Quess Corp Limited (QUESS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Quess Corp Limited Q3 FY '21 Earnings Conference Call hosted by IIFL Securities. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhijit Akella from IIFL Securities. Thank you, and over to you, sir.

Yes. Thank you, Janice. Ladies and gentlemen, good morning, and thank you for joining us on the third quarter 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. S. Ramakrishnan, CFO; Mr. S. Guruprasad, COO, India operations. Mr. Lohit Bhatia, President, Workforce Management; and Mr. Pinaki Kar, President, Global Technology Solutions. 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'd now like to hand the call over to Mr. Ramakrishnan to take proceedings forward. Thank you, and over to you, Ramki.

Thank you, Abhijit. Good morning, everyone, and thank you for joining our earnings call today. Please note that the results and the presentation 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's not to 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 morning, and a warm welcome to all of you. We're delighted to share the analysis of our third quarter results, a quarter in which we've turned to become a net cash company from being a net debt company, a quarter in which the company is back to quarter-on-quarter growth, a quarter in which we've been identified as the first company from India to be featured as a top 50 global staffing company. As the headline says, it's a return to growth with rapid debt reduction, and the next quarter is one which you will see us reiterating our commitment to becoming a 20% ROE enterprise. As we get ready to absorb the predicted 11% growth in India for the next fiscal, Quess is preparing to use all our digital assets to leverage this opportunity, along with our physical presence. To talk more about the quarter that went by, we have Suraj Moraje, our group CEO, and it'll be refreshing to hear about the last 3 months and more importantly about, what lies ahead. Over to you, Suraj.

Thanks, Ajit. Good morning, everyone. Thanks for making time to you on this call. We're still in time to wish you a happy new year. So I hope happy new year to all of you. I hope 2021 has kicked off well for you, and you're looking forward to a prosperous and eventful year. Hopefully, a little bit less eventful than 2020 but eventful, nonetheless. After 2 COVID depressed quarters, we're growing again, which is nice. Q3 was a good quarter on several fronts. For one, we achieved a net cash position of INR 26 crores, but Q3 also saw our business revenues grow 7%, EBITDA grow 8%. Our revenues have climbed half the way back to our Q4 high. And if you correct for the INR 29 crore impact of lockdown on our training, skill development and food businesses, our EBITDA is actually flat on a year-on-year basis, which is an accomplishment made possible by our efficiency improvements in the year. The quarter also saw a healthy rebound in the headcount in the general staffing business, up 5% quarter-on-quarter. Our total headcount is back to where we were at the end of Q1, and the GS headcount is actually higher than the end of Q1. Our eyes are now firmly set on building back to our Q4 number. Being in the people business, we take our own people leadership very seriously. And I'm thrilled to see our employees participate in a survey towards the end of 2020 and reaffirm that we are a great place to work. In fact, our Canada business is amongst the 50 greatest places to work in Canada at this point. This is a testament to our vibrant purpose-led culture, and our employment -- and our employee's continued to drive in building an organization that has deep impact on our economy and our society across our platforms. Looking forward, the mood in the company has significantly turned, and our sights are set even more resolutely on the stretch aspiration of achieving 20% ROE by FY '23. Yes, I did say, FY '23, while delivering 20% year-on-year OCF growth. I'd like to focus my commentary today maybe on our progress and path towards achieving this stated aspiration. There are 3 elements in our journey to a 20% ROE, and you'd have seen some of this in our investor presentation that came out last night. The 3 elements are growing EBITDA organically, improving our EBITDA to PBT conversion and ensuring judicious capital allocation. I'll talk about each of these 3 things specifically. First, growing our EBITDA through rapid and organic top line growth. Let me walk you through our main businesses. First, the WFM platform, which has 3 components, general staffing in India and Srilanka, IT staff in India and APAC and training and skill development. I'll talk about within workforce management, general staffing first. I'm glad to share with you, as Ajit just said that we are India's first staffing business to be ranked in the top 50 staffing firms by staffing industry analysts. Kudos to our entire team led by Guruprasad and Lohit for making this happen with the youngest 13-year start-up there is out there, and we're proud of the accomplishments we've had. We are now the market leader in India by a long distance, and we continue to see massive tailwinds in the GS business. We think the new labor laws will improve ease of doing business, provide more impetus to flexible staffing and form and drive formalization. The staffing -- the flexi staffing penetration in India is still less than 50% of that of peer countries, and we think this will correct over the coming years. We continue to strengthen our capabilities in GS through deeper verticalization and digital hire to retire processes. The vigor is continuing to pay off. We acquired 20 new customers in GS in the last quarter with revenues growing 9%. To date, 7 existing customers have more than 5,000 headcount each. We also believe that our customers' increasing desire for flexibility is here to stay. This is something that the COVID pandemic has only accelerated. While there will always be a place for firm and temp labor in the workforce, staff-based work has arrived on the map. And in this regard, we've been running several staff-based staffing pilots at several customers, which are showing encouraging results, both from a quality of delivery and flexibility for customer perspective and from a gross margin perspective. Demand from this industry is strong, and we see a huge opportunity to scale this up. In a sense, as Ajit said, this segment could well be today where the general staffing business was 20 years ago. And we want to make sure that we are playing in this segment and participating fully. As we scale this up, we've therefore increasingly felt the need for a good platform to run the business on, and we're delighted to have just completed a strategic investment with Taskmo, which is a digital major start-up that has been doing some great work in the last 3 years in staff-based staffing. They've built a great platform with a revenue run rate this year that should be in the ballpark of INR 2 crores, and they delivered some great work. The customer testaments and the staff-care testaments are growing. So we really look forward to working with Prashant and Naveen, the co-founder of this business and their team, to accelerate our combined presence in this space. That is on the general staffing business, moving on from there to our IT staffing business, which is the second component of our workforce management platform, present in both India, where we are #1, and Asia Pacific, where we're #1 in Singapore via our subsidiary Comtel. I'll talk first about the Indian business. In the last financial year, we decided to refocus our Indian staffing business from higher-margin digital mandates rather than low-end volume resources, which tend to be not just low margin but also very high efficiency. Our timing could frankly not have been better. The domestic IT staffing business has seen absolute EBITDA and EBITDA margins grow handsomely, with about 1/3 of our headcount now engaged in higher margin areas. We're confident that with growing demand for technology skills, especially around 5G, AI/ML and so on and so forth, both from domestic companies and GICs there'll be continued tailwind in this business. We're very positive about the trajectory of the IT staffing business in India. We've also consolidated our businesses in Singapore and APAC under a single management team, which is allowing much better customer and operational synergies. These businesses remain on our plan to date, and we think that they will continue to grow in the coming years where we're doubling down on some of our investments there. The third part of our workforce management platform is our training and skill development business, also called Excelus. Last year, about 95% of this business' revenues came from B2G government activities. The cash flow of this business has been poor, and we have decided not to pursue new government business. Although it will take us 18 to 24 months to run off the current projects, we do continue to believe that skilling is a huge opportunity for India and a huge gap currently, especially given that there's 1 million unskilled youth coming to our labor market each month. And we think that we have significant assets in this space, including digital content, physical training spaces, qualified teachers. We're therefore pivoting this business towards B2B opportunities. Some of our B2B revenues are now ramping up, and we think B2B will be the main theme of this business going forward. In Q3, specifically, TSE, as you've seen, was deeply impacted by lockdown. However, of 112 centers, 104 are now up and running, with no COVID incidents to date. So the business will improve in Q4, hopefully. Although with new SOPs and distancing norms, it's unlikely to operate at full pre-COVID capacity. So that was the workforce management platform. Let me now move on to our Global Technology Solutions platform. Our GTS platform has grown over a short period of time, and the last quarter was our largest generator of EBITDA. The business comprises 2 BPO assets, and then a third InsureTech platform and a fourth North American IT consulting business. Let me first talk about our BPO assets. The first 2 of these assets is Conneqt, which is a business we acquired from the Tata Group in November 2017. Conneqt is a market leader in the domestic BPO space. About 70% of its revenues comes from CLM, 20% from collections and 10% from SME and back office processes. The business has made great progress since the acquisition, delivering a 16% revenue CAGR, expanding EBITDA margins. The NPS has gone up 3.2x, and top 10 client concentration has come down from 75 to 54. More recently, this business has had a very smart recovery with Q3 EBITDA growing over 13%. We're excited to continue to develop this business, continue to drive up nonvoice revenues and digitizing our CLM operations. Incidentally, the Tata Group which still own 30% of Conneqt, for which they have a put option that they have recently exercised. We expect to conclude this transaction honoring the put option within Q4. So that's the first BPO business. The second BPO business in GTS is Allsec, which is a publically listed company, in which we own approximately 74%. Over half of Allsec's EBITDA comes from its HRO business, which processes payroll for large enterprise customers in India and beyond. Allsec is a leader in this space in India. It's a high gross margin bPaaS business where we are paid full payslip process. The business has experienced an 8% year-on-year growth in Q3 with 21 new customers added in the current financial year on top of its existing set of about 500 customers. We're investing heavily into modernizing the HRO platform, both to help us accelerate transition time, drive more automation, strengthen the mobile interface and build an SME-focused SaaS platform. There's a lot of investment going there to really increase the product centricity of the business to drive up margin, and we expect here to be able to drive some non-linear growth and benefit from operating leverage over time. The rest of Allsec's EBITDA comes from its BPM solution which is largely from North American customers delivered out of India and Manila. This business has not grown as fast as we would like. We are focusing on doing more to fix this, to leverage, for example, Quess' North American sales force, exploiting the bPaaS service model synergies at our InsureTech platform and exploring options to invest the company's INR 200 crores of cash into capturing growth. Incidentally, by the way, both of our BPO businesses are more or less back to pre COVID levels of operation. So remarkably a quick bounce back, which I think reflects the strength of the versatile platform that we've built. That was the 2 BPO businesses. I'll move on to the InsureTech business in North America, which has historically been called MFX, but it goes to market now under the Quess GTS brand. They own a platform for policy management, underwriting, claims processing and data management for P&C companies with about $800 million of premium processed in the last quarter and $2.2 billion premiums processed year-to-date. So there's a lot of action on the platform. The platform is especially geared towards P&C insurance carriers who want to get their businesses off the ground fast. And some of the investments there have been rewarded this quarter with 2 significant new customers, which sets us up very well for the last financial year. Incidentally, by the way, this business clocked a 20% Q-o-Q EBITDA growth in the last quarter gone by. Our IT consulting business in Canada, which is the fourth business under GTS, has launched an end-user computing business during the pandemic that's crossed CAD 1 million of revenue run rate per quarter at very healthy margins. It grew 53% quarter-on-quarter in the last quarter with 2 new OEM introductions. This new business line supplements the existing government sector, IT consulting business, which compromises about 61% of our business in Canada. Overall, the Canada business itself experienced a 17% quarter-on-quarter EBITDA growth last quarter. As you can probably hear from my voice, we're very excited about our continued growth in GTS with a superior margin profile, its expertise in delivering managed services, which we think, as a group, we're all learning a bit strong and the opportunity it provides to drive real productivity improvements from our clients. It's really something we think is front and center of what we want to do and invest in going forward. We have adjacent to our GTS business, 2 emerging businesses that I would like to touch upon, Monster and DigiCare. Monster is India's second largest job portal with presence also in Southeast Asia and Middle East. When we acquired the business 2 years ago, it was in decline after years of neglect. We've since made good progress in the turnaround, improving the business fundamentals and significantly reducing losses. In the last quarter, we've seen our customer retention rates consistently improving over the past quarters on the back of an improved customer experience. Monster as a brand is getting recognized better in the market, which has led to 1,700 new customer acquisitions in Q3. By the way, higher than any time in the past 2 years. Third, our core operating metrics, including job postings, page views, job views, organic traffic or active user base, has shown significant improvements in the last 2 quarters. There really is no silver bullet in this business, but we're very encouraged by the results to date. We are committed to continuing to invest in its growth, and we're very driven by the upside it provides. And the team, I think, has really done a massive job in the last couple of quarters, and we're keen to see what else is in store. DigiCare is one of India's top 3 consumer electronic installation and after-sales service companies. It's traditionally been an OEM-led B2B business rooted in a physical retail network and depending on our OEM partners to drive business. So they sign us up with -- as a partner. And typically, when their customers call them for service issues, they direct their customers to us. We are making several changes to the business's operating model that we expect will unlock nonlinear growth. First, we're shifting to infield service delivery. It's already, I think, in the last quarter, close to about 50% of our activity. And this will significantly enhance the customer experience but also variabilize our cost base, cutting us free from having to continuously build out physical centers. Second, we are working on better monetizing DigiCare's 2 million customer interactions per year to build a B2B franchise. Third, we are developing new products, such as an extended warranty, total warranties, to better monetize our existing network and transaction base. I'm glad to inform you that the resulting business trajectory has been strong. Q2 and Q3 have delivered this business's best ever results. In addition to the above 2 emerging businesses, we are incubating a suite of world-class digital assets that you have heard us talking about, and we've seen some details in the notes. These are primarily focused on helping us improve our own efficiencies and customer delivery to date, but we do envision monetizing these assets with third parties also progressively. The most developed externally is QJobs, which we launched in November last year, currently with about 300-plus third-party customers using this auto-hiring platform with 120,000 jobs and around 300,000 downloads, which is 2x what we had a quarter ago. All this has been accomplished without a single dollar of marketing spend to date in the true spirit of low-cost innovation. WorQ is another one of our assets. In today's India -- in India -- is today India's largest workforce management tools with around 220,000 MAU and growing about 10% every quarter in the last few quarters. It's a one-stop comprehensive platform, helping employees manage their daily activities through self-service modules, improving their productivity, for example, through workflow management and tooling. This application has been tested for scale and complexity, and we can see in a short period of time us monetizing it externally. Our third asset, MarQet, is a curated one-stop employee benefits platform with handpicked offers exclusive for Quess employees from hundreds of top brands. These include financial well-being products, accommodation solutions, daily needs and lifestyle products, spanning over 16-plus categories for almost every need of our employees. The property is seeing an encouraging traction with about 300,000 visits in Delhi in December alone, although I think we're still trying to figure out how to monetize it better with watch the space. So that was our GTS and emerging business platforms. Let me now move to our OEM platform, which consists of facilities management, security services and the industrial segment. So first, let me talk about facilities management. We're a top 3 player in Indian facilities management, offering a wide range of hard and soft food, pest control and landscaping services. We believe this is a very exciting stage with it growing formalization, greater focus on sanitation in the post-COVID world and the potential to drive greater productivity, especially via performance contracting and technology-driven solutions. We are investing heavily in new sales capacity and upgrading our delivery practices to ensure growth in this business. We're encouraged by the strengthening customer pipeline. We've added about 77 new logos in the 9 months of this year, which maybe we're not seeing because the performance has been flat, but it's also because of the depression in education and IT verticals, where we're hoping to now progressively see our customers come back online and the food business, which we've spoken about earlier. Our security services business, which is the second part of our OEM platform, goes to market under the Terrier brand. The security services industry is facing strong tailwinds, similar to the facility space, and we have very high-growth aspirations for Terrier. We're very encouraged that after 3 tough quarters, our aggressive sales mobilization over the past months is starting to bear fruit with some very noteworthy client mobilizations in the last quarter, including, by the way, 7 of the 21 new facilities management deals in the last quarter being bundled with security services. This is part of the cross-selling theme that you would have heard us speak about, which is continuing to build steam. The third part of the OEM business is the industrial business. We are hopeful that the introduction of Atmanirbhar Bharat and the business's renewed delivery capabilities have set up this business for growth. I'm glad to inform you we've added 6 logos in the current quarter. Although industrial is a relatively small part of our revenues and EBITDA, the business -- we see the business as an important wedge in driving conversations with senior management at manufacturing customers, which is a segment we do want to grow in across the group. So we do think this is a strategically important business for us. We're starting to see growth in revenues and headcount in Q3. We should see more of this in Q4. So that was a brief overview of our portfolio, which hopefully gives you a sense of where and how we will drive our EBITDA growth over the coming couple of years. We will strengthen the individual business effort through continued cross-sell initiatives. You'll be interested to note that so far this year, we've cross-sold services to 40 existing clients with a potential annual contract value of about INR 200 crores. Let me now turn to the second element of our plan to hit the 20% ROE, which is improving our EBITDA to PAT -- to PBT conversion. You will note that our PBT to EBITDA ratio in Q3 FY '21 -- in FY '20, last year was 45%. In Q3 FY '21, this has already improved to 53%. You will note that this has resulted in our PBT staying flat year-on-year at INR 80 crores despite a reduction in EBITDA. We are targeting further improvements in the coming quarters, including continued debt and interest cost reductions, business simplifications and CapEx and rental management, even while we strengthen our cash management practices across the group. The third element of our journey to a 20% ROE is judicious capital monitoring and allocation. Our focus on cash generation has seen Q3 deliver an OCF to EBITDA conversion of 80% versus 51% a year ago. Our primary use of cash at this point is to pay down debt, which we have done at a war footing on the past 3 quarters, with gross debt going down from INR 1,147 crores in March 2020 to INR 521 crores in December 2020. As stated before, our focus is primarily on organic growth at this point. If we were to make an acquisition, for example, if Allsec were to choose to deploy its stranded overseas cash into growth, we assure you it would be fully aligned with our current portfolio strategy and fully integrated into our path to a 20% ROE. As shared already, we have made significant portfolio adjustments this year, including this continuing government business development in TSE and infrastructure. We will continue to make adjustments as needed going forward, if needed. Although at this point, each of our businesses does have a glide path to 20% ROE, and we do want to give them time. One thing to add on capital allocation. We would like to pay some dividends once COVID is firmly behind us. When we will do this and how much we would pay is a decision that will be taken by our Board at the appropriate time. But this is on our radar. I will close my opening comments now. Thank you again for being here today. Your individual and collective support and encouragement over the last few quarters has really been key to us. We are excited to be once again in growth mode. We are firmly focused on our 20% ROE aspiration. Our normalized ROE last year in FY '20 was about 11%. Our stretch aspiration is to get a 20% ROE by FY '23. With some luck and a lot of hard work, we hope to travel about half this distance there in FY '22. We are now happy to take any questions. Thank you, again.

[Operator Instructions] The first question is from the line of Nitin Padmanabhan from Investec. Mr. Nitin Padmanabhan, your line is unmuted, you may please go ahead, sir, with your question. As there's no response from the current participant, we take the next question from the line of Sudheer Guntupalli from ICICI Securities.

Yes. Suraj, my first question in terms of capital allocation. For some time, we have been maintaining a stance that we'll focus more on consolidating the earlier acquired entities rather than looking at the prospects of new acquisitions. However, based on your prepared remarks about potential use of cash and overseas cash in Allsec, is it fair to assume that we are now becoming more open to acquisitions versus, let's say, where our thought process was 9 to 12 months ago?

Is that the only question, Sudheer?

Yes. I have a subsequent question, probably. Once this is over, we can get into that.

Okay. No, let me answer that. So I think we continue our stance of -- look, we, as a company, has done a lot of acquisitions to build the platform that we've built, right? And I think the platform is now pretty much complete in a sense, and it's starting to bear fruit. We are still, by and large, going to stick to organic. There is no change in strategy at all, Sudheer, okay? You'll see we've done the Taskmo acquisition. I'm happy to talk about that, but that's something which fits very, very firmly into our strategy. I think what is very important is our north star here is a 20% ROE right? So if we do, do something because of some reason or the other, it's not -- I don't think anything should be interpreted as us changing our strategy to become acquisitive, right? We are clearly focused on growing organically, and that is 80% -- 90% of our effort at this point.

Sure, Suraj. Just an extension on the question. When you say use of overseas cash in Allsec, do you have any potential areas in mind? And the connected question is regarding the minority put option in Conneqt, right? Is this going to be entirely a secondary transaction where we buy out the noncontrolling interest of Tata Sons? Or there are any further plans of primary infusion from parent -- Quess parent as well, like the way it happened during Allsec acquisitions?

Sure. So look, I think the use of overseas cash at Allsec, let me explain what the situation is there. There is about INR 140 crores to INR 150 crores of cash in Allsec, which is outside the country, and it can't be brought back to India without significant leakages in the cash, right? So Allsec has to decide what it wants to do with that money. Again, I want to emphasize, it's not like we are actively seeking or doing active due diligences of certain entities. It's just that we want to figure out how to allocate that capital. And that's the call for the Allsec Board to make. It is a separately listed entity. So I don't want to commit on their behalf. But it's just something we have got to figure out. And all options are on the table, right? There could be a buyback. There's a lot of leakage that comes through a buyback, given that you've got to first bring the cash back and then -- so we're working through all options there. On the Conneqt put option question, specifically, there is no plan for a primary infusion. This is purely a secondary to honor an obligation that we have.

Sure, Suraj. And margins in workforce management, right? They remain pretty downbeat. Of course, we understand there are issues like Excelus, where we can't do much given the situation outside, which might be dragging down margins at an overall segment level. But any further color on how different subsegments there are filling out in terms of margins? And what is the outlook on each of these?

So look, I mean, I think that the way to look at it is if you take the WFM EBITDA and you just add back the Excelus -- and we have put those numbers out every quarter, just add back the EBITDA differential from Excelus in each of the quarters, right? I think you'll find the EBITDA per associate has actually gone up quarter-on-quarter. Now the overall story, I would say, is that, I think in general staffing, margins are flattish. In that, yes, there is more pricing pressure, but we're also capturing more efficiencies wherever we can. IT staffing, I think margins are going up. And Excelus, has -- we'd have to see what happens as it recovers.

The next question is from the line of Nitin Padmanabhan from Investec Capital.

Yes. Hope I'm audible now.

Sir, yes, you are.

Okay. Great. Great. My question was on the Conneqt business. I think when we acquired a significant proportion of revenues was from the Tata Group. And as you alluded in the opening remarks, it's come down to around 54%. Once we acquire the remaining stake, how do we see that business on a continuing basis? And is there any sort of revenue guarantee or commitment that is there that is outstanding there? Any comfort that you have on that particular revenue portion would be helpful.

Got it. So first of all, we own 70% today. So it's a put option for 30%, Nitin. Look, there has been no -- it's -- I think what you're asking is that Tata's guarantee revenue from their group after they...

54% of revenue is from Tata is what you had alluded to?

Yes, yes, yes. Look, so the Tatas have not guaranteed us revenue from day 1 of this deal. And in a sense, this has been playing out a little bit where we've been very aggressively going after third-party customers and managing the Tata Group companies that are at a kind of a arms-length level, I think you'll probably understand the Tata Group companies are quite independent and autonomous in how they work. So the short answer is there's no -- we don't expect any kind of step difference because of this. There's been no Tata influence to either give us more business or give us less business coming out of the Conneqt transaction even from 2017. And there was no business guarantee as part of the shareholders' agreement in that particular transaction.

Sure. That's helpful. I had just 1 more question, which was on Taskmo. How is the business model different from the pure general staffing business for this? And how do the margins relatively compare? And how do you see the headroom for growth there?

So let me take a cut at this. See, in the -- if you think about it from an SKU perspective, the standard staffing SKU is per person month. And that is typically how that business has been geared to think about things. A company like Taskmo has 2 additional SKUs. Per person day and per person task, right? So you can price very differently. And the way they price, therefore, the very -- and the way they operate, is at a very different metabolic rate from the standard general staffing. Because if you're pricing per person day, then you've got to be able to digitally source the person, so you can source at low cost and still make money that I only work for 3 days or 4 days or 5 days, right? But because they bear that higher -- because of the lower SKU signed, it's not unlike in telecom where when you move from postpaid to prepaid, the margins went up because the breakage costs and the list went up and therefore, traditionally in this business, you see a 30% gross margin on the salary costs that you deploy, right? So I think that maybe helps you characterize the business model. Now what we do here is a lot of our existing customers through COVID have been coming to us and saying can Quess do something like this for us? Can you price differently? And we've had some very successful experiments, I would say. So for one of our customers, we go and pick up documents on their behalf on a per document basis where we get paid per document. For another customer, we go and acquire merchant partners on their behalf, and we get paid per merchant partner acquired, right? So we have been doing this. We've been seeing good success, and we've been seeing a lot of customer enthusiasm for this model. I think there will always be a space for a per month SKU. There will always be a space for perm, but the fact is there will also be peaks, like I want extra people on Saturday or I want people to do something for me in the evening or I have got specific merchandising projects or auditing projects that are 6 weeks long, I need people for that, and I actually don't want to manage these 2 tightly. That's what creates the demand for task based. So the idea of coming together with Taskmo is they've built a platform. I mean these are 2 inspiring entrepreneurs who've taken 3 years to find the right product market fit amongst the leaders in the space. We have access to customers who have a lot of demand. We got access to a delivery mechanism and a platform where we can cost effectively fulfill. So we think that there's a good space to accelerate it, right? And a part of this, by the way, if you look at what we have paid from a valuation perspective, we've paid about a 4x multiple of their current revenue rate. If you look at comparable companies in the market and go back to recent deals, they're paying more in the range of 6 to 8x. So we have got -- we think we've got a reasonable deal for a series A company. We see a very clear path to 20% ROE on this in the short term. And so we feel very good about this. And we feel good -- we could have made this upsell in house. But I think if you just look at the time involved, the cost involved and frankly, the risk of getting it right, these guys, Naveen and Prashant just have a product mindset, which is refreshing to us. We just felt that buying was a right option.

And a couple of things to add to what Suraj said is that the new emerging labor courts in India recognize grid workers as an emerging significant component of the workforce in India. So as a leading workforce management company for us to be able to provide this option to our customers is necessary. Second is, given the pandemic and its consequent effect on work, the way you work, work from home and migration and related issues, the need to have flexibility in workforce systems, especially with outcomes, is key. And for us to have a solution in that alongside staffing is necessary. The third is that many of our customers are asking for this alongside staffing to be tasking. And our option was really to make or to buy. And if we have to make it, it's a question of time, it's a question of whether we will get it right and whether we have the right technology backbone to enable us to succeed. So all of these things contributed to taking a decision to invest here. It's a small investment that we've made, but we think that it will give us a leg very early on in a market that promises to be a significant part of the employment canvas in India.

The next question is from the line of Nihar Shah from New Mark Capital.

Team, congratulations on a good set of numbers. I had a question on the balance sheet. I just wanted to get a little bit of an understanding, you've had a substantial reduction in your other current assets. Now I believe that, that should largely pertain to some of the income tax withholdings that were there. Just wanted to understand a little bit as to how sustainable this is and if you all have done any other sort of efforts to sort of bring this down? Or as the business starts growing, this will kind of reverse? Because the reduction there from March is about INR 270 crores and on Q-on-Q basis, it's quite substantial at INR 70 crores despite the fact that the business has started growing.

So thank you for the question. This is Ramki here, and you're absolutely right. The reduction in the other non prime assets is primarily driven by the income tax refund, which is to a tune of about INR 297 crores, which has come in just the last about 9 months. Having said that, I think what we have done with that is that we have wiped out some of the deficits on the old dues on account of income tax refund second of that. So what will be left is only the latest ones, which will go through the assessments, and then we'll start getting the refund. So all the historical refunds, which were kind of pending, have been kind of brought to the current status. So to answer your question, what is left there is all current. I mean we wouldn't have any of the old stuff and whatever buildups we'd be having wouldn't be substantial because it's current, and we have a mechanism now in place to make sure that we do very clean follow-up with the department to get the refunds. And hence, this current will be keep moving.

Okay. So if you can just give me maybe on a basis of days of sales on the income tax asset, how much has that reduced? And do you expect that to sort of go up again or sort of remain at this level going ahead?

Let me give you a high-level feel of the numbers, okay? So we had about INR 312 crores. And if you go back to the balance sheet of 2019, we had about INR 312 crores in the balance sheet on income tax asset. And we've got about EUR 297 crores of it, okay, all put together. And so what is left is only by the balance delta. And so that's the kind of number we're talking about. In 2020, is very recent. Returns are just filed. So that should give you an idea in terms of what's the age is.

Okay. Fair enough. So then I can expect this to be the number to sort of sustain going ahead, right?

That's true.

The next question is from the line of Aditya Bagul from Axis Capital.

Congratulations on a really good improvement on the balance sheet and the cash flow. I hope I'm audible.

Yes, you're. Thank you, Aditya.

Yes. So Suraj, I have 2 questions. One is in terms of near-term outlook, right? We've seen an impact of COVID hitting us in Q1, Q2 and a little bit in Q3 as well. I just want to understand from you what kind of trajectory do we see in Q4 and Q1 subsequently across our workforce management and IFM sort of a platform? That's question number one. And question number two, you talked about a near-term or a medium-term OCF growth of about 20%. Is it fair to assume that this will be broad-based across categories, across segment and you expect a 20% sort of an EBITDA growth from each of these segments as well? So those are the 2 questions.

As Yoda said, future -- difficult to see the future is. But let me try and answer your first question. Look, I think we're positive, right? The outlook in the company is better. Our internal conversations are more bullish. Are we seeing sort of -- I think what some people refer to as sort of animal spirits and gung ho-ness in the market? No. No. I think -- but I think that the -- there was a level of softness in the optimism, let's say, November, December, which we see is evaporating. The optimism is becoming harder. What we are expecting is, let's say, at this point, our best hope and don't take this as a forward-looking statement, Aditya, it's more for a one man's perspective or management committee's perspective, I think our best hope is by sort of March, April, as people start to see sustained economic activity, they will start really pressing the button for hiring in a bigger way, right? One of the things that you will see in the general staffing area is that if you look at -- traditionally, as you know, Q3 has been a quarter of sort of for a festival hiring, where people ramp up in the beginning of Q3 and then ramp down by the end of it. We've seen very little of that in this quarter. So the 5% we've added, and I'm speaking on Lohit's behalf here, but it's sort of -- it feels secular. It feels secular. It feels like people are ramping up capacity, right? People met their Diwali, Christmas lows with existing stock of employees. I think they're actually ramping up for better time. And we hope that trend will continue. That's in general staffing. In Global Technology Solutions, I think, again, it's a secular return, and we're optimistic about the future. Operating asset management, I think it's difficult -- it's going to be difficult for us to time. See we're pushing our sales very hard, pushing transitions very hard to see how we grow despite the fact that 30% of our business has shrunk dramatically, of our erstwhile pre-COVID business. Now at what Pace does this business start to return, it's your's best guess and my best guess. And frankly, every time I speak to an IT services CEO, I hear a slightly different answer. I think they're also vacillating as to what is the right thing to do, right? On the one hand, education institutions are starting to come back, and we're seeing a little bit of recovery in the food business and some of the facilities there. IT services we're starting to get some orders for ramping up, but there's still, I would say, they feel a little bit like the general staffing orders felt in September, October last year. It's not bold it's -- sort of it's tentative starting to feel their way back. So that's on your first question. To kind of which businesses will grow at 20%? I hope they will each grow at 20%. And that's an expectation we have set internally, right? Again, I don't want to set a market expectation, but that is our aspiration. We think the potential is there. We think the market is there. We think the business fundamentals are there. We just have to do it.

Right. So the point that I was trying to ask is whether we're going to see a product mix change within the segment, which will enable us to delever and improve our operating cash flows from where we are today, essentially because workforce typically has a better cash conversion, albeit at a lower margin.

I just want to be clear. When we say OCF growth, I just want to be clear -- thank you for raising that. I don't mean OCF to EBITDA growth. I mean OCF rupees crore growth year-on-year.

Yes, yes, yes. I understood that. I was just trying to understand whether there will be a mix change, which will propel the OCF growth as well.

So look so I'll give you my view on that. There could be a mix change, but I also think it's unfair to expect Lohit to keep growing at 29% year-on-year, although I have no doubt that he will try. But at this point, we are setting a minimum bar for the businesses rather than do -- they do better. We're not planning for a mix change, if I could say it that way.

The next question is from the line of Mayur Patel from IIFL AMC.

Good set of results, congratulations. Just a couple of things. Excluding the tax refund, I'm sorry if you've already answered this, what would be our OCF conversion, which is like reported basis looking like 80%, but if we just exclude the refund how this would look like?

Pretax.

OCF to EBITDA conversion.

Basically, it's about 127 and is about 74% that's pre tax even for the quarter.

No. So what I'm trying to say is this 80% is a recurring number or it has some distortion because of these refunds and all?

So we think that -- we think -- look, internally, we think we should be targeting 70%, north of 70% Mayur if that's your question. That's sort of where we're pegging it.

Okay. But for this quarter, how much it was, excluding any one-offs or refund OCF to EBITDA conversion?

Yes. I think just to add to what Suraj said, the OCF would be more in the range of about 40-odd percent. But what would happen yes one of the customers who was scheduled to pay us by the end of the month paid us in the first of the following month, and generally, we don't take that into our collections. And that's what resulted in the business related or working capital related OCF going down a bit. But I think that should normalize going forward. But Suraj is absolutely right. On a sustainable basis, we will definitely be in the range of 70% plus.

70%. Okay. Okay. And so in your opening comments, which you mentioned the INR 140 crores is lying overseas difficult to bring it back. And so is it fair to assume, if at all, there would be any acquisition, it would be -- the ticket size would be restricted to INR 140 crores, INR 150 crores?

Mayur, that's for the Allsec Board to decide, Mayur. But it's fair to say we're not -- look, we're not looking out to make a big acquisition that are also out there, right?

Okay. And just lastly, like you mentioned, the optimism is still yet to pick up in IT services. Just trying to connect this with the, we are seeing across the board very bullish commentary by all the IT services players, including the large cap players and even the smaller ones, really a strong commentary, but why it is not percolating to a strong traction for us?

So I think you're talking about the facilities business, right?

The IT, information technology.

I'll ask Guru to answer that one.

Yes. So I mean what trends we are seeing is there is definitely a good mandate on our plate. So across there is about 4% to 5% increase in terms of when compared between quarters. And largely, these are coming from biotech, health care, auto, engineering side and very niche segment. So I mean currently, our recruiters are extremely busy in terms of this mandate. So there is definitely pressure coming on hiring from IT side and things are quite good there.

2 more points to note here. One is that usually, there's a lag time between sentiment and hiring because -- and that's about, let's say, 2 to 3 months' time. So it takes that much time to get people on board. And the second is there's a reset in terms of the amount of headcount you want to carry today versus what you want to do in the past, especially because there's work from home ability, there is a change in the business composition. There's more digital coming in. And as a result of all this, the amount of -- there's a workforce composition change that's also increasingly taking place. So all of this will also need to be factored in when we find the impact of a greater -- a more positive sentiment in the IT business on our own workforce.

The next question is from the line of Amar Mourya from Alf Accurate Advisors.

Sir, my first question is on the cost saving. I mean, like Suraj you alluded if I see the revenue on a year-over-year basis is down by INR 142 crores, whereas, if I add back INR 29 crore, our EBITDA is broadly flat on a year-on-year basis, and margin is also 6.1%. So how much of the cost savings we had brought into the system? And out of that, what quantum would be sustainable in the normal revenue run rate scenario?

Good question. So look, our SG&A cost pre COVID was about INR 6,970 crores a month. We're now this quarter running at anywhere between INR 52 crores and INR 53 crores a month. So that is a quantum of reduction. And this has been sort of -- this reduction is sort of where we are. Now where will it go up? I think clearly, next year, there will be -- travel will come back a little bit, probably bonus costs will go up and so on and so forth. I would add maybe sort of INR 3 crores to INR 5 crores a month on to this run rate to think about what is a sustainable sort of level going forward.

Okay. Okay. So basically, you're saying the INR 10 crore kind of a quarterly cost saving could be seen in the next year as well?

Yes. That's what -- I think if I -- yes, I think my Board would be very unhappy if we don't deliver that. So yes.

Unless a little bit of it comes back as we get back to mainstream operations. So maybe we should take between INR 2 crores and INR 3 crores. Could come back. We don't have visibility to it, but you will be right in assuming that we should be able to save about INR 10 crores as well.

But the other thing, Amar, I just want to put out there is, we also are thinking now about what we -- where we want to reinvest and what we want to reinvest. And we could end up -- we will end up taking up investments in some spaces like technology and so on and so forth, right? But that's not going to be significant. I think is, 10-ish, let's say, 8- to 10-ish is probably the right number. I think historically, we've said around INR 100 crores a year is where we'd like to kind of settle down versus FY '20 exit.

Correct. Correct. So I mean that is my question. I mean it is roundabout INR 40 crores. And I believe we were targeting something around INR 60 crores kind of a cost saving. So can we see more going forward? Or you are saying this is the peak for the cost saving in terms of the next year?

So I think, look, that is the -- without saying much, I think we're obviously continuously trying to drive our efficiencies and drive technology and so on and so forth. But I don't want to -- I mean let's also not overset the expectations, Amar. When it comes, it comes, and we'll talk about it when it comes.

Okay, okay. And sir, second question is, like, I mean, at overall level, we are aspiring to grow by 20%. And I believe because of this, there will be the good quantum of first-time hiring, which will be happening. In this slide, how should we see the tax rate for financial year '22?

Yes. So on things going from a net addition on head count perspective, I think we should look at tax rate gross 80JJAA continuing and the government not sunsetting the same. I think we should set our tax rates more in the range of about 10%. That's what I think is the moving forward.

The next question is from the line of Abhijit Akella from IIFL Securities.

Just a couple of quick ones from my side. First on the Global Technology Solutions segment. We've seen a strong performance by that segment in terms of revenues as well as margin expansion and almost touching 14% margins in that segment. So could you talk a little bit about what's driving the strength? And whether you see this sustaining and what the outlook looks like?

Sure. Pinaki, you're on the call, do you want to just take the question?

Sure. Am I audible?

Yes, you're.

Okay. Abhijit sir just to give a broader perspective on that -- on the GTS segment, if you see the revenue composition almost 2/3, that's 66% comes from BPO and 34% from InsureTech and IT services. So let me touch upon the North American InsureTech and IT services first and then come back to BPO. On the InsureTech, actually, we run a platform, which provides a platform as a services, sort of the digital operating system, foreign insurance company, right, where we provide sort of on a subscription-based outcome-based, this rental model, for to process the transactions right from policy underwriting to claims instead of them opting for a non receipt solution, right? So what has happened is that the -- in the shift of the business of the mix changes more towards the platform, we get that nonlinear expensing margin. That's what happened in the last quarter. And as Suraj has told in the opening remarks, we actually onboarded couple of clients wherein for the revenue realization has still not started, one on the reinsurance side, another on the specialty insurance side, where you would be sort of providing these services for the next couple of years at least. So that's one driver. On the Canada, the IT consulting business side, which was impacted due to COVID in the first quarter because 60%, 61% of the business comes from the government , and it was a hard lockdown. And we do like security peers sensitive work. So work from home from that sector was not allowed. So what we get in that opportunistically on the private sector, we started work from home, digital workplace services and digital computing business, which sort of actually has grown significantly, 53% year-on-year -- sorry, quarter-on-quarter in this quarter and where there is a trajectory going forward because corporate, IT has expanded beyond the work from home due to the nature of the pandemic there in the structural shift. So what has happened in North America, that's why this nonlinear expansion actually as sort of resulted to this 20% and 17% of quarter-on-quarter growth in EBITDA in the 2 businesses. If I come to the BPO business, starting with Allsec, on the HRO business, within the platform nature of that and the tax nature of that is leading to the margin expansion. For example, we had around 6% quarter-on-quarter revenue growth, whereas the operating margin expansion still has been around 490 basis points. And we are through a complete platforming to make a cloud native, mobile native payable platform, which is a sort of big program that we have and which hopefully will capture more benefits out of automation and orchestration is into nonlinear revenue going forward. And between Allsec and MFX, there is at the intersection of insurers and BPO, there is a offering we are taking to the market. This would be differentiated offering. So hopefully, if we can capture the market there, that also should auger well for the future. the biggest business in the -- in our segment, GTS segment, actually had a very sort of a good back to growth kind of in Q3, mainly on account of capturing the demand from the e-commerce/retail sort of the physical retail kind of clientele. And also the collection business, which is 20% of the business, which was under the moratorium until the month of August, that's coming back. And collections is a weak margin , higher-margin profile than the voice-centric business. So together, we had around a 12% revenue growth, which translated into some 13.2% EBITDA growth. So across the spectrum, that's why we had EBITDA growth quarter-on-quarter ranging from 13% to 30%, 13%, 17%, 20%, 30%, respectively. So that's about as far as GTS is concerned.

Does that help, Abhijit?

Yes, that's very helpful. And my second question was just on the other 2 segments, WFM and Obviously, each of them has 1 significant component that's been underperforming for the last year, right? So in WFM, we have Excelus and in OEM, we have the food business. Now as these start to reopen, any sort of bulk up range in terms of how much margin expansion we could expect in these respective segments because of that?

I don't want to give any guidance at this stage, Abhijit, and I'll tell you why. I think on the Excelus business, for example, as we restart, we still don't know how many people we can fit into a center because there's new standard operating processes around distancing and so on and so forth. So that's something that evolves. And obviously, profitability is linked to occupancy. And on food, it's simply what is the pace at which it comes back. Because even if people do come back at this point, how many are going to eat from a cafeteria versus how many will bring food from home. There's a lot of unknowns in both these businesses. I would rather not comment. I think what we should just do is sort of keep pushing to grow them as fast as we can.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ajit Isaac for closing comments.

Thank you. So as most of you have seen by now, our focus remains on 3 or 4 issues at Quess: cash generation leading to higher earnings; balance sheet strengthening by reduction of debt and below EBITDA -- and by taking it below EBITDA adoptions; sales growth, getting more market share in each of the segments that were present in; continuing investments in our digital assets to be ready for the future; and to invest in our HR and our organization processes to enable Quess to carve out as much market share of the growth that's going to come in India when people are predicting about 11%. Thank you all for your participation, your interest in our company and to the many investors at Quess. We look forward to staying in touch and to our next analyst call. Thank you very much.

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