Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quess Corp Ltd (BOM:539978, Financial) achieved a revenue milestone of INR 5,003 crores, marking a 9% year-on-year growth.
- The company added over 30,000 associates in Q1 FY 2025, bringing the total headcount to 597,000.
- EBITDA grew by 19% year-on-year to INR 184 crores, driven by higher contributions from margin-accretive businesses.
- The company has been recognized as a great place to work for the fifth consecutive year, ranking 32nd.
- Quess Corp Ltd (BOM:539978) is progressing on track with its demerger plan, expected to be completed by Q1 of next year, which aims to unlock shareholder value.
Negative Points
- EBITDA saw a sequential dip of 6% over Q4 due to seasonal slowdowns in higher-margin businesses.
- EBITDA margins for the workforce management platform declined to 2.4% due to a business mix shift towards general staffing.
- The IT staffing sector experienced a slowdown, with only 4,000 net additions due to disruptions from general elections.
- The company's operating margins declined by 30 basis points sequentially due to seasonality and annual wage increases.
- There are challenges in implementing new government schemes for employment and skilling, which may impact the company's ability to capitalize on these opportunities immediately.
Q & A Highlights
Q: The first question is around the higher share of ITES that you reported in the domestic IT staffing segment in your presentation. Is it possible to give the headcount here? This is to actually better understand whether there is a net headcount improvement, IT has bottomed out? Or is it just a mix change?
A: We have seen a net headcount addition growth in Q1 in IT, specifically in IT staffing in India. This business contributes almost close to about 9.5%, 10% EBITDA to our total workforce addition. Compared to Q4, we were about 1,100, now we are about 1,500, so almost 36%-plus in terms of the mandate recovery.
Q: Fair to say for the full year, we should breakeven in the Foundit business, especially with the sale of Qdigi now behind us?
A: The Q1 numbers are in line with the annual operating plan that we have. Whole of last year, we had a negative INR55 crore EBITDA. This year, the plan formally is to turn breakeven on a full-year basis.
Q: Any early estimates or early comments on how do you foresee the benefits of the budget proposals given the competitive scenario? Would it be fair to assume that most of the benefits will be demanded back by our customer?
A: The budget talks about certain schemes impacting an individual fresher who is coming onto the job, to employers who are close to encourage freshers, and creating those employment. Specific to manufacturing and internship, female workforce participation, and better living conditions for people working in manufacturing. We are optimistic about these initiatives accelerating India's formal job creation and enhancing employability.
Q: On the workforce management platform margins, after remaining steady at 2.6% for the preceding 4 quarters, it has dipped to 2.4% in this quarter. Is it because of the seasonality you mentioned? And should we expect this to go back to the 2.6% level as we move into subsequent quarters?
A: Investments in sourcing and job spots are by plan and by design. Wage inflation in Q1 is a normal phenomenon. We expect margin improvement in subsequent quarters as IT staffing opens up and international geographies recover.
Q: On the margin trajectory for workforce management, do you foresee that on an average or at the exit, we will start to hit improvement in margins going forward?
A: The best way to assess general staffing is to see how much gross margin to EBITDA conversion is happening. We continue to be around 67% in terms of gross margin to EBITDA. IT staffing opening up and international staffing recovery will help expand margins.
Q: In terms of the employment and skilling initiatives announced in the budget, are we planning to get some extra revenue from these schemes for the government?
A: The schemes focus on formal employment creation, manufacturing participation, and skilling. We are working closely with respective ministries for implementation. The fine prints will determine the revenue stream, but we are optimistic about the opportunities.
Q: How do you see the domestic IT staffing growing from here? And also in terms of margins, if you can elaborate on how the margins look like?
A: We are seeing green shoots and expect recovery in the second half of the year. The average wage in IT staffing is around INR75,000 to INR80,000 per month, which is margin-accretive. International geographies opening up will also help improve margins.
Q: Could you please give a timeline of the demerger details? When do you think the demerger will be completed? And do you expect any hurdles on the way?
A: The demerger process is expected to be completed by Q1 of next year. The scheme is a mirror shareholding scheme, and we are on track. The demerger will simplify corporate structure, enhance managerial focus, and provide flexibility for independent strategies, leading to value creation for shareholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
