Quess Corp Limited (QUESS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Quess Corp Q3 FY '20 Earnings Conference Call hosted by SBICAP Securities Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Prashant Tiwari from SBI. Thank you, and over to you, sir.

Hello. Yes. Good afternoon, ladies and gentlemen. I'm responsible for the midcap coverage at SBICAP Securities. We are pleased to host this call and thank the management for the opportunity. We have with us the senior leadership of Quess Corp, Mr. Ajit Isaac, Chairman and Managing Director; Mr. Subrata Nag, Group CEO and Executive Director; Mr. Suraj Moraje, Group CEO Designate and Executive Director; and Mr. Subramanian Ramakrishnan, fondly Ramki, Chief Financial Officer. I will hand over the call to Ramki, who will run us through the mandatory regulatory disclosures, and he will then hand over the call to Ajit, who will walk us through the highlights of the quarter, which will then be followed by Q&A. Have a good day, everybody, and over to you, Ramki.

Thank you, Prashant. Good afternoon, everyone, and thank you for joining our earnings call today. Please note that these results and the press release have already been uploaded on our website. Anything we say which refers to our outlook for the future is a forward-looking statement, and that must be read in conjunction with the risks that the company faces. These uncertainties and the risks are included, but not limited to what we have already mentioned in the prospectus filed with SEBI. With that said, I will now turn over the call to our Chairman and Managing Director; Mr. Ajit Isaac. Over to you, Ajit.

Good afternoon, and a warm welcome to all of you. I'm sure that many of you may have had an opportunity to review our latest quarterly earnings that is published yesterday post our Board meeting. As you would have seen in the presentation, this quarter saw us continuing to execute our corporate initiatives with significant improvement in business operations and our corporate structure, about which we will elaborate over this call. Let us begin by giving you a brief overview of our financial performance, followed by key corporate and platform-wise updates, post which, we'll be happy to take your questions. First, we crossed revenues of about INR 2,950 crores, a growth of 36% year-on-year with our EBITDA reaching INR 179 crores, which was an increase of 52%. We achieved a net profit of INR 75 crores, which was a growth of 12%. And without Ind AS accounting adjustment, the net profit was actually INR 79 crores, which was a 22% year-on-year increase. Importantly, cash flow from operations stood at INR 191 crores for the 9 months of the financial year '20 against INR 124 crores in the previous year, an increase of 54%, much driven by our focus on collections and our operating efficiencies. EBITDA to OCF conversion has reached a milestone 51%, up from 45% in the previous quarter, thus placing us in a comfortable position to achieve our target of 50% for this year. Significant debt reduction of INR 431 crores was also achieved in the first 6 months of this -- in the last 6 months of this year. Our gross debt at the end of this quarter stood at INR 830 crores, while net debt stood at INR 313 crores. Additionally, we have reduced our interest by 15% quarter-on-quarter to INR 35 crores. Moving on to some of the key corporate updates. In the Ahmedabad Smart City Project, out of the total project cost of INR 230 crores, INR 92 crores was collected in Q3 and additional INR 40 crores is expected in Q4 of 2020. The demerger of TCIL was completed during the quarter. Post the demerger, we're directly held by Fairfax Holdings, which is about 33%. And through this process, we have forayed into the B2C segment in travel & hospitality and education space. In line with our strategy to simplify our overall group structure, 4 Indian substitutes: Aravon, CenterQ, CoAchieve and Master Staffing Solutions were merged into the parent during the quarter. Additionally, MFX Chile was wound up. Our exercise of reducing intercorporate loans -- intercompany loans and advances continues. What was INR 442 crores in the beginning of this year has now been reduced to about INR 270 crores. And this process continues as we progress further. As many of you would have observed, we have also launched a new branding exercise in the company. The new brand promise of Winning Together comes from our continued focus on customers, people and investors along with our move to our platform structure. I'm also happy to share with you that we've been certified as a Great Place to Work, and we've been included in the Annual Best Place -- Best Workplace List for the year 2020. We're among the top 300 out of 1,000-plus companies. The certification is considered the Gold Standard and recognized world over by employees and employers alike. I would like to now move on to some key platform-wise updates. In the workforce management, we remain the undisputed leader in staffing and continued to gain market share and surge ahead of our competition. This is driven clearly by exceptional execution and the leadership quality in our team. Revenues increased by 52% year-on-year to about INR 1,959 crores. Our associate headcount is up 34% year-on-year to 260,000. The general staffing headcount specifically stood at 244,000. We deployed 20,000 associates to meet peak festive demands in a single month, demonstrating our strong hiring ability. 82 new logos were added with a combined ACV of INR 94 crores. Our core to associate ratio continues at industry-leading efficiency of 1:333, up 11% on the same quarter last year. In skill development, our exclusive IPR for the courses that we run now cover 61 courses out of 91. Although our operating asset management business saw only a 4% year-on-year growth in revenues to INR 448 crores, our facilities business has constituted strong organic growth momentum with revenues up 11%. IFM business EBITDA also grew about 33% to INR 37 crores. However, for the -- at the platform level, EBITDA has been relatively flat. In the IFM business, one of the movements that we're making is to have more SLA-related business than headcount-related contracts. In this, our ratio has moved up from 22% to 26% on a year-on-year basis for SLA-based contracts. In Tech Services, revenues increased 19% year-on-year, with a 13% increase of revenues in Conneqt and Allsec to INR 544 crores. EBITDA increased 131% year-on-year to INR 66 crores on the back of the Allsec acquisition. In Monster, which has taken significant management attention, the first module is in the beta test with positive early reviews. We have a road map in place for the remaining module, and this is expected to be completed by early part of the next financial year. Sequentially, we have been able to reduce our EBITDA losses by about INR 3 crores. Our job views and organic traffic is up 102% and 83%, respectively, on a year-on-year basis, significant numbers for an improving website. In DigiCare, our service network now covers 1,000 -- 12,500 pincodes. I'm also happy to say that our Xiaomi Delhi service center was awarded the best All India Service Partner from over 2,000 centers. We've also strengthened the management team with the addition of Suraj, who joins us with over 2 decades of experience at McKinsey and he will lead the initiative in driving the digital transformation journey at Quess. All of the above summarizes the slew of positive outcomes that we've received in the quarter. This has been a significant quarter for us in terms of continuing our corporate actions and driving our operational metrics across platforms. We would now like to take questions from the floor, and I'll be joined by my colleagues from the corporate and finance functions to address the same. Thank you very much for joining the call, and I look forward to your questions.

[Operator Instructions] The first question is from the line of Rajesh Kothari from AlfAccurate Advisors.

Congratulations for a good set of numbers in an otherwise challenging market. A few questions. First is in People & Services, I'm talking about classification as per the old methodology. While we have a significant improvement in the revenue growth, both quarter-on-quarter as well as Y-o-Y, the EBITDA margins are probably lesser than expected. So can you comment, one, on how you see the outlook going forward? And number two, you say that there is a seasonality involved with the festive season-related recruitment. So do you think then the fourth quarter may not continue like what we have seen in third quarter? Once you answer this question, I'll go to then vertical number 2.

Yes. Thanks, Rajesh. This is Ramki here. So on your question of People & Services, I think a part of the answer you gave. I think one of the things which happened is also the festive season. So if you look at the People & Services in terms of a headcount addition, though it’s not a big headcount addition, some of the revenues have also grown because of the good headcount traction we had in the first few quarters, first couple of quarters to be precise. So some of the revenue started trickling in subsequently. And that's how the revenue numbers are much higher. Second is also in terms of festive. During the festive times, there are also festive bonuses and incentives which are paid, which also add up to the top line, but not necessarily to the bottom line because these are just purely pass-through payments. That having said, it obviously brings down the EBITDA margin to that extent. Moving forward, obviously, the festive bonuses would come down. But we will see that the margins at the People & Services business or the WFM level will be pretty much on line around the 5.5% or 5.3% to 5.5% kind of range. So that's the kind of number we have.

So are you saying that, therefore, the growth perspective in People & Services, what kind of growth you are looking for? Because December, of course, the growth has been 63% in the segment, so going forward, this number will also reduce significantly?

Yes, I think you must also appreciate the fact that in the workforce management as a group have grown about 36% year-on-year, and that's a significant growth. So I mean to -- probably not expect them to grow further, having said that, considering the current economic conditions, what's there, obviously, there is some degree of slowdown in the market, which is also reflected in customer sentiments, which is also reflected in some of the conversions. Having said that, the People & Services business, we have a pretty strong leadership, and they continue to make sure that we get those contracts. Having said, there could be some pressures from the margin perspective, but we will continue to focus on getting those additional contracts. So we will continue to see traction, but it will be muted traction is what I feel.

No, I just want -- this is Subrata. I just want to add a thing, I think the People & Services growth, what you have seen, I think, in the next couple of quarters, we'll see same kind of or maybe a little bit of additional growth because we have signed some of the new contracts, large contracts in December, so that will be flowing into Jan, Feb, March. And overall, the last 9 months, we have signed almost 82 new logos in WFMG. So that, once you sign, normally, customers takes some time to ramp up. I think, slowly, the ramp-up will happen. So I don't see any concern as far as the progress or growth in the People & Services business.

Okay. So I'm getting, sorry, some little bit confusing answers from different people. So on one hand, you say that 36% growth is difficult to replicate and then you mentioned that a lot of new logos are added.

No, see, 36% growth is a good growth. And I'm saying that you don't estimate a lower growth kind of thing, okay? We may not -- it's very difficult to 36% and 46% and 50%, that is not -- always is not possible. But with the way we have been growing, don't take it only one quarter, take the last 5 years how we've been growing People & Services business. I think that kind of momentum and trend will be continuing at least next -- I don't see -- next couple of quarters definitely. And then we'll see how it goes.

Okay. And my second question is on Industrial Asset Management, what kind of further write-downs you think is required? Because this quarter also, we've reported INR 4 crores segment-wise loss at EBITDA level. So how do you see this? Do you think in fourth quarter, you will have 0 or some write-offs are still required?

I think we have come out mostly from the whatever backlog of the losses what we had. We are almost cleared the Hofincons, the some of the nonperforming client -- contracts, we get out of that contract, and you see the revenue also came down. And that's why, actually, there is an increase in the revenue in IFM or total asset management, operating asset management is not that much because some of the clients that we let go. I think now -- and whatever losses we had on account of sale of material handling equipment, that also almost, I think, we crossed that bridge. So I think now onwards we will be seeing uptick in the -- from the current situation. But I will not project a very rosy picture of the industrial. We may not make losses further, but I don't see that we are making a lot of profitability because Vedang is a telecom and telecom is going through, as a industry, in a very rough phase. So we have to -- a part of the industry. So we have to take the brunt of the industry as well. So I think it's a steady state currently. We will have, I think, not much losses, but not much profit, breakeven or some -- maybe a minimum kind of profit is what we will try to do.

[Operator Instructions] The next question is from the line of Abhijit Akella from IIFL.

Yes. Congratulations on a good quarter. I just wanted to get your thoughts on the market environment for general staffing. This quarter, despite the festive season, we've added maybe about 2% quarter-on-quarter headcount in general staffing, it's a little bit of a slowdown. And one of our leading peers has also commented that they've had a slightly difficult season -- festive season. So how do you see the market environment shaping up? Which sectors are doing well and which ones are underperforming sectors?

See, 2 things here. Number one, the festive season this time came a little early, okay? Because you know the Diwali and the Dussehra was in the early part of the October. So all the companies, retail and that, their ramps-up happen mainly in the Q2 and some end of the Q2. And some -- when the ramp-up happen, some of the slowdown also they take the people out in the Q3. So that's why net increase, I think, 5,000 we did, which is 18,000 last quarter. So that has an impact. But -- I cannot deny that there is a, I'll not say slowdown, but the people are not hiring and our clients what they -- I used to do always mining, used to get 10%, 15% from the mining of your clients. So that has been slowing down. So what -- let's understand what steps we are taking. What steps we are taking, we are trying to widen our customer base. So as you see, this year, I think last quarter itself, we have signed almost 80-plus clients in the WFM. So -- and also, we have been trying to penetrate in the Tier 2 and Tier 3 markets, okay? So that the concentration of few clients in the telecom and the retail, we should not be that. And also, I think we have -- every quarter, normally, we won a large contract. I think -- I -- just now, I think, in December-Jan, we started another large contract, not as large as we started the quarter 1, but it was a reasonably large contract, and that will have an impact we'll see in Q4 and going forward. So I don't see any major impact in the headcount. The headcount growth will be there. But every quarter, you can't expect the 20,000, 30,000. It should be one quarter, it will be up, one quarter, it will be little bit of down, that kind of seasonality comes. But we are on that job, and we're trying to, as I said, widen our customer base. And these customers will slowly go up, actually, that we seen in the last 10 years.

Okay. Great. And my second question is on the IT staffing piece. Like, the overseas pieces within IT staffing have been doing relatively well, whereas the Indian business has been under a bit of pressure, so if you could [indiscernible] in terms of market environment for both of these regions? And what your plans are in this regard, especially with regard to fixing the India business?

Yes. As you know, Magna was going through a little bit of a lean patch. And that we have taken the steps there. I think with the last -- this quarter also, particularly December, we have seen some momentum coming back. Our current -- what happened actually in Magna and what we have been trying to do to, to focus more on a high-margin and niche recruitment instead of going mark the [ Dot Net of ] 3 to 5 years kind of assignments, we're trying to go maybe 8-year or 10-year-plus assignment. It takes some time because you have to regroup your recruiter base. You have to create that center of excellence. Those things we have been working on. We have been bringing some artificial intelligence so that we get to find the -- and ultimately understand that IT staffing business is the fastest finger first. Now who first pushes this to the customer portal or customer base. So you need to have that much IT backbone yourself so that you can get the right CV at right time. So those things have been working on. I think slowly market also picking up and Magna being a leader, I'm sure that it is not going down, okay? What the -- the sliding scale what we have seen, that has been stopped. And I think from here, we are seeing -- I think it will take some time. Don't expect that the one quarter the entire thing will change, but I think in the next couple of quarters, you'll see slowly the growth will be coming back into Magna.

On the overseas side, how are things going on, Brainhunter and MFX?

Brainhunter, actually, it took some time, but I think we turned around the corner there. As you know, Brainhunter, Mindwire is always a steady, stable business. That is our government -- Canadian federal government business. We had the problem in Toronto and Western Canada, particularly our commercial business. As of today, all 3 regions are profitable. Previously, what -- and that's why this is the year, I think, we'll be doing in around CAD 60 million -- CAD 58 million, CAD 60 million revenue and, I think, CAD 2.7 million to CAD 3 million EBITDA. So that is going well. MFX, I would not say that the revenue has been picked up much, but what happened in MFX, particularly, the profitability has come back. I don't know, I think almost February 2018, I think, or '19, we lost one of the major clients, actually. It took some time to fill that gap, almost 20% of our revenue gone by 1 client. So it took us some time to recoup that revenue loss. We have done that over the last, I think, 5 quarters. And I think we are still, I think, around $40 million -- $38 million to $40 million revenue. And -- but our EBITDA actually gone up. I think this year, we'll be -- near about USD 4 million we will be doing. So that's, I think, running okay.

The next question is from the line of Mihir Manohar from CapGrow Capital Advisors.

First of all, congratulations on this great set of numbers. Just wanted to understand your relationship with Amazon. So -- I mean what kind of relationship are you having with Amazon? And out of their people, how much percentage are you supplying over there?

You are asking our relationship -- we have multiple relationships with Amazon. So are you asking our relationship in context with DigiCare or you're asking us...

Both DigiCare as well as on the workforce management as well. So that is basically your delivery boys.

Yes, we have almost, I think, 7,000 to 8,000 people where we provide there just the manpower, okay? So that is our responsibility with the manpower with Amazon Transportation Services and they do the delivery. We have -- in that context, we have Dependo where we have almost, say, 1,200 bikers and, I think, 300, I think, four-wheelers, where we -- and we have, I think, 40 or 45, I think, DCs, where we take the consignment, and we do around 82,000 -- average 80,000 and sometimes peak, I think, 120,000 we did in this October. 150,000, sorry. 150,000 in October. So that is the delivery where we take the consignment and deliver it by ourselves. So that is another relationship. And the third relationship, what -- for that Amazon actually invested in Quess, as you all know, that is for the DigiCare services. So whatever Amazon sells from their portal, we actually install and service those, say, TV, fridge, air conditioner through the DigiCare. And you see that's why our DigiCare footprint has been increased post Amazon. Today, we have almost 12,500 pincodes, 600 cities covering. So the more the sales comes, and we will be doing that kind of work.

Okay then. So the servicing part gets accounted in your revenue, right?

Huh?

The servicing portion gets accounted in DigiCare -- in the books of DigiCare?

Yes, yes. That is DigiCare business, actually. That is the business of the DigiCare we have been doing. We like Samsung, we do running, Xiaomi, we do. Amazon also we're doing that kind of work.

The next question is from the line of Sudheer Guntupalli from Motilal Oswal Financial Services.

Suraj, congrats and all the best in your new role. So my first question is to you. Are you contemplating any major strategic changes going forward? Or are you going to let the status quo continue?

The status quo seems to be doing very, very well, Sudheer. But -- so I don't think this is about major, major changes. I think this is about an evolution of where the company is going. We are looking at a few things. I think we're looking at how do we bring more of an institutional identity as we sell towards our customers. You've seen the rebranding in the last few weeks, and we hope we're going to roll that out more progressively to more and more of our companies. So we create one corporate identity. You see a lot more technology coming into play, both with how we serve our customers and drive productivity there, but also with regards to how we manage our associates and build our database of talent -- and nurture our database of talent. I think you will see us continue to focus on growth as we have in the past. I think we want to make sure we're focusing on ROE as much as we are on EBITDA. And you'll see that balancing out a little bit more over time. But by and large, I don't think this is about major, major, major changes. I think it's a very healthy business, doing very well. It's really about taking it to the next level over the coming years.

That's very helpful. And in Trimax, actually, post the completion of acquisition of TSIPL, we seemed to have recognized a provisional goodwill of almost INR 40 crore. Our understanding is that overall amount we paid for acquisition of 100% stake here is INR 13 crores, so goodwill is almost INR 27 crore higher than purchase price, does that mean the entity currently has negative net assets of INR 27 crore? And a related question on that, your presentation seems to be hinting that the total exposure now is INR 230 crore, and this exposure amount has also been going up over the last few quarters, while on the other hand, we are expecting the amount to return. So any color on this will be helpful.

Yes. I think your first assumption is absolutely right. The negative net worth was INR 27 crores, and we paid INR 13 crores. That's the reason that goodwill on consolidation comes to about INR 40 crores, number one. Number two, INR 230 crores, there is no further exposure. What we're talking about is the full project cost. And the INR 92 crores we are talking about is all the collections, which have been done till date, which includes INR 60 crores last year and INR 32 crores this quarter. Hope that clarifies.

Sure, sir. And one clarification in general staffing. Your presentation mentions that growth in general staffing was 37% on a year-on-year basis. However, if I look at the old segmental reporting, People & Services seems to have delivered almost 63% year-on-year growth. Given that general staffing is the biggest component within People & Services, what is the reason for this divergence and the growth rates across the two? That's it from my side.

So if you look at it, what happens, Sudheer, I think we covered some of it in the first question. Obviously, the growth comes from twofold. One is the fact that the festivity this time was a much better season. So, obviously, some of those festivity-related numbers flow through the revenue. So that's kind of been a bigger number in the current quarter compared to the consecution quarter in the last year. Similarly, if you look at it, some of the revenues which pertain to the headcounts which were added in the previous quarters, then what happens is when the start point could be just pure staffing. But as we keep ramping up our suite of services to the customer to add on more services, then it also helps us to ramp up our revenue. So that's what is kind of flowing through and hence you are seeing the change.

But Ramki, I think the divergence is too high here. The reason I'm asking is, I mean, I understand that you may also be offering some additional services rather than just general staffing. But if I understand it right, People & Services -- the predominant component in People & Services is general staffing, and we're talking about a 37% year-on-year growth and a 63% year-on-year growth, and divergence seems to be huge. That is number one. And number two, the seasonality aspect you spoke about, there is some bonus-related payments, so on and so forth. I'm assuming, previous year, this quarter also had that issue. And when we're talking about year-on-year growth rates, I think that is normalized. The seasonality trend is normalized.

No, this -- see, 36% -- when you take the people and general -- you're right, general staffing. But when you do the WFM, what you're saying that why the difference, WFM, there is a Magna and there is a Comtel, okay? So Magna and Comtel, the growth is...

No, sir. I'm asking about People & Services based on old segment reporting.

So what is the question?

So if you look at old segment reporting, December 2018 has INR 991 crore, the revenue increased to INR 1,618 crore in December 2019, which is almost a 60% sort of -- flat sort of revenues.

Yes, yes. Go ahead. Yes, I understand.

And within the general staffing segment, I think another slide in your presentation actually shows that general staffing revenue was up 37%. So if People & Services segment as per the old segment reporting is predominantly comprising of general staffing, so why is there that huge divergence?

General staffing separately and where you're giving general staffing?

It is Slide #11, Q3 FY '20 financial performance.

Ramki and Subrata, I have a suggestion here. I think if there's some number reconciliation to be done here, why don't we take this off-line and give the details to Sudheer that's required. So we can have a more detailed conversation with Sudheer than on the call just now. I hope that's okay with you, Sudheer?

Yes, sir. Yes, sir. That's helpful.

No, no, no. Just one second, Ajit. No, no, you said year-on-year, and this is the -- yes, year-on-year, okay.

Okay, Sudheer. We'll get back to you on this, Sudheer.

The next question is from the line of Shaleen Kumar. [Operator Instructions] The next question is from the line of Amar Mourya from AlfAccurate.

Firstly, Ramki, I mean, I just wanted to understand, if I see in our new classification, our workforce management, in that the global technology services sequentially there has been an improvement. And sequentially, I believe we had also shown an improvement in the EBITDA. So is it like fair to assume that now Magna and Comtel from here on is going to see a steady growth and improvement in the profitability?

You are talking about the new segment or the old verticals?

So I'm talking about the new segment. I believe, in new segment, workforce management, that is a part of Comtel and Magna, correct?

Yes, Comtel and Magna are sitting there. You're right, absolutely right.

Correct. So I'm talking about that. If I strip it, the number, I see INR 340 crores kind of a revenue, which is -- which was INR 308 crores sequentially, and I see EBITDA of INR 19 crores versus INR 16 crores. Obviously, year-over-year, we are down on a EBITDA front, but on a revenue and EBITDA from a sequential basis, there is an improvement. So I'm just trying to understand, from here on, what is the kind of status for both those businesses?

Yes. I think you know what you should also keep in mind is that it's not just Magna and Comtel which are sitting besides the general staffing there. You also have the other overseas locations of the general staffing. And they have also contributed to the numbers this time, be it in the terms of Middle East, in terms of Philippines, Singapore -- Quess Singapore, Lanka business, in fact also Dependo. So there is a complete -- other sets of businesses are also contributing to the growth. And that's what is making the difference this quarter. I can give you the complete split off-line. It's not available.

Fair enough, fair enough, fair enough. So that is one. So I'm -- so you are not saying that steady state, Magna and Comtel has not made any difference this quarter also?

No. They have been making the difference. But in this particular quarter, others are also pitching in. And for your question that whether can we take the -- this is a new normal and the further growth from here, I think you're right there. I think you can see further growth because, as I told earlier question, that Magna is coming out from the slump and Comtel also, I think there's a substantial growth in Comtel. So you can expect this business will contribute in more positively going forward.

Okay. May I squeeze one more in, sir?

Sure.

Yes. So sir, now in IKYA business, I mean, if you can help us understand, I mean, in this overall People & Services, how much would be the IKYA contribution?

IKYA means staffing contribution you are saying?

Yes, yes. So like and how the business would have done in that?

So the staffing -- see, IKYA, we do staffing, also we do recruitment in IKYA. Those are 2, so what you're talking, IKYA...

So staffing -- I mean IKYA overall, if you -- I want to understand staffing and recruitment both.

See people business is mainly IKYA staffing and a little bit of recruitment and other component is only the skill development business. So skill, the revenue in an annualized basis, skill revenue, I think this year, on the full year basis, I think INR 180 crores, okay? So I think that is our total revenue, whatever be the -- out of that only INR 185 crores will be, but it will be a 20% margin business from the skill, rest entire thing for the staffing and the skill -- sorry, recruitment.

Okay. So that is basically you're saying rest is the IKYA barring the subsidiaries?

Yes. Yes, yes. There is no subsidiary as such. Only the skill that has a little bit of Excelus part, otherwise our Quess skill development.

Okay, okay. So sir, in this, what should be the margin trajectory? Like, why I'm asking you, like there was a margin of 5.2% in this quarter, whereas if I see the historical -- I mean sequential margin 5.1%, 6.2%. So the margin has slightly decelerated on a sequential basis. So is there some seasonality also involved? Or how we should see the margin trajectory?

Seasonality in the workforce management or in the -- if you see the workforce management, definitely there is a little bit of seasonality because the December is the furlough and other things come last 10 days, 15 days and that is part of the...

I'm purely talking about the -- in workforce management part of People & Services management.

People & Services business, I think we get around, you will see the 5%, 5.1%, I think that kind of margin, between 5.25% to 5.5% is, I think, a steady-state margin for the time being we should consider.

Okay. And sir, now or in this quarter, I mean the debt has slightly gone up, but your interest cost was low. So what I should see for the fourth quarter? What could be the -- you stick to your guidance of the debt level?

I'm not sure why you're saying the debt has gone up, in fact, the debt has gone down. The gross debt, which was about INR 920 crores as of last quarter, has come down to about INR 830 crores. So that's a good INR 90 crores reduction, and that's what is contributing to the reduction in interest cost also from INR 41 crores to INR 35 crores. And with our -- and all this, also, we should also keep in mind that this debt reduction pays after also paying out some of these terms, for which we had to make the payments. We have also made about INR 38 crores, INR 40 crores for Golden Star. We made a payment of INR 13 crores for Trimax. We made a payment of about INR 10 crores for Vedang. And still, we are talking about this kind of a debt reduction and interest cost reduction. So moving forward into Q4, we don't have any of those mixed up payments. That being the case and with the current cash generation and with Q4 being a strong quarter generally, we should see definitely a downward trend on the debt further, like, I've given the guidance, we should be able to hit the March '19 numbers, if not better it.

Okay. No, why I'm asking, sir, like, you are right that on a sequential basis, your debt has -- but your other income has also reduced in this quarter?

Yes. Other income has, again, got nothing to do with this. But having said that, the other income has reduced primarily because some of the interest income, which was recognized on the intercompany loans, which have since got converted to CCDs are no longer there. So that's the reason why the other income is reduced. But from a debt reduction, I think I'd already answered.

Yes, yes. And sir, secondly, like, one last one from my side. Sir, -- I mean in the -- in your tech services, what would be the growth driver for you? Because in tech services, if I'm not wrong, there are 3 segments. One is Global Technology, one is Allsec and third is your tech or Internet business. So overall, what will drive the growth from here on? Like, is it the Allsec which is going to be the growth driver? Or is it the global technology part which is fitting into the business side?

I think the -- primarily, the majority of the growth will come from our BPOs, our BPM business. That is the Conneqt and the Allsec together, okay? Conneqt also, I think this year is a very good year compared to, I think, already 13% or 15% growth they have. And Allsec, only 6 months with us, and we are banking a lot on Allsec. So Allsec and Conneqt together will be the -- most of the growth will be coming. And currently, our profitability is getting a little bit of muted because of the loss what we are suffering in the Monster. Though the loss is coming down, I think going forward, once Monster will start positively -- contributing positively, then I think the growth will be much higher -- a greater degree than what we are currently having.

[Operator Instructions] The next question is from the line of Anish Jobalia from Banyan Capital.

In terms of the People & Services business, in the last quarter, it was mentioned that in H2 as in Q3 and Q4, we would actually cross 6% EBITDA margins, mainly helped by the Excelus division, which has 20% margins. So the question is, like, despite of such high growth and also, as per our expectations, why are that margins not coming through? And are we resetting our expectations of our margins in this division to 5.3% to 5.5% even going forward, say, FY '21?

Yes. I think on average, if we take the margin in the general staffing business, I think I'll keep it around 5.5%. That is the right margin to be considered for your any modeling or anything you do.

But why is the difference between one quarter. I mean just one quarter before, we were expecting 6% margins, we're going to cross that and in just one quarter after we have a -- because 0.5%...

I'll come to that. See, sometimes what happens actually in general staffing, there is -- you don't see in the general staffing -- there is many components in the general staffing. There is a sourcing revenue, there is a recruitment revenue generally, there's a search revenue. So one quarter, that is, I think, we did well. But I think, going on a steady-state basis, if I consider, I will not give you -- if you ask me what we will be doing quarter after quarter in the next couple of quarters, I think 5.5% will be a conservative margin we should consider.

Okay. And in terms of the overall margin expansion that we are focused a lot on -- as in like we're working towards that direction. So the question around that is, in the next year then what will be driving these margins? I mean is there any margin drivers now going forward? I understand that Monster and Industrial Asset Management, some of the other loss-making would come down, but that should not be good enough to expand our margins by what you were anticipating around 0.5% per year?

Yes, yes, yes. See, margin expansion will be coming up on the many fronts, okay? The #1, as you rightly say, the Monster and Industrial, which had a similar -- like, Monster, for this year, we -- already in the Q3, we have a INR 20 crore loss, okay? So I think next year, those things will not be there. Industrial also, we had a loss from the 9 months. So that will contribute further. Then secondly, I think Allsec, which is almost 20% margin, which came, let's say, 3 quarters this time, we will get another full quarter in the next year. So that is also giving. And more, we are hoping that the Allsec and the Conneqt, Conneqt is working around 8%, 9% margin and Allsec around 20% margin. What our aim and -- so what we're trying to do, that increase their revenue base in our overall revenue parameter. So if that percentage goes up, definitely, that will push our margin. And then a lot of IT, technology intervention and increase the productivity and further improvement in the core to associate ratio, everything will be working towards increasing the margin. So I think there are many levers to increase the margin. These are the couple of what I just stated here.

Okay. And the unallocated expenses, I think it's around INR 88 crores. I mean we are having a run rate of INR 22 crores per quarter, so will this also be growing in line with the revenue? Just to understand the extent of the operating leverage.

No, no. I think that is the operating levers. These are the, I think, fixed cost. I think that definitely will not go -- grow in the line -- linear growth with our revenue. That will be growth -- growing in a much, much lower parameter. And maybe you'll see -- yes, but that will not be growth, I think -- and this year also, we had a large consignment -- assignment we worked with the Accenture. We spent a lot of money. So I don't see it is -- it may grow as a normal expense process, but definitely not in proportionate to the revenue. There will be some operating leverage, of course.

Okay. And let's say, going forward, let's say, FY '21, because of the, let's say, some headwinds, if our growth rate, do you maintain the guidance of 20%? I mean at least like 20% growth rate going forward considering the macro environment?

I think as on today, we are confident that what we have been always telling that our aim is to give 20% EBITDA growth year-on-year, we stick to that. I think we will be able to do that.

And in the facilities management...

I think a lot of peoples are there, why don't you call us later? I'm sorry because around 5, 6 guys are...

Okay, okay.

Yes, yes. Please connect with -- Ramki will answer whatever questions you have, okay?

Okay.

The next question is from the line of Dipan Mehta from Elixir Equities.

Congratulations on a very good set of numbers. Now I just want to draw attention to Slide #26 where you have given the breakup segment-wise. So first, a quick question that when you are comparing the EBITDA margin for December '19 with December '18, so December '19 has got Ind AS and December '18 is without Ind AS, or are they really comparable is my first question.

December '18 definitely does not have the Ind AS element, but December '19 has got the Ind AS element.

Okay. So considering that post Ind AS, your EBITDA margins have gone up, then, please, can you explain in workforce management from 6% to 5.3%, why we have seen such a sharp decline and if you were to consider in -- if you not consider Ind AS, then the drop would have been even more?

No. But there is no big Ind AS impact in workforce management. The Ind AS impact comes from our Conneqt business, which is all in technology.

Okay. But nonetheless, I think you've seen a 0.7% decline and normally, one would expect a positive operating leverage given the 55% increase in revenue?

No. I just explained in the previous question, you must have heard that, don't take that 6% we had, some -- maybe one quarter, our recruitment did very well, okay? Or Excelus did some additional revenue and -- but generally, I think 5.5% is the steady-state margin from the WFM business we should consider currently.

No, sir. But if you look at March '19, June '19, September '19, it's been consistently declining, whereas revenues are going just fine. So is there something that we have taken contracts at lower rates or there's some unusual expense in December '19 quarter?

No unusual expenses. There's no unusual expenses in December quarter or anything of that sort. But I think one of the things which we have told in the previous calls also is that when we are taking this initial large contract, obviously, we do also see how much we can manage the margins. Those don't come with the same kind of margin levels which some of the smaller contracts come with. But that's an entry point. And like I said, it doesn't stay there. As we keep ramping up the various services, over a period of time, the margins catch up. So you are right. When we go for some of those larger contracts, the margins are definitely much lower than what it is in the case of smaller contracts. And because it could also be a mix in terms of how many of them are pure staffing contracts versus how many of them are also in terms of more like a comprehensive contract. So it's a mix. The mix of the delivery also will change.

The last question is from the line of Nitin Padmanabhan from Investec.

On the general staffing business, we have been winning quite a few large contracts over the course of this year. When you look at the metrics within those contracts, how are they different? Are we seeing a higher proportion of variable markups there? Or do they come with a fixed price markup? Second, also, if you could just give a sense broadly from a business standpoint for this business, how are the variable and fixed price markups? And how has the markups been trending through the year?

I think, though, we have told that our always preference to go for the variable percentage, but you can't just ignore the market dynamics. So I would not say that the contracts what we are getting too many are on the variable side, mainly on -- in a fixed-based price -- fixed-price based contract. And large contract normally comes with a fixed price based contract. Exact percentage, what will be the current percentage? I think our people will be -- maybe 65:35 ratio. Yes, 65 maybe in the fixed base, 35 with the variable contract.

Sure. The second is, in the context of the broader environment and the environment being tough, strategically, are we seeing markups actually becoming more difficult to sort of get by? Or how are you approaching the market?

See, one thing, definitely, we don't want to play the price game. We don't want taking the contract and cutting that. We have a certain cost of services, and we have a certain margin profile that we would like to maintain keeping the market dynamics in mind. And we try to see how more technology we can bring so that we can -- like, core to associate ratio. One thing, how we can increase that further, okay? So now is the 330, can we take it to, say, 370 or 400. So that will be an another effort. How we can get a little bit of more managed kind of services, okay? Services where we provide not only the people, but some of the stock we take along with that away, how our image product which is many things an associate a company can do in managing their large workforce that image we are pushing more aggressively with additional price. So those are the components that will help our increasing the overall realization. And which is currently, I think, 700, 730 around kind of thing. So idea is to how to increase that realization bit by bit over the period.

Sure. That's helpful. Just 2 more quick questions, if I may. One is, are we sort of consolidating Terrier from Q4? And the second is any updates on the divestments that you had talked about, East Bengal and so on and so forth.

So Terrier, we are not consolidating because TCIL demerger has happened, and we were expecting or we are now kind of looking at how we could go ahead and do the buyback from Heptagon and then invest it in Terrier so that then we can start consolidating. Having said that, what's also happened is that our foreign shareholding because of some of the newer shareholders who've come in post the TCIL demerger, and of late this has happened, our foreign shareholding still continues to hover very close to about 48%, 49%, so -- which was not expected. So that's the reason we're just waiting and watching. And once it kind of reaches a particular level where it's manageable, then we will definitely do it. But we are ready to do it. It's only the shareholding, which is kind of, at this point in time, making us think a bit. And your second question was on?

East Bengal.

East Bengal?

Yes.

Yes. QEBFC, as we told, that the 31st May of this year is the last day, our contract with the club terminates. We have no financial liability post that. But meanwhile what we have been trying and that we also in the discussions with a couple of investment bankers to get a suitor so that we can divest. So we will be trying our best to do that. Hopefully, we'll get somebody to offload our share. And if nothing happens, but -- 31st May, post that, we have no financial liability. That is the last point.

The next question is from the line of Mohit Sharma from Motilal Oswal.

I just had a one quick question. So pertaining to the Monster business, it's good to see the loss run rate coming down. And -- but at the same time, the revenue has also seen some downturn. So is this because we are consciously deemphasizing some part of the business? Or given that this platform has a high fixed cost, so in a declining revenue environment, how sustainable it will be to avoid a negative operating leverage from coming into play?

See, Monster, it's a -- as you all know, it's a product business. And what is the problem what we had actually in hand, our product was damaged a little bit, okay? So what we have been currently doing actually to keep the losses, so whatever the flab is there just cutting that and bring the right size of the company, though revenue has been coming down. But we believe that once our product is ready, and which will be launched in the, say, next 30 to 45 days, I think the sales will pick up. We have a new -- we did some reorganization in our sales team also, and we are revamping and increasing our numbers also going forward. So I think -- and last one month, what happens in the Monster, also understand, even if I book a sale today, the revenue flow takes the time because it's a 12-month you do the amortization, okay? So that's the new booking of the sales. I think last month, last 2 months that slide stopped. And last 2, 3 months, we are seeing that it's a smooth steadiness is coming up there. We are seeing that early, early signs of winning. So we hope that going forward, that sales will pick up and the new product and new search will help us. Because one thing is very -- you understand that the traffic in the site, job posting and the application have all are almost 80%, 100% growth year-on-year basis. So one time, I think we're sure that, that will reflect -- sales comes little laggard, that will reflect in the sales.

The last question is from the line of Manoj B. from Carnelian Asset Management.

Just a couple of questions. First one is like a few quarters back, like, if I look at industry dynamics, there was a competition in terms of number of credit days or the credit which the competitors were offering. Now like looking at your cash flow improvement and margin contraction, especially in the workforce management business, is it linked to that like now we are very, very choosy in terms of like giving lesser credit or saying like no to the business where -- which are asking for higher credit? And also, is there a change in -- at industry level on this phenomena? This is my first question.

As we told earlier, that is we put a lot of emphasis to increase our collect and pay in a percentage in the business. And you saw that it increased to, today, to 72%. That is one of the reason for the -- definitely in the increasing working capital, but I don't think that is the only reason. Overall, business in the IFM business into -- all over, the vigor, the efficiency and the productivity I think has come last 6, 7 months, and our emphasis on collection and do the invoicing at the right time, correctly. So those things also helped a lot increasing our DSO -- decreasing our DSO level and increasing our cash conversion.

Okay. But is there some impact on margin on account of this?

No, I don't think so it has any impact on the margin. If you see overall margin, our -- 6% is there. So I don't think it has any major impact on our overall margin as of now.

Okay, okay. And my second question is, like, in terms of inorganic growth strategy, what will be the strategy of the company in terms of future capital allocation over short to medium term? I think in short to medium term, you have clarified over last con call that there won't be any more inorganic opportunities where you'll be allocating capital. So if you can just give some color on your capital allocation strategy going forward, given the fact, like, now balance sheet is getting healthier and healthier quarter-on-quarter basis?

See our -- currently, our priority, other than the business and the EBITDA profit, increasing our cash conversion. We set a target for, this year, 50%, I think surely we'll cross that. But we believe that there's a enough runway there so to push that cash conversion further, okay? So that is the first. So -- and reduce our debt position, whatever cash internal accrual we generate, now we don't have any stock purchase other than very small in the Vedang. So that entire money will go to the reduction of debt and our idea and -- is that next in 6 to 8 quarters, we'll try our best to convert from a net debt to net cash position, okay? And then our other major idea is to increase our ROE to 20%. So that is the goal we set for ourselves, and we will work towards that. I don't think -- I don't see any immediate acquisition we are doing. But as we told, that if situation comes, if we get a very great opportunity, if we see there's a strategic fit, we'll think of that. It is not off the table, but not in immediate future. Our idea is that first decluttering the balance sheet, reorganization, do that, reduce our subsidiary, increase the cash conversion and increase the ROE. So these are the 5, 6 parameters we will be working on.

As there are no further questions, I would now like to hand the conference over to Mr. Ajit Isaac for closing comments.

Thank you very much. I believe we are moving in the right direction, and this is evidenced by our strong operational and business performance. Overall, our model shows that we have competitiveness in each of our business segments. And the fact that we've been able to continue revenue growth at 20% in spite of headwinds is testimony to that. Our focus on improving our financials remains strong, and [Audio Gap] collection days, resulting in our increased cash collection also. We're on track to achieve our year-end cash conversion of 50%. Our digital transformation process inside the company is gathering steam. We believe that all of these initiatives are -- will make the company well positioned to achieve some of the results that we've been talking about in the call. I would also like to take this opportunity to invite each of you to our upcoming Annual Investor and Analyst Day on the 5th of March 2020 at the Grand Hyatt, Mumbai. We look forward to meet you there, and thank you once again for joining this call.

Thank you. Ladies and gentlemen, on behalf of SBICAP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.