Quess Corp Limited (QUESS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Quess Corp Limited Q1 FY '21 Earnings Conference Call hosted by IIFL Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Akella from IIFL Securities. Thank you, and over to you, sir.

Yes. Thank you, Faizan. Ladies and gentlemen, very good afternoon, and thank you for joining us on the 1Q FY '21 post-results conference call of Quess Corp. It's my pleasure to introduce the senior management team of Quess who are here with us to discuss the results. We have with us Mr. Ajit Isaac, Chairman and Managing Director; Mr. Suraj Moraje, Executive Director and Group CEO; Mr. Ramakrishnan Subramanian, CFO; Mr. S. Guruprasad, COO, India Region; and Mr. Lohit Bhatia, President, Workforce Management. We'll begin the call with opening remarks by the management team. And thereafter, we'll open up the call for a Q&A session. I would now like to hand the call over to Mr. Ramakrishnan Subramanian, CFO, to take proceedings forward. Thank you, and over to you, Ramki.

Thank you, Abhijit. Good afternoon, everyone, and thank you for joining our earnings call today. Please note that the results and the presentation has 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 risk that the company faces. These uncertainties and 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.

Thank you, Ramki. Good afternoon to all of you and a warm welcome to this year's first quarter analyst call at Quess. My colleagues, Suraj, our Group CEO; Ramki, our CFO; Guruprasad, our Head of India Operations; and Lohit Bhatia, President of our Workforce team, join me for the call as well. The last time I spoke to all of you was on the 28th of May in the middle of the lockdown and that was when many questions swirled around about the direction that the pandemic will take. Today, the 29th of July, almost 2 -- almost exactly 2 months later, the same questions remain on the direction that the pandemic will take and its total impact and effect on the Indian economy. Through such a hazy period, it is best to take the safest path and to secure and consolidate as much as we've got rather than trying anything adventurous. In line with the 3 issues that I mentioned the last time, that is: To grow our revenues by adding new logos to the customer base, one; two, to focus on cash flows; three, to pay attention to our balance sheet. We've worked hard on all of these 3. We've added about 200 new customers for the quarter in existing and new service lines with a continued focus on cross sales. Customers with 2 or more service lines now account for more than 68% of our revenues. The most significant achievement for the quarter has, however, been our increased OCF conversion at 152%, underpinned by prompt collection and reduction in our working capital requirements. Lastly, our focus on our balance sheet has resulted in a net debt reduction by about INR 100 crores from INR 355 crores to INR 254 crores. All this has happened while we've transitioned through a leadership change with Suraj coming through admirably in the first quarter while ensuring service continuity for all our clients who had been hit by COVID-19. I also want to stress the positive long-term gains coming out of COVID. Quess has reduced its real estate footprint by about 35% and has reduced its SG&A to the extent of 20%, bringing long-term saves in our indirect costs. In addition, we've had extensive tech rollouts in almost all our businesses, some of which we'll talk through to you in the process of this meeting. Despite the challenges of the COVID-19 situation, we are grateful to report that with diligent work from our entire team we've been able to reduce its impact and contrarily develop strengths that will disproportionately benefit our business once life comes back to normal. I also want to emphasize that our focus on 20% ROE by 2023 is undiluted, and all of us are working hard to ensure that we reach to the margin of safety. Leadership is everything in times like this. And our management committee and every business leader, along with their teams have lent their shoulders to the wheel, and this is our biggest insurance against pandemic like situations. To talk more about what we did and how we went about it, I'd like to invite Suraj to share this with you. Over to you, Suraj.

Thanks, Ajit. Good afternoon, everybody, and thank you for making time to be on this call. I hope that wherever you are today, you and your families are safe and growing closer. We do indeed live in interesting times. In the context, I actually want to start by saying a very big thank you to 2 constituents, our customers and our employees, for standing shoulder to shoulder with us in these times. Our employees from the management team right down to our frontline sales, janitorial staff have turned up each day, not in body but in mind and spirit. And not just in our core activities, in Q1, our employees sponsored and distributed 80,000 cooked meals and 1,600 ration kits through our Careworks Foundation. As the new CEO, I feel that the Quess Corp organization has really put its shoulder behind a very heavy wheel, and I'm very grateful for this. The COVID pandemic and the lockdown has had varying impacts across our business. While DigiCare, Excelus and the food business saw significant negative impact, our international IT and HRO businesses stood strong in this time. And the power of our platform, I think, has come out as a result. Other businesses saw less impact than we had expected -- anticipated. Our total headcount is also less -- down less than we had anticipated, at about 13% lower than its peak in March. We owe this to our enduring relationships with large customers, our focus on cost and service and increased focus on go-to-market, which I'll expand upon shortly. As you've seen by now, Q1 saw our revenues largely flat year-on-year, with EBITDA falling about 12% year-on-year. Do note that our reported EBITDA is after onetime COVID costs of about INR 6 crores, lockdown impact of about INR 21 crores in Excelus and DigiCare and about a INR 3 crore impact of EBITDA in our food business versus a quarter ago. Adjusted for these numbers, our EBITDA performance would have been more or less flat versus a year ago. As committed in the last call, we have focused on OCF, and we've delivered 152% OCF to EBITDA in this quarter. Our OCF is up about almost 2.5x. At Quess, we remain committed to executing against the North Star of winning together with customers, people and investors. As Ajit said, achieving both a 20% year-on-year OCF growth and an ROE of 20% in the medium term. During this quarter, specifically, we continued on our theme of focusing on customers, cost and cash and let me talk about each of these briefly. On customers, I'm happy to say that none of our businesses lost a single major customer in this time. And I think that is real testament to what our frontline -- everyone from the frontline upwards has done in delivering superior service and the constant innovation that the Quess organization has. On the contrary, we've actually added about 200 new customers in Q1. Now note that not all these customers have translated into revenues yet because there has been a slower pace of transition with the lockdowns and economic activity. But we do expect that as the economy reopens and accelerates, this number will go up and we'll start seeing the benefits. We've also strengthened our go-to-market, including developing new service lines focused on client productivity, reaching out to new customers. We've significantly stepped up our focus on cross-selling and multi-tower deals. Our senior management is much more in the market, in line with our continued belief in the power of the Quess platform. As Ajit said, at this point, customers that enjoy 2 or more of our service lines account for about 68% of our total revenues. And our efforts to increase this is showing good traction at this point. On costs, our total indirect cost was down about 20% in the quarter versus our run rate in Q4. This has been achieved through a combination of salary and nonsalary measures, including rationalizing our real estate footprint, we've reduced seats by about 35%; digitizing our invoicing and compliance processes; renegotiating IT and AMC contracts; increasing our focus on people productivity; and of course, savings on travel and promotions. We think this will translate to a structural cost reduction of about INR 60 crores versus our last full financial year. And we are working to further optimize these costs in this quarter. On the cash side, as I mentioned, our OCF to EBITDA ratio was 152%. It is a onetime spurt to an extent driven by release of working capital, but our collections performance has come out strongly in this quarter. And I think that is a testament to our historical focus on partnering with solid enterprise customers that are each leaders in their own industries. Our DSOs are slightly up on a quarterly basis, but that is in -- to a large extent, due to a shrinkage in the actual revenue denominator, even while the numerator has come down. And overall, our cash situation remains comfortable, and we've had significant debt paydowns in the quarter. We have remained committed to reducing our exposure to low OCF businesses. In line with this, we've restructured our executive search and selection businesses. The Excelus business has turned down new mandates from the government. And we're shifting away from project-based businesses, sticking to our services knitting. So that is a little bit on the themes for the quarter. Let me now just give you a quick flavor of the performance by platform, starting with workforce management. So GS revenues were down about 21.8% versus the last quarter and the headcount down by a shade under 15%. Most of the reduction came in retail and BFSI, down 13% and 16%, respectively. The mix of credits of on-credit to collect-and-pay customers remained stable. I know many of you are curious, and I've received many questions on this in individual conversations to understand the nature of this business. And I do want to make a few comments on the nature of our on-credit business in general staffing. Number one, I just want to say that multinational companies and ET 500 domestic customers contribute about 95% of our revenues of our on-credit revenues. The customers have been very sticky here. The average tenure of customers is about 5 years for on-credit versus for collect-and-pay where it's more about 3 years. And the average service fee per associate from on-credit customers is actually a significant premium to collect-and-pay customers. In fact, much, much more than justifying the additional working capital locked into the space. We've had no cases of bad debt from these customers through the COVID period. And we don't consider there to be any credit risk at this time. I do hope that this addresses any questions you have on this segment. Moving away from the on-credit segment, I'm also happy to report that GS has acquired about 24 new customers in Q1. While it is very difficult to forecast even the next few weeks, we are hopeful that the headcount reductions will start to turn as we enter the festive season. And we're hoping anytime now that the button will be pressed on hiring at some of the new customers we've acquired. But that depends a little bit on the pace of lockdown and how COVID and how the economy responds. In IT staffing, our domestic business for the headcount being down about 7%. The dip was attributable to the low-margin BPO and Telecom segments where we saw big dips, but partly compensated through the acquisition of newer, high-margin customers, where our focus on digital skills has -- is actually beginning to pay off. And we reduced cost to serve by digitizing the back-end processes, introducing RPAs, automating compliance, changing our recruiting channel mix, paperless onboarding, helping us, therefore, by and large, keep the domestic IT services business on pre-COVID business plan. So it's by and large on the pre-COVID business trajectory as are, by the way, our Singapore and Middle East businesses. Coming the training and skill development business, the revenues fell by 93% due to lockdown of training facilities. The government has committed to covering our fixed costs on the DDU-GKY program in this period. But we haven't provisioned for that yet. Instead, we've expensed the cost of running the business in this time. So as and when -- if and when the government does return that money, there will be an upside that you should see on this. And we hope that this business will progressively start operations in some states by mid-August, subject to, of course, state-wise clearances. And I'd like to say that, in the meantime, we're making some good progress in our B2B business development, and we're starting to see a nice funnel developing, and we hope revenues from that segment will also start soon. Moving on from WFM to our Operating Asset Management platform, I'll start with facilities management as a business. The Q1 revenues fell by about 13% versus the last quarter -- versus the last year. About 7 percentage points of the drop -- of this drop in 13% versus Q1 '20 was actually attributable to the food business, where we saw about -- our revenue is about half in the quarter with an EBITDA impact of INR 3 crores. And this is largely due to the closure of education institutions and offices. The housekeeping front itself has seen -- the IT services sector take quite a big hit of around 20% owing to work from home. But the manufacturing BFSI infrastructure verticals have seen revenues for the month of June almost start to come back towards pre-COVID levels. This business also have been, and I would say, has done a -- has been very aggressive in upgrading its channel operating practices, service lines to protect our customers and their employees from COVID, has made some very good progress in introducing new clients. So we've had about 75 new logos introduced in sterifumigation. The traditional business saw about 18 new logos being won in Q1. And we will continue to focus hard on accelerating new logo acquisition. We do think that the impending flight to quality in this market will open up opportunities for us, although we are seeing stiffer price competition in the short term, especially as our customers move to reduce their SG&A costs. Moving on to Terrier. During the quarter, we completed our cash neutral increase of stake to 74%, allowing us better control and integration. Terrier is a nationwide security provider with a combination of man guarding and electronic security solutions. This business manages about 1,900 sites across India with significant technology solution capabilities in Terrier electronic security services, which conducts thermal imaging, for example, we have secured our touch-free access control system deployed at many of our customers, and we have our own command center with a remote monitoring system. After a brief uptick at the beginning of the COVID period, this business also faced a downsizing pressure, especially in IT services, which account for about 1/3 of its revenues. And this is because I think night shifts have been less manned, security guards on transportation are not needed in this period. So the revenues were down about 4% year-on-year for Terrier. Again, we've not lost any customers per se. So we expect the numbers to bounce back as workers return to offices. And the team is driving new sales aggressively, especially man tech combined deals. They're focusing very hard on improving the underlying operating processes and performance and digitizing our workforce. So that's on Terrier. The third component of Operating Assets is industrial, where revenues were down about 21.4% quarter-on-quarter, largely due to continued demobilization in metal, cement and captive power, where we've seen scaled down operations and some delayed capital expenditure. However, with the gradual restart of the economy, we're starting to see some renewed activity, and we do hope the coming months will be better. The team has used this time to drive collections, digitize our end-to-end hiring process and workforce management. And we've been driving a very focused program to cross-sell non-O&M services to industrial clients, which is showing early signs of progress. Before I move on from OAM -- from the Operating Asset Management platform to the Global Technology Services platform, I would like to say that we are very optimistic about the medium-term prospects of the Operating Asset Management platform. Across service lines, we do anticipate that as we speak to customers who are working with maybe smaller players with not as mature operating procedures, not as digitized processes and not as strong balance sheets, we do see more and more customers coming to us and seeing that difference. And we anticipate that as people start to focus on regrowth as the economy turns, we do think that the flight to quality will play into our favor. Coming on to our third platform, Global Technology Solutions. Our IT business has had its best quarter yet from an operating perspective. In addition to the 6 contracts we signed in Q4, we signed another 5 contracts in the U.S. in Q1. The Canadian business witnessed softness on account of work-from-home restrictions in the government segment. But here, too, we've seen good momentum with 9 contracts signed in Q1. And our go-to-market integration here under one Quess GTS brand is largely complete, increasing our sales momentum across IT and BPM services. On the BPM side, Conneqt and Allsec together saw their revenues fall by about 4.3% year-on-year and about 22% quarter-on-quarter, driven mainly by a drop in the domestic CLM business, partly offset by expansion in volumes in the HRO business, which has stood very robust and a more rapid recovery in our international CLM business. So going into this a little bit, Conneqt revenues fell by about 25% versus Q4 in Q1. The EBITDA decline was less pronounced because many of our clients, and this is again maybe allude to the quality of our clients, many of our clients paid minimum guarantees during the lockdown and the team carried out some extensive cost reduction measures, such as seat consolidation and indirect cost optimization. We are proud to say that Conneqt was the fastest in the domestic industry to enable work from home, moving about 10,000 systems home over the period. Allsec's revenues fell by about 10.5% versus Q4, with most of the impact in the CLM business. Specific on the Allsec HRO business, it may interest you to know that on a same customer basis, the total number of payslips processed per month in India fell by about only 4% between March and June, on a base of maybe 7 lakh payslips. So it shows that maybe so far in the formal sector, the loss in employment has not been as high as many fear. The largest drops we've seen, again, are in BFSI and Retail/FMCG. And we've actually seen an increase in IT/ITES and in e-commerce. Overall, Allsec is bouncing back faster than Conneqt to pre-COVID performance, given the all-weather nature of HRO and the quicker recovery of volumes in the international markets. I'll quickly cover Monster and DigiCare. Monster has had a difficult quarter, I would say. Search volumes are down over 50% quarter-on-quarter. Sales volumes are under pressure because, I think, the recruiter segment is seeing their own recruitment needs go down dramatically. So especially small recruitment firms are slower to renew. Enterprises are renewing in smaller quantities. The EBITDA performance in this quarter has been well within the previous guidance. We've actually had a slight positive EBITDA in Monster due to saving of promotion expenses. And given the improved product performance, renewed recruiter enthusiasm, the operational tightness in this business, our focus is really now on driving sales and improving market share this difficult market condition, notwithstanding. And we are hopeful that as we come out of the economic downturn, we'll come out with all guns blazing. QDigi, despite the disruptions early in the quarter where we lost 2 months of revenue completely -- well, a little bit more than 2 months of revenue completely, our volumes have recovered to almost 100% in June, setting us up, hopefully, for the upcoming peak season despite intermittent lockdowns which obviously will play a role, and we have to see how those play out. The new business pipeline at QDigi is stronger than ever. That was a little bit my update on the businesses. Before I close, I want to explicitly call out our increased focus on digitization. Q1 saw acceleration of our adoption of technology, be it in automation, digital invoicing, touchless attendance. We drove adoption of InEDGE, our workforce management app. It used to have about 118,000 MAUs in March. It's now at 186,000 MAUs. We've technology-enabled our recruitment with a very disruptive proprietary ATS platform that we've put in place in across 5 of our businesses already. And we've delivered a lot of superior services to our customers using Secure and other digital tools in the pipeline. And while these tools are primarily focused on improving productivity, they've also been powerful platforms for extending benefit to our associates such as telemedicine, access to finance, et cetera. I'd also like you to know we're about to start the process of upgrading to SAP HANA, which will progressively put our businesses on a single platform, both simplifying how we work and driving better uniformity in our processes. I would like to close now as I opened by thanking you for our support and for being here today. We are excited about creating an enduring institution and a platform that drives our client productivity. And I want to assure you that as our society bounces back from this sad period, Quess is well positioned to disproportionately benefit given our sales capabilities, the high-quality customer base, flexible business models, tech care execution, scale and staying power to meet our OCF and ROE targets. Together, we will emerge stronger and more resilient, winning as a company, as a society and as a nation. With this, I'd like to maybe hand over back to Abhijit to take questions and answers. Thank you. Thank you very much.

[Operator Instructions] The first question is from the line of Nitin Padmanabhan from Investec.

I think the quarter has been quite an effort in terms of the cost -- the focus on cost and the customer wins, and congratulations for that.

Thank you.

And I primarily have 2 questions. One is, from a revenue perspective, how much of the revenue decline during this quarter was primarily due to shutdowns or, let's say, due to inability to even operate business that could just bounce back quickly? So that was the first. And the second is on the cost savings that we have had, I think there is an element of -- quite an element of permanent cost savings. I think you alluded to 35% drop in real estate footprint and so on and so forth. So when we think about a recovery, do we think about the business bouncing back with higher margins or do we think about you focusing on using these savings to drive market share and then assume higher growth versus the margin expansion? So those were the 2 questions.

Those are great questions, Nitin. Thank you for asking them. So on the first question on revenue, the bulk of the revenue decline was due to the fall in headcount numbers in GS, in Conneqt and in facilities management and training. So training would probably be about INR 50 crores or so, I think, over the quarter, right? So it really is headcount. And so I think to get the revenue back to the pre-COVID numbers, we have to work on our overall headcount and activity. I think the EBITDA will bounce back faster as these businesses get back up and running. I hope that answers that question. The second one on permanent cost savings and how we think about it. I think that -- I would -- what we are aspiring to do is to come out of this episode as a fitter business with better margins. And we do want to keep that fitness in place, and we will keep some of this cost-saving in place. I do suspect in the short term, as you alluded, we will end up giving some of this margin in a slightly more -- because the market has become a bit more price-sensitive in this quarter and we may have to give a fair amount of that away in the short term. But certainly, in the long run, as we think about this, we want to come out as a healthier margin business, and that's really where the focus is going to be. And it's not just -- I think the way we are saving cost is not just on margins, it's also just adding agility to our business, Nitin. It's about just taking out unnecessary manual interventions, putting in place flow-throughs where we can and just making it a higher quality operation. That's also very important to us.

Sure. That's helpful. Just on the first question that I asked, what I was alluding to was the onetime kind of impacts, like just as you alluded to training, I think we had a fair bit of impact because of closures on, let's say, catering or the food business, for instance, DigiCare, for instance. So if you were to put all those together, what proportion of the total revenue would be just a straight bounce back as economic activity picks up? That's what I was alluding to.

No, I understand. I'll -- see, I think that if you take the DigiCare and the training skill development businesses together, right, there are about INR 100 crores of top line or so per quarter, right, which is really not going to make a dent in the total sort of, let's say, the pre run rate of about INR 3,000 crores. So really kind of what we need to do is, is work back our headcount in GS, in housekeeping and in -- it really is a headcount game, Nitin.

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

My first question is to Guru or Lohit. In a situation like this, where enterprises have a laser-sharp focus on cutting costs to the extent possible and government may actually go a little easy on the compliance part to ensure that businesses don't go bankrupt and people don't stay unemployed, so don't you see this construct to be very conducive for the reverse shift of market share from organized players like Quess to unorganized vendors? If not a major shift of market share, at least couldn't they translate into pressure on markups for organized vendors?

Lohit, you are taking this?

Am I audible?

Just one question Guru before you start off, I think it's a hypothetical situation that in the event that the government does this. So in the event that the government allows a more lenient system, we will react accordingly. But as of now, I don't think that exists. So I think it's a hypothetical situation, so it's difficult to conjure an effective answer to that right now.

So with -- okay, just to add some perspective to this, Sudheer, also this time has tested a lot of thesis during this last 3 months, right? So it also depends on the kind of capability and the ability of partners. So the local partner, the consolidation has to happen. So that is something that somewhere we are witnessing as we are moving -- as we are hearing from the market and the discussions that are happening. So I mean we would rather see more consolidation that would happen with the larger and organized players. So that is something that would happen in this space. Coming back to compliances, while there could be some relaxation on the delayed remittances and et cetera, but the rules to be followed would not change. Those would be much tighter, and they would actually get much tighter than where it is with the kind of digitization that is happening from the authorities as well. So we are not witnessing, I think, the reverse migration on this front.

Sure. That's very helpful. And my second question is that most of the large IT companies have been very vocal pertinent of using this hybrid workplace model, where a part of the workforce may permanently remain at home. In fact, it seems to have benefited reasonably due to subpar facility expenses this time around. So since IT sector contributes almost 1/5 of our revenue for facilities and security services, any thoughts on what kind of permanent hit these businesses will see if such a structural shift happens in the way people work?

So look, I mean, I think at this point, we're seeing 2 countervailing forces. I think we're seeing some clients talk about shifting to work from -- some companies talk about shifting to work from home and the hybrid model. I think we are seeing others in the Silicon Valley and elsewhere, say we want to get back to work because being at work is an important element of our culture. And therefore, I can tell you what -- at this point, we have not had an ITES client come and tell us they want to decommission a building permanently. I think they -- we would be foolish not to anticipate some of it happening, which is why we're going out -- all out on sales as well, Sudheer, and strengthening a little bit our focus on industrials as well. But as of now, it's -- we've not -- we're not seeing that in terms of -- how do I put this, in terms of how customers are commissioning us or decommissioning us.

[Operator Instructions] The next question is from the line of Aditya Bagul from Axis Capital.

Congratulations on great balance sheet and cash flow management. So I had 2 questions. First is just taking on further from where Sudheer left off, how is -- how are our interactions with our key customers going? I mean, what is the kind of reduction or otherwise that they are talking in terms of their temporary staffing needs, at least for FY '21? If you could shed probably some color on that, that would be helpful. Also, from a very near-term perspective, if you could highlight how the month of July has gone? And now that we are in the last week, you would have some sense on August as well. So a little bit on that would be helpful.

Lohit, why don't you take the question how interaction with customers are going?

Sure. Am I audible?

Yes.

Yes.

Okay. Aditya, I think you have a fair point in terms of what the customers are talking about. We wouldn't call it so much as about downsizing as we would call it about rightsizing. I think in the last 100 days, a majority of clients looking at which sector they belong to and whether they were fully impacted by lockdown? Were they partially impacted by lockdown? Or were they not at all impacted by lockdown or rather positively impacted by lockdown? Every customer has had a different trajectory. Barring the Telecom and the e-com where we saw business as usual and maybe even increase in certain pockets, almost all the other sectors have had a rightsizing. I can give you an analysis that for every 1 customer in 2, there was a rightsizing which happened while at the same time in the last 100 days for every 1 customer in 9 only added to the headcount. So if you really see it from the number of declines to the number of increases, the number of clients declining headcount far outstripped. But to more specifically answer your question, I think broadly, the rightsizing has been in the tune of between 5% to 15% and which is what is the blended number which is visible on the WFM platform, which is overall down by about 38,000 or about 14.5% that Suraj opened his commentary with. Going forward in the next 3 quarters, I think the clients are looking at the scenarios as keenly as each one of you, and we are watching out for. One, I would say that a lot of planned downsizing and rightsizing is possibly in a manner of speaking behind us, but for the fact that we may have still some more states or cities going in for extended lockdown. We don't know the color of Unlock 3.0 that the government announces and it will depend on that and some sectors are not yet functional because of that. So I think we'll have to watch how the government allows more unlocking or whether any further lockdown does not happen. We must also spend a minute to understand that we are headed towards -- we are weeks away from what is otherwise India's start-up season. And as August and September comes in, there are more and more clients which start to give orders in terms of hiring positions. If I were to, because you specifically asked how do we evaluate July, I think where we were in June versus where we are in July, we are looking at about 2x growth in new open mandates, July over June. But this is still about 60% of pre-COVID times. So are we getting there in terms of more clients adding to new orders? Yes, the answer is yes. But is it broad-based enough for us to say that the problem is completely behind us and everyone is coming with new POs? I think there is a few more weeks of wait and watch as far as that is concerned.

Okay. So as I understand what we're trying to say is that July, possibly August is likely to be a little soft but all the client wins that we've had in the last few months are likely to have a back-ended addition in terms of workforce management, especially towards maybe Diwali or later on in the year. Is that a fair assessment?

It is a fair assessment, like Suraj also mentioned that overall, at an org level, we added around 200 customers and at a WFM or a GS specific, we added about 24 customers. But most of these came with very small values of POs, obviously, for the right reasons. However, if we see the commentary of Indian industry itself going into Q2, most of Indian industry has been saying that they are expecting better revenues going forward into Q2 and Q3. And we must accept the fact that people come before revenues do. You have to get the workforce to start getting those revenues. So with fingers crossed, hopefully festival 2020 does take away some part of this COVID and then we are better placed.

Great. Understood, Lohit. Sir, my second question, Ajit, sir, and Suraj is to you, right. We've had a reasonably good mix of WFM, OAM and tech platforms, right, at 60-20-20 sort of a revenue mix. Considering where we want to get in terms of ROEs, cash flows, do you think we are at the optimum mix or do you think that the mix is likely to change? And a corollary to that question is within these 3 platforms, what is the sort of a steady-state sort of a margin level that you would envisage?

So I think that at this point, what we've got to get to is we want to get to better growth on the latter 2 platforms. I think the WFM platform has grown well the last couple of years. We want OAM and we want GTS to also kind of grow at that same pace because that just helps us keep the EBITDA profile the same, right? So I think we -- I don't think we see at this point, the mix changing dramatically right now, Aditya. I think what we would like to do is see the EBITDA margins nudge up over time as we digitize better than kind of get more -- get better at solution selling. But also that's going to be an over time thing. I think in the short term, the margin pressures are real in some of our segments because our customers are facing real economic pressures, too. So I think in the short term, it will stay muted is my sense. And over time, it will go up, it should go up.

Okay. Sorry. I think I'll sort of rephrase my question. The way we expect our margin trajectory to go, especially with our target of 20% ROE. If we were to sort of change the mix towards tech and OAM, we will see a natural improvement in terms of margin purely on account of change in mix.

That's right.

I just wanted to understand how much of what we are building into depends upon this mix change.

So are you asking, will the mix change?

No, I'm asking...

Same as WFM, if you penetrate this more will be building much faster in terms of...

Yes. No. So at this point, if you look at our internal goals, I think we're trying to grow all the platforms. And we want to grow IFM slightly faster than the blend. But I don't think the mix will change dramatically in the medium-term, Aditya, because I think you can't hold GS back.

Okay. Understood. Understood. Maybe I'll take it off-line later.

Cool. Okay.

The next question is from the line of [ Amar Mourya ] from AlfAccurate Advisors.

First question is, in our WFM business, how the Comtel and Magna profitability and revenue would have behaved in this quarter?

Comtel INR 130 crores for the quarter...

Comtel for the profitability.

Comtel and Magna, both, if you can combined that also will be good.

Yes, so Comtel was about INR 132-odd crores of revenue and profitability is about close to 17 -- about INR 18-odd crores on Comtel. And Magna, the profitability is more in the range of about -- for the quarter is 5 point -- around INR 5.5 crores, INR 6 crores.

INR 5.5 crores, INR 6 crores.

Okay. And the revenue of Magna would be?

Ballpark.

Revenue of Magna in the quarter, it's here.

About INR 130 crores, INR 140 crores.

Yes, INR 130 crores.

INR 130 crores.

This is operating EBITDA, not Ind AS EBITDA.

Okay. These are operating EBITDA.

Right.

So then, sir, basically, then you're saying that INR 260 crore, so overall GTS revenue is INR 260 crores, correct? In workforce management, the GTS part would be INR 260 crores, correct?

So GTS is a separate platform. You mean IT staffing?

Yes, IT staffing, yes.

So that will be about...

IT staffing is Comtel and Magna?

Comtel and Magna.

INR 17 crores to sum of it about INR 6 crores, INR 23 crores.

Yes, that's right. That's about INR 260 crores, yes, INR 265 crores of revenue.

Yes. So INR 265 crores of revenue, then what I'm trying to understand here is that I think at EBITDA level, then it would have reported loss, right?

It reported loss. That's what we're trying to tell you. The EBITDA of both Comtel and Magna put together is about close to INR 23 crores, which is what I think we alluded to Ind AS impact.

And with Ind AS how much it would be, sir?

I'm talking about the reported numbers only, INR 23 crores, that there is hardly any Ind AS impact. So the operational Ind AS will be the same.

So that means your core people and service business basically would have reported significant decline. So last year, it was INR 74 crores core people and services business, EBITDA versus this year, it would be only INR 37 crore is it?

I don't know where you got the INR 74 crore number from. Should we just take this off-line, Amar, we can go through your numbers and understand kind of how you're calculating them?

So basically, the only one question was on the core people and services business, excluding IT segment I'm talking about.

General staffing.

General staffing.

Yes, on the general staffing.

Okay.

So how are the margins in the first quarter? And how do you see that over next 3, 4 quarters?

Lohit, do you want to answer that?

The general staffing -- Amar, I'll come in, this is Lohit there. The general staffing against last year has seen -- for the same quarter has seen about close to 3.5%, 4% expansion at an EBITDA level. And on a sequential basis against last quarter, about 2%, 2.5% decline against Q4. However, I think your confusion lies in the fact that you're not adding the Excelus business which is a negative INR 21 crore change from last year when they were operating to this year when they are completely in shutdown mode. So I think when you factor for that, I think that's where the differentiation is coming. The second business which would have moved in the WFM platform from a positive EBITDA same quarter last year to this time would be the selection and the search business, which in the opening commentary Suraj had alluded to, that we have rightsized and downsized that business. We've kept about 80% of the revenues in the customers. And merged it with a larger business of ours, which is Quess IT staffing. So I think if you want to compare across platforms, which were there last year under people and services and this year's platform, which is WFM, you'll have to, obviously, look at the papers separately, we can take it off-line or Ramki can send it across to you. But from an answer perspective, I think if you want to know, has GS seen a shrinkage? The answer is no.

It is about flat.

Okay, great.

Yes. And just to give you a little comfort, I think, primarily, what has happened is while the headcount has shrunk, what Ajit and Suraj opened with was about the measures that we took on the cost control. A lot of our work on the cost control has been able to allow us to meet at least the EBITDA number very flattish, irrespective of the decline of about 14% headcount.

Great. If I can squeeze one second question on the outlook on this segment. If it's possible for you to -- how do you see the outlook in terms of the manpower in of G&S (sic) [ GS ] segment? And secondly, you talked about some pricing pressure. So even in this segment, do you see pricing pressure or you think these are sustainable margins?

So look, let me answer the first one. I think across the business, the outlook -- across all of our segments, Amar, as you'll probably appreciate, and I'm sure you've heard from other business people and in your own models are factoring in, it's difficult to say, right? I think that we're hoping we're close to the bottom or maybe even beyond the bottom, but week-on-week the sentiment of the business community seems to be changing. So we are focusing, at this point, on acquiring new customers, expanding our base so that as and when the rehiring happens, we're in a good position to benefit from it. But it is very difficult to tell you what this quarter will look like, as you will understand. Your second question is on pricing. Maybe, Lohit, you can take the question on pricing.

So to give you a flavor on this, as Guru also mentioned in his comment a little while back, you would realize that there is a pricing pressure in the market and the customers have come for a discount during this period. While we have agreed to some of this discount, it has a sunset clause to it. So in the coming months or in the coming quarters, that discount which is offered as a COVID discount, as a lockdown discount will come to end in itself. That's number one. 1/3 of the pressure the business has seen from a margin perspective is because of the discounting. 2/3 has happened because of reasons that no sales happening, and hence, no value-added sales projects, InEDGE, sourcing, some of that value-added segment of earnings for the business has been eradicated in this 100-odd days. However, you would also remember that Suraj did mention that our businesses outside of India in the WFMS platform, whether it's the APAC, Comtel as well as the Middle East are going as business as usual. They have been performing even on FY '21 trajectory, which was business plan we made back in January pre-COVID days. While Magna is doing better than last year, and we continue to see strengthening of Magna assets, General Staffing is predominantly a headcount thing. I think we have been able to protect our downside on General Staffing fairly well as far as the headcount is concerned. And with the cost initiatives and measures, we've also been able to protect ourselves on the profitability and EBITDA front. We are far stronger in the recovery and the rebuild period than any other partner, local or national, available to a customer today when the rebuild happens. And the rebuild as India is saying can be U-shaped, W-shaped, bathtub shaped, V-shaped, J-shaped, any shape. I think if you expect as a customer to recover, most often than not the conversations would happen with the Quess staffing team. So that's where our sales team is concentrating, and we are confident that we'll be partnering with the clients, both existing as well as new.

Great, sir. Wish you all the best, and commendable performance. So congratulations to the entire team.

Thank you. Thank you, Amar.

[Operator Instructions] The next question is from the line of Keshav Garg from Counter Cyclical Investments.

Sir, wanted to understand about our subsidiary Allsec Technologies. Sir, like you mentioned that the HRO segment has done really well. Sir, so going forward, sir, when do you expect the company to achieve pre-COVID level? And from -- and also, where do you see growth coming from?

You mean in Allsec specifically?

Yes, yes, sir.

Got it. So Allsec has been a very resilient business for us. It's got 2 components, Keshav. About half of its EBITDA comes from HRO and about half comes from CLM. Now the CLM part of that business is mostly international customers, and they deliver out of Manila and India, both. Okay. That's a little bit the makeup of the business. The HRO business is, again, largely domestic with a small international component. It's kind of -- the HRO business has actually been -- it's been very steady. It's actually -- in this quarter, we've had some transitions that are also coming through. So it should see growth even in this time. So that part of the business will be fine. I think the CLM business actually got hit first in March. You would recall our March results around GTS were a little bit muted because Manila got hit first around the 15th of March. In fact, we -- I think part of the reason why we responded so quickly in India on the CLM business was because we learned from that part of the business. Now the international business has also bounced back faster. Partly because I think the U.S. markets, our customers there have been more resilient. The economy has been a bit more resilient. I think partly because we were able to get the Manila facility up and running faster. So we should be up to pre-COVID levels, I think, by the end of this quarter if there's nothing unforeseen on that front.

Okay, sir. And also, sir, this company has around over INR 160 crore of net cash. Sir, so what's the idea going forward, sir, any share buyback or then acquisition?

Look, I think we've -- we're not looking to make any huge acquisitions right now. I think at this time, we are looking at all the options to figure out what is the right way to use that cash, I think we've taken nothing off the table. And when -- as and when we have plans, we will update you on this, Keshav. But as of now, no concrete plans. A part of it is lying in Manila, part of it's lying in the U.S. So we're also trying to figure out what is the most efficient way...

And India also.

And a part in India. So we're trying to figure out what's the most efficient way to use it in our shareholders' interest.

The next question is from the line of Alok Deshpande from Edelweiss.

A couple of questions. First on general staffing. You mentioned that the focus has been on adding customers and you have indeed added quite a few customers this quarter. Just wanted to understand when the customers -- I mean, this customer addition, is it largely a switch for a customer from some other vendor to you? Or are there any customers which are sort of altogether new which are sort of changing from a -- sort of a fixed employee model to a variable employee model? And what is the sort of value or a offering that we are offering to a customer in this tough environment that is really making customers switch?

Great question. Lohit, why don't you start.

Yes. I think you kind of alluded to the answers in your question itself. Quess staffing has always been a attractive proposition to clients across the country because of our reach, our compliance, our treasury operations, our scale, our bandwidth. One of the advantage, if I can use the word, and I don't want to necessarily use that word generally when a pandemic is going, but just to explain, I'm using that. One of the advantage a company like us sees is we are the newest kid on the block even today when you look at us we're just 12 years old. So in the last 12 years, there would have been opportunities of working with clients that necessarily would not have come to us because they would have been working with other regional, local partners or they would have been working with a multitude of companies. And when a pandemic like this comes or a shock like this comes, I think customers evaluate relationships greatly. The fact that most of the meltdown has not happened to a Quess' portfolio is because our customers have realized that Quess has come forward with every support that is necessary during this period of 100 days, looking after our associates, looking after the clients, being compliant, ensuring that the wages, salaries, everything is going on time. But that may or may not necessarily have been the experience of the customers with rest of the market. So when they relook at a rebuild period, I think one of the other questions which comes in everybody's mind is, were we working with the best-in-class? Or can we better ourselves now that we have a choice to restart again? So one of the cases is transitions -- an ability to transition contracts because of that. The second is what you rightly said, every time there is a shock in the world and you can go back -- I mean India will not give you those answers. But if you look at the globally listed staffing companies and compare to 1999, 2000 as a base and the shock of 2004, 2007 and 2009 onwards, you will realize that every time there's been a shock anywhere in the world, disproportionately thereafter when the economy rises, staffing does better and people do try to arbitrage fixed cost of employment with a more variabilization of employment, which is outsourcing. See also the third factor, which is very, very essential for a Quess is back in Q4 of last financial year itself, we had started saying that strategically as an organization, we are now selling solutions which cut across platforms to answer a question for a customer to achieve a result or an outcome. And I think some of the results that will be seen in the coming months and in the coming quarters will be related to that. Today, the customer sees that there is an ability for Quess to work in service lines which cut across this beyond just one category of service, and that's very, very unique to the mix that Quess offers and no other partner offers that. So some of the conversations are because of that. I think it's a combination of each of these.

Thanks, Lohit. Just maybe, Alok, stepping back a little bit. I just want to talk about -- I'm just reflecting on the last few customer conversations I've had. I think there are 3 categories of conversations we're having with customers at this point. One is a variablized conversation where customers are saying, look, I've currently got -- I'll give you an example, in retail, if people now want to stay open -- if they want to keep a store open for longer because that's the only way they can keep same-store productivity up. They can't afford to staff 2 shifts. So they actually need to think about how they overlap people better, how they combine different roles in different ways. And they come to us asking how can they variablize and variabilization has become an important conversation with many clients. I think our second reason customers are coming to us is to virtualize. And I'll give you a couple of examples. I think our conversations on F&A outsourcing in our BPM business have gone up. I think Indian customers traditionally have not really been looking at it that much, but now they say, well, we've got to get our costs down. Anyway, people are working from home, so why can't we just outsource people to a different location? So F&A has been one virtualization conversation. A second virtualization conversation has been around sales force. So a lot of FMCG companies are talking to us saying, historically, they have had feet on the street, pushing merchandising and sales to kiranas. They -- some of them are looking at, can we do this now through an inside sales model rather than -- so kind of getting people off the street into the call center. So that's the second, variablize, virtualize. I think the third is really around productivity and technology enablement. And this comes down to in general staffing. Like Lohit said, can we use the fact that we have a workforce management app in the hands of 180,000 people. Can we use that to drive their productivity, drive their tasks harder. We're having more conversations with customers. Today, we are on the phone with a customer saying in facilities and security, how much productivity can we get out for them if we put in place technology, digitization, central monitoring and so on and so forth. There's a lot of conversations around that. I think where the pandemic has sort of pushed people hard is to say, how do they -- how do businesses change their operating models to get better productivity out of their people, and a lot of that is playing in our medium-term favor, although in the short term, it translates into pricing pressure, right, and headcount reductions. I think in the medium term, it's just going to make India a lot more sophisticated about how we think about some of the -- how we kind of put gray collar labor to work.

Sure. Understood. Just one more question. I just want to dig a little deeper in the facility management. A question for Guru. We are still sort of grappling with how that space is panning out because anecdotally, when you think about it, you would be having more housekeeping people in any commercial building, right? So more people for frequently cleaning, et cetera. But I think in the short term, I think there will be a lot of people who will be cutting out or cutting down on that headcount. But structurally, do you see that there will be more number of people per site after this immediate term?

Good question. So okay, I'll take this in 2 parts. So one is a couple of things. In commercial establishment, as you said, initial days, there were multiple jobs done by the same associate. For example, earlier, it used to be a basic cleaning then from there, it has gone into an intensified cleaning, right? So a number of activities are increasing -- number of activities that we do at a site are increasing. Because sites are not completely operational, the strength for the time being are -- either it is 1/2 or 1/4 so depending upon the site operations. So that is very interim, that I would say. And I mean then coming back to the point that a lot of automation is going to play again in this particular space. That how many -- I mean, what is going to be the ratio between the square feet to number of people deployed versus how much of automation that we can bring in to see the kind of the efficiency even in cleaning can get better. So that is where the play is going to be. So if you ask me, will -- would people deployment reduce drastically? I mean, at the moment, we don't see that happening. But bringing in automations because the -- I mean, it also means the type of mindset and the contract, everything has to change. So the mindset have to change. And the kind of structure that we have on the contracts have to change. So that's where the discussion is going through that. How much of automation we can bring in, who's going to bear the CapEx up? And how is it going to be an asset-light model? So this is exactly what we are working on. And to reinforce more on bringing in UV cleaning equipment. So those kind of discussions are in very advanced stage with customers and with few pilots that we have already started. So probably, I think we -- when we discuss in couple of quarters down the line, we will clearly have a visibility on the -- on this to say that what percentage of people and what percentage of equipment is going to play. But definitely, there are discussion happening on that front.

Yes. But Guru, whichever way you look at it, do you foresee your per square feet pricing going up eventually? I mean, whether it's through more people or whether through more automation? I think if your activities are going to intensify and they're going to remain a little intensified for probably a year or a couple of years, then the per square feet pricing, whichever way through people or automation should be higher, right?

So honestly speaking, I think what will happen is the cost pressure is going to play, and we'll have to see how to reduce cost to serve, right? So that is something that we'll have to be mindful about in any of our service lines. So I think which is where we are working on the cost side and bringing in. So player like us will be able to integrate -- provide an integrated solution faster, which is what Suraj and Lohit were talking about to see. How that -- I mean, the conversations that are happening in past with most of the customers is to see that how can we become an integrated player starting from GS to FMS to security where the overhead cost if a customer is today is dealing with multiple partners, dealing with 1 will bring in definitely cost efficiency in terms of the overhead that will be deployed to manage those set of people. So in nutshell, I think that there is going to be a pressure on the per square feet. And by integrating, we'll only be able to pass on those benefits back and continue to gain more market share.

Let me give you an example, Alok, of what we mean by multi-stack, right? For a retail -- one of our retail clients, the conversation we're having is, can we have a person who's cleaning, for example, doing a bit of wiping during off-peak hours also then be a salesperson at the -- till -- during on-peak hours. Like can you actually get people multi-skilled so you're able to get more productivity out of them while not taking the cost up much. So I think we have to find creative ways out for our customers because they're looking for them now.

The next question is from the line of Mythili Balakrishnan from New Mark Capital.

I had a couple of questions. Firstly, on the General Staffing business, which is that if you look at our headcount, it's only down around 15%, but revenues for the quarter are down 22%. So is this something that we should expect going ahead as well where the decline in revenues will be faster than the decline in headcount?

So I think the -- I mean, Lohit can add, but the key reason here is that Q4 saw a lot of incentives being paid. And therefore, the revenue per employee has actually gone down in Q1 because the incentives have actually come out. Number two, some customers in this time have actually moved to paying on actual attendance rather than for the full month. And so some employees have not gotten full salaries in some months where there's an absenteeism. So those are the 2 things that have played in Q1. It shouldn't fall further, Mythili, at this point. But this is partly offset by -- at some customers, for instance, as they reduce headcount, they're reducing the more junior people or the least experienced people. So that's a bit of a countervailing force also on the per associate salary. So we think they should flatten out now. I don't know, Lohit, if you have anything to add?

No, absolutely perfect, Suraj, you've answered it well.

Thank you.

My other question was on revs in terms of customer business has been where they are we are seeing, especially just in terms of payments from certain customers in Telecom. So I just wanted to get your sense on how are you sort of thinking about that? And how do you sort of factor that in when you are dealing with these customers?

So we're keeping a very, very close eye on collections at this point. I think Guru reviews every business every week by customer. I review every business every 2 weeks by customer. So I think we have a very good sense of where things are going slow and where things are not. At this point, I think we are feeling -- we're not concerned about defaults in any particular part of the business or any -- there's nothing that keeps us awake, Mythili. But we're -- you should know we're really kind of close to this, and we are staying close to it. And by and large, our collections performance has been in some months...

No, it has been outstanding. For this -- I think in this environment, I think it's pretty much -- quite good. My last question was on OCF, which is that is there any one-off in this particular quarter that has been such a significant improvement in terms of either a refund or any such item?

I mean, payments are due. And so we have refund of about INR 36-odd crores during the quarter. And so that's one thing which is included in the INR 148 crores, which you see.

And there would be some working capital release due to the...

Yes, so there is also working capital release of close to about INR 55-odd crores. And also, which is from the business as the business shrunk a bit. And the third one is in terms of normal movement between receivables and payables, if you see that itself accounts for another about INR 57-odd crores. So those 3 put up together, it's about INR 148 crores.

Got it. And what will be the contribution of Terrier in the quarter? Just to get a sense because this is the first time that it would be properly appearing in the OAM revenues, right?

Yes. So I think Terrier, there are 2 folds to it in the financials. Terrier is appearing as up to May, there is a share of loss. That's about close to INR 8.4-odd crores. And starting June 1, it's become a subsidiary. Wherein there was about INR 2.23 crores of EBITDA for the month of June, which got added back to our EBITDA line.

Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to Mr. Ajit Isaac, Chairman and Managing Director, for closing comments.

Thank you. So this was a quarter in which the economy was shut down for 60 out of 90 days for large parts of our business. So its impact cannot be understated in terms of the circumstances that we were operating in. I hope all of us see better quarters coming up. I want to thank you all for a very participated session and for the many questions that you asked us. I want to tell you that we're taking a long-term view at Quess in many of the decisions which we're taking. We're not -- none of the decisions in the context of the pandemic are short-term in nature. We're focusing on cash, the balance sheet and growing the customer base, as we've mentioned earlier today. Our team and Suraj is working very hard to get to our goal of 20% ROE and a 20% OCF. We thank you for your support and look forward to interacting with you like today in the future, as always. Thank you very much.

Thank you.

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