a drop sequentially, and there was also a drop in the productivity ratio that you reported. But the EBITDA margins appear stable Q-o-Q. So basically, I wanted to know that what has -- firstly, what has driven the PAPM drop in Q4? And b, if the margins have actually improved, so are the leadership hiring investments that you were talking about in the past? Are those all behind now?

[Ramani Dathi, executive]

So Aasim, on PAPM level, Q3 on an average salary of INR 24,000, PAPM was INR 726, translating to about 2.98%. So this quarter, even in absolute terms, it may appear it's lower. But in percentage terms, it has slightly improved on an average salary of INR 23,500 for Q4. For PAPM, as a percentage, is 3.01%. So it has marginally improved. So it also depends on the mix of associates in which locations we are hiring, which industry we are hiring. So that kind of contributes to that.

And the overall EBITDA margin expansion, as I mentioned, it's also contributed by HR services, which is largely Edtech business, a higher-margin business, and also specialized staffing having higher revenue growth and contribution to the overall profit of TeamLease Group.

[Aasim Bharde, analyst]

No. Actually, I was just talking about the general staffing EBITDA margin. There also, I see a sequential improvement, all these margins, but there is an improvement.

[Ashok Nedurumalli, executive]

As some of the headcount has actually come in towards the end of Q4 and will get fully costed into Q1 of the coming year like -- that you had called out, the hiring has been made in advance of some expected demand growth and also to factor for attrition. But I think there will be some element of an impact from these costs in Q1. But thereafter, it should get fully absorbed and kind of -- also, we will have a wage revision increment that happens in Q1 for the core employee. So that absorption will take between Q1 and Q2, and then we should see, again, a margin improvement playing up.

[Aasim Bharde, analyst]

Okay. But on the gross margin front, at the general staffing level, there, things are broadly stable or things have improved over there?

[Ramani Dathi, executive]

The gross margin level is broadly stable as of now. So we haven't seen any substantial improvement on account of inflation. But having said that, we are aggressively pushing for a slightly better inflation in the gross margins as well.

[Aasim Bharde, analyst]

Okay. Okay. And just second and last question, just on the clarification on the IL&FS commentary they had with an earlier participant. So I presume the entire thing has been settled with the PF Trust. So theoretically, they should not have any claim on the amount, right, in case it comes in your favor?

[Ashok Nedurumalli, executive]

Yes. So the settlement -- I mean the investment is owned by the PF Trust. And the settlement, if and when it happens, will happen to the credit of the PF Trust. And though today, we have made a transfer of money from TeamLease into the trust to make good the asset equal to liability transition to the RPFC. A graded view that the authorities take is that any money that is there in the trust or comes into the trust thereafter belongs to us.

So like I said, there's no precedence to this because there hasn't been a transition of a trust while it has some credit that could happen into the future, which is why we are not taking any credit in TeamLease at this point, keeping it open-ended. We'll have you to get that credit back into TeamLease as a refund of the advance given and so on. But we don't know what we don't know at this point.

[Aasim Bharde, analyst]

It sounds like they've already covered their basis by having that condition in the agreement, I suppose. So it looks like you may not have a legal recourse in case things don't go in your favor.

[Ashok Nedurumalli, executive]

No. I would not really call that out. There's no explicit callout, nor is there an explicit abdication of their ownership. So it is a little gray.

[Operator]

[Operator Instructions] Next question is from Mr. Hiten Jain with Invesco.

[Hiten Jain, analyst]

I just have one question. So isn't the sequential growth of 3% for the general staffing headcount and a similar sequential growth for your staffing business, isn't that low especially given the momentum that you have been seeing last couple of quarters and the environment in which we are in today?

[Ramani Dathi, executive]

So Q4, even historically, the headcount growth used to be either flattish or negative, Hiten, because the attrition levels typically by end of March would be higher, both voluntary and involuntary. Despite the historical trends, we have managed to grow 3% overall at the headcount level, and the pipeline and outlook for the next 2 quarters is very strong.

[Operator]

Next question is from Soumitra with Spark Capital.

[Soumitra Chatterjee, analyst]

I have 2 questions. If I understand it clearly on the income tax repetition thing, the IT department is not contesting the way you are calculating the 80JJAA benefit, but they are contesting that the associate employees are not employees of TeamLease. Is that a right conclusion from me?

[Rituparna Chakraborty, executive]

Exactly, Soumitra. So they are not counted in the computation that we have taken. So it's all about whether staffing companies should benefit or not.

[Soumitra Chatterjee, analyst]

So just a follow-up on that. At the end of the financial year for these associates, who is issuing the Form #16, is it TeamLease or the client which is issuing?

[Rituparna Chakraborty, executive]

TeamLease is issuing.

[Ashok Nedurumalli, executive]

Everything relating to their compliances, their statutory payments, their [ GTS ], their -- everything is taken care of by us, Soumitra. There is -- the client only has them working in his site for the required activity.

[Soumitra Chatterjee, analyst]

Then as [indiscernible] well certainly for the [indiscernible] for entity resolution in Form #16, the employee belongs to that entity.

[Ashok Nedurumalli, executive]

I mean I couldn't agree more with you, Soumitra.

[Soumitra Chatterjee, analyst]

Okay. And just one more thing. I mean if I have to take a more practical approach, a substance-over-form approach, while on substance basis, while on form basis, you're issuing the Form #16. But let's say, who is doing the appraisal for these associate employees? Is it the client who does the appraisal? Or is it the -- TeamLease also has a say in the process? Or if the client is not happy with the employee, they just ask TeamLease to replace that employee or TeamLease will -- TeamLease says that we ourselves are not happy with particular employee, so we will replace it for you. How does that appraisal process all work?

[Ashok Nedurumalli, executive]

On paper and on record, it is all done by TeamLease, all by TeamLease. So all revisions, termination letters or involuntary attrition, everything is handled by us. Obviously, because the associate is working at a client location for a customer requirement, all inputs about their behavior, soft, hard outcomes and everything else comes to us from the clients. But documentation, paper flow, everything is directed and driven by us.

[Operator]

The next question is from the line of Ashish Chopra with Goldman Sachs.

[Ashish Chopra, analyst]

Just one quick one pertaining to my earlier question. So while I understand you may, in principle, have a fairly strong case in the 80JJAA scenario, but in the event that we are awaiting the final verdict over here, how should we think about the provision for taxes or the tax rate that we should anticipate going forward?

[Ramani Dathi, executive]

So Ashish, we have taken sufficient legal opinion, consolidations with the multiple people and other experts on this matter. And we are fairly confident that we would be pretty eligible to claim this 80JJAA benefit. So really -- I mean, till the time there is accounting this claim and settlement on this matter, as of now, the view is that we should continue to pay expenses.

[Ashish Chopra, analyst]

Okay. So nothing changes on the financial reporting standpoint over there as well. Got it. Got it. Yes, that was also my [indiscernible].

[Operator]

The next question is from Manjeet Buaria with Solidarity Investment Managers.

[Manjeet Buaria, analyst]

Ramani, one follow-up here. Do we deposit INR 150 crores in amount under process while the liquidation is ongoing?

[Ashok Nedurumalli, executive]

No. They have not asked that.

[Ramani Dathi, executive]

So in their plan, then haven't quantified any number, Manjeet. So this INR 150 crores number that I have given is for the last 5 years, the total value of tax benefit that we have availed under this 80JJAA section. This also includes the refunds that we have received in the past. In case if they revoke the refunds as well, the total exposure is potentially INR 150 crores.

[Ashok Nedurumalli, executive]

And we still have a lot of TDS money with the authorities that have not been refunded.

[Operator]

As there are no further questions, I would now like to hand the conference over to Mr. Ashok Reddy, Managing Director and CEO, for closing comments.

[Ashok Nedurumalli, executive]

Thank you. As has been called out, I think we've had a strong year in growth of associates of the top line, and improvement in the bottom line. We have made conscious choices to invest in our team, in our leadership bench and in our businesses. And I think that will play out into the coming year with the positive outlook that we are hearing from our clients about their business outlook.

And I think that is something that we will continue to focus on to drive our growth across verticals, across businesses, and continue to try and play for productivity and digitization for the margin improvement at the portfolio level. I think the element of -- the playout that we've had this year, given the investments that we made, give us more confidence to make further investments. And that is really where part of that headcount increase in Q4 is coming from as a proactive approach to address the market demand. And I think that is a continued area of focus.

Obviously, in the last year and 2, we have not been able to do any element of an inorganic growth. For various reasons, M&A has fallen off. It is something that... [Technical Difficulty]

Sorry. I think the continued focus on exploring inorganic opportunities to complement us for client acquisition, for growth, for products will continue to be a focus area, given our strong balance sheet and cash flow position. We still stay debt-free, cash flow positive and net cash in the bank. And I think we will have the continued focus for organic growth complemented by the right inorganic opportunities that come up.

Look forward to your continued support and growth as we go forward. Thank you.

[Operator]

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