Quess Corp Limited (QUESS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Quess Corporation Limited Q4 FY '21 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Abhijit Akella from IIFL Securities Limited. Thank you, and over to you, sir.

Yes. Thank you, Steven. Ladies and gentlemen, good morning, and thank you for joining us on the 4Q 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. Suraj Moraje, Managing Director and Group CEO; Mr. N. Ravi Vishwanath, Group CFO; Mr. Sekhar Garisa, Chief of Emerging Businesses and Corporate Development; Mr. S. Guruprasad, Chief Operating Officer, India Region; 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 would now like to hand the call over to Ms. Divya Dhawan from E&Y to take proceedings forward. Thank you, and over to you, Divya.

Thank you, Abhijit. Good morning, everyone, and thank you for joining our earnings call today. Please note that results and 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 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 Managing Director and Group CEO, Mr. Suraj Moraje. Over to you, sir.

Thank you, Divya, and thanks to each of you for being here today. Your presence means a lot to us. We are in an era that can feel Sisyphean at times, and I hope you and your loved ones are staying physically and mentally safe. Most importantly -- and I hope you are keeping yourselves optimistic. These times can feel dark, but we must believe that our children's best days are ahead, indeed a short history of mankind shows that whenever the future does happen, it will be bright. Let me start by giving you an overview of the business and then hand over to Ravi to walk you through the financials. We will then be happy to take your questions. What's good for society is good for Quess. Over the last year, Quess has been at the forefront of the war against COVID. During the second wave, we have mobilized talent for temporary hospitals, set up vaccination camps and delivered oxygen support. Even while society was in lockdown, we fumigated, managed and secured hospitals, airports and countless other essential infrastructure on behalf of our clients. And while our fellow citizens were ensconced in their homes, our associates were out at the frontline in health care, e-commerce, retail and manufacturing jobs to keep our economy running. Whilst doing this, we have prioritized employee well-being and safety in every way possible. It has been our #1 priority in the last quarter -- in the current quarter. We created quick reaction teams across states for employee support, mobilized medical and psychological support and worked closely with our customers to enhance insurance covers. Our WorQ app has reoriented focus towards COVID-appropriate behavior, along with a campaign to encourage our employees to register for vaccination doses. We are seeing significant vaccine hesitancy that we're trying to overcome. Today, across our operating management assets -- operating asset management platform, about 30% of our frontline warriors have already been vaccinated. Our employees have participated in numerous community welfare programs, sponsoring and distributing meals, dry ration and personal kits -- personal protection kits to frontline workers, teachers and students and adopted schools. With such purpose, it's no wonder that Quess has once again emerged as a Great Place to Work. On business and financial matters, like many, we had a rollercoaster of a year. After a 19% reduction in revenues in Q1, the institution that emerges from Q4 is one that has only grown in strength across all metrics, be it customer acquisition, operational efficiency, digitization, cash management or leadership development. Indeed, after seeing our business shrink in Q1, we grew our top line ahead of the market at an average of 7% to 8% per quarter. Our normalized PBT for FY '21 closed higher than that for FY '20, reflecting our focus on operational efficiency and simplification of the business and the balance sheet. And we ended the year with almost INR 99 crores of net cash versus INR 355 crores of net debt a year ago. Q4 especially ended the year with exceptional momentum. Were it not for the impact of INR 119 crore onetime ECL provision, that Ravi will talk about on the legacy government business, and the INR 20 crore COVID-related impact on our TSD and Food business, our EBITDA actually would have been 5% higher than the same quarter a year ago. This reflects the strong growth in each platform, a testament to the execution of our teams, be it across sales, efficiency or collections. Our sales momentum has been strong with over 700 new customers acquired in the year. We have doubled down on cross-sell, as you know, and had 55 wins worth in annual contract value of INR 250 crores. These deals include some marquee solution sales, things never tried in the industry before, with cross-selling now accounting for approximately 1/10 of our incremental sales and showing a considerable better bang for the sales buck than cold calling. We are encouraged by the impact of our efforts and will invest more time and energy this year to improve further on this front. Let me move on to specifics, starting as usual with our WFM platform, which exited the year having recovered close to where we came in, and having grown headcount at over 20% in H2. GS associate headcount grew 13% quarter-on-quarter on the back of about 60,000 gross additions, benefiting from telecom, BFSI, manufacturing and a gradual recovery in retail. 29 new deals contributed an incremental headcount of about -- of under 9,000, taking total new customer wins in GS in the year to 96. One interesting thing about this customer addition is that it shows that India shift towards outsourcing and flex is real. 40% of new GS customers in Q4 were first-time outsourcers using general staffing for the first time, 40%. We are seeing a flight to quality in the market, not just in GS but across businesses that should continue to play in our favor, especially as the new labor laws are hopefully notified over the coming months. Within GS, our focus on value-added services is starting to show up in our numbers with VAS contributions to gross margin being at its all-time high. We will continue to drive this further, in large part, driven by a handful of outcome-based pilots across verticals where we are providing customers not only staff but working with our customers to increase productivity of those staff and getting paid linked to the productivity. We expect this contribution of VAS to our gross margin to increase steadily as we gain in experience and confidence. GS has invested significantly in specific new sales capabilities during the quarter. We will continue to do so in Q1. Deal cycles have become longer, and we believe that sales capabilities benefit us when markets open as they did in H2, and we will continue to invest. Taskmo, the country's leader in gig economy tasking, which we invested in, in Q3, has added a range of lockdown-resilient activities, including experimenting with phlebotomy. This business shows impressive revenue growth and has already started benefiting from the heft of new deals from our existing GS customers. Moving on to our domestic IT staffing business. This continues to be and enjoy a demand-rich environment. Our focus on higher margin profile in the digital space has propelled our EBITDA up 54% in FY '20 versus the year before. The business acquired about 95 new customers in the year leveraging new models, such as Hire, Train & Deploy, MSP and RPO, to increase share in GICs. We believe this business will continue to be resilient to COVID and continue to be in a sweet spot from a demand perspective. At this moment, our focus is on ramping up our delivery capabilities, leveraging our technology assets and sourcing, screening, onboarding and deploying candidates. Outside of India, our Middle East business has seen its best year ever in FY '21, and we expect this momentum to continue into the coming year. Our APAC business has renewed management focus and should start showing significantly in their traction in FY '22. The third part of our workforce management platform, our Training and Skill Development business mobilized its operation sufficiently to breakeven in Q4 despite operating at about a 50% capacity following social distancing norms. Given the second wave, the business is expected to see setbacks in Q1 again this year. We stay committed to running of the B2G business. And at this point, our focus is on closing out the legacy government projects, driving collections and further optimizing productivity even while we explore new B2B models. So that is the WFM platform. Let me move on to the Global Technology Solutions platform, which had a very strong Q4 -- has been our highest EBITDA contributor in H2. And as you can see in our presentation, ended the year at higher EBITDA margins than the year before. I'll talk about each of the 4 service components of this business. First, platform-based services. We have 2 platforms, one the insurtech platform in now MFX sub in the U.S.; and two, the HRO platform in our Indian sub, Allsec. Integrated go-to-market in the insurtech business has resulted in 10 contract wins in FY '21 versus just 4 in FY '20, with platform revenues contributing to 80% plus of our U.S. revenues today. On the HR business platform, the second platform delivered by Allsec, we had 44 new wins in FY '21 versus 39 the year before. And the number of pay slips processed per quarter grew from 2.1 million to 2.6 million Q4 Y-o-Y. Note that this growth was without the typical 6% to 7% same customer growth that comes from employee growth at existing customers in a typical year. The high margin of these platform businesses make us even more excited for profitable growth in the quarters ahead, and we are doubling down on modernization and more aggressive sales in both of these areas. The second platform, our CLM platform, includes both voice and nonvoice. 80% of this business is for domestic customers delivered mainly by Conneqt, and the rest is for American customers delivered mainly by Allsec. 11% of our revenues came from nonvoice in Q4, up from 7% in the same quarter last year. Our teams are working harder to convert more of our CLM customers to omnichannel users via our unique CLM-in-a-box solutions, and we are pushing for more progress there. The third part of our IT -- of our GTS platform is our nonvoice BPO. This is largely done at Conneqt, with a focus on collections, which we are also in the process of platformizing, India's leading professional collections company. And despite low volumes early on in the year due to RBI moratoriums, we ended Q4 almost flat versus a year ago with 5 new customers introduced in the service line in the year. Our business faces some challenges in Q1 again since our feet on the street are unable to fulfill last-mile travel, but we will see how that plays out. Note that we also have a domestic F&A business, which is part of our nonvoice BPO. We had 6 wins in the year, and we expect this service line to double in revenue in FY '22. We will continue to focus on building this out. The fourth part of our GTS platform is IT services. FY '21 was a good year for our IT services business, both in India and in Canada. In India, the business reached a critical mass of about INR 60 crores in revenue, acquiring 16 customers versus 6 the year before. We've observed a real paucity of quality players in the Indian domestic IT services space, and we will continue to build out our presence here, adding new service lines to our existing infra management and cybersecurity capabilities. In Canada, we introduced managed IT services business early in the year. And over 4 quarters, this now contributes about 10% of our gross margin in Canada. Before I move on from GTS, I'd like to spend a minute on Conneqt. Honoring the put option exercised by Tata Sons in November 2020, we have acquired the balance 30% stake in Conneqt for a consideration of INR 208 crores in April. The price paid for this transaction was well within our balance sheet provisions, and the valuation extremely lucrative at less than 4x EV to EBITDA. We are excited to fully own Conneqt. The business has executed superbly since our acquisition, growing pre-COVID revenues at a 14% CAGR, operating EBITDA at a 19% CAGR. The improved focus on execution, growing from the Quess culture is apparent in the Net Promoter Score growing from 14% at the time of acquisition to 60% in the quarter just passed. The reliance on our top 10 customers has come down, with revenues from these customers going from 54% at acquisition to 54% in the last quarter. Conneqt will continue to be our springboard in the IT and ITES space with full ownership enabling us to optimally realize synergies. Let me now move on to OAM, where I'd like to highlight some of the recent growth. Q4 has witnessed a recovery in our Integrated Facilities Management business, with the exception of IT, ITES and education sectors, which accounted for 49% of pre-COVID revenues. We had a particularly strong run in the aviation center sector, where we won contracts with 3 airports in Q4. We also saw strong customer acquisitions in health care, pharmaceutical, manufacturing and logistics/e-commerce. We will continue to focus on these sectors, deepening our verticalization further to gain market share, doubling down on sales capacity and expertise. We expect disinfection services to be the new norm for hygiene, and we expect these to augment our revenue line. Our AI-driven solutions to manage on-site operations, including a digital platform for our Food services are expected to bring operational efficiency and productivity. Our workforce management app, WorQ, has now become mainstream for managing attendance and consuming training content, with 75% of our associates in IFM being on this platform. We are hopeful that our revised business strategy of tech-enabled integrated solutions and cross-selling and doubling down on sales will bring value-added delivery to our clients and future our growth -- fuel our growth in FY '22. Q4 also saw our Terrier Security Services win 11 major contracts in the security services space and 4 major contracts for mantech. 85% of our associates today are using the WorQ application -- our proprietary WorQ application. We've enabled 403 digital training sessions covering almost 80% of the associate’s strength. We've also introduced a well-used digital supervisor workflow, which allows us to digitally test our guard for alertness in real time. I'm happy to report that effective collections at Terrier has helped it clear its entire borrowings in the form of intercompany loans from Quess in the quarter. Our Industrial business is also seeing momentum with 11% Q-on-Q revenue growth and a clear market shift visible from -- amongst our customers to move from local unorganized contractors to O&M experts as industry moves towards Industry 4.0 and the need for training and productivity improves. The business won 15 new clients during the quarter, including our first-ever win in the fertilizer vertical. We also debuted in specialized technical manpower recruitment space, winning a contract with an alloy and steel company. So that was the O&M platform. Let me move to our emerging businesses. After a weak COVID-induced start, Monster had a good year, both in terms of sales and operating metrics. An aggressive sales transformation turn around our sales trajectory, with the business acquiring more customers in Q4 than it has in many quarters in the past years, and across geographies, too. Q4 '21 witnessed a strong growth in key operational metrics like candidate acquisitions, job postings, and so on and so forth, and you'll see more details in our investor presentation. We continue to strengthen our team, and that's been good momentum there, having doubled our product and tech team to accelerate our product innovation through intelligent and personalized search and recommendation video profiles, automated hiring, data security, et cetera. Our after sales installation and service business, DigiCare, continues to execute well in the B2B space, attending to close to 2 million service requests in the year. Through the year, the team focused on store profitability, which resulted in more than 80% of our service centers being profitable despite significant COVID impact in Q1 and half of Q2. We continue to remain focused on service excellence through our tech-driven approach, and we are building a direct-to-consumer business for products and services. I want to talk about QJobs briefly. I'm happy to say that QJobs has firmly established itself as the most effective platform in the market for recruiters to use in hiring digitally. It is today -- has crossed 0.5 million downloads with probably under INR 4 spent on customer acquisition per customer. We have 1,100 customers and a little under 200,000 active job openings across 4 cities. In some of the higher volume roles, Quess -- QJobs have enabled recruiters to hire 1 in 4 to -- sometimes, in some cases, 1 in 2 contacted candidates. Just think about the impact it has on recruiter productivity, where traditionally recruiters are used to hiring 1 to 2 out of every 10 people they contact. QJobs, through its superior screening, credentializing and testing processes allows as high as 1:2, and this is something that we're going to keep driving, we're very excited about. In our key businesses such as Staffing and Terrier, we have had months where QJobs has been more than 10% -- has a -- more than 10% of our gross hires have actually been on QJobs. Our employment benefits platform, earlier called MarQet is now rebranded as Dash, has had a very good first year, signing up 100-plus customers and serving more than 4,000 associates over the year with a loan volume in March of around INR 2 crores issued by our partner NBFCs. We continue to remain excited about the possibility of making it a one-stop employee benefit and engagement platform. So that is an overview of our platforms. I'll talk a little bit around the operational side. I'm happy to inform you that our cost management remains in good shape. Even as our business has scaled up in Q4, travel returned, people did come back to offices before the fresh wave, our indirect cost, which exited FY '20 at a run rate of 74, were down to about INR 51 crores in Q4, we do think that they will go up this year as we've passed on salary increments, bonuses and come back and travel started. Bonuses go up and travel and expenses return. But we will keep a close watch on this. We are launching several additional initiatives such as further space rationalization, subcontractor cost optimization, further IT cost reductions and organization design optimization. Our organization health has also further strengthened over FY '21. We have a strong leadership team, much more standardization in our processes, and a huge hunger for success. When we laid out our 2020 vision to you on March 5, 2020, none of us knew exactly how disruptive COVID would be to our lives and to our businesses. I am immensely proud of each member of my management committee, and of each Quessian for the perseverance she or he has demonstrated. We are collectively proud of our purpose and resolute in our goals, and I assure you we will not waiver. Our cash generation continues to be robust. Our OCF generation last year in FY '21 was double that in FY '20. Our cash conversion is at a historic high, and this is on the back of much better balance sheet management, cash management, customer collections and tax collections. We continue to watch our cash management carefully and we will continue to deliver well on this parameter. In line with this, it has been a real pleasure to reward our shareholders with our first ever dividend payout, in line with our new dividend policy, where we have committed that we will return 33% of our free cash flow approximately over the next 3 years, back to our shareholders in either dividends or buybacks. We remain committed to this. Moving from last year to the present. I'm sure you want a sense of what impact the current wave will have on our businesses. Overall, to date, the current wave appears likely to be less harmful to our business than the first wave. This is partly attributable, thankfully and frankly, to the human element. At this point, our clients and us are more focused on employee safety and vaccinations in the face of higher illnesses, and sadly, mortality. To date, we have not received a single material request for employee demobilization. Beyond this, the business volumes impacted by the first wave of COVID in IT/ITES, education verticals of IFM, Food, carrier, had only partially covered by end of Q4. So we see less of a negative impact on these business at that time. Having said that, we are clearly seeing the dampening of the momentum built over Q3 and Q4. We are not perturbed. We see how we can execute. We see that we can build momentum back quickly. But at this point, clearly, the momentum is down over the last 3 or 4 weeks. Three specific businesses that have been particularly hit by lockdown are DigiCare, where our services have shut down for the duration of lockdown; Excelus, where our centers are once again shut; and Monster, where sales, especially field sales have been impacted in the SME segment. It's difficult to quantify the impact at this point, and we will not give you a quantification. We will give you a clearer picture with our Q1 results coming next month. Before I hand over to Ravi, I would like to reemphasize our commitment to our twin goals of 20% ROE by FY '23 and 20% year-on-year OCF CAGR. I assure you that -- I want to thank you at the end, the Analyst and Investor Committee, for your support to us and to our execution. We remain committed to the institution and to our goals. Ravi, over to you.

Thank you, Suraj. Good morning everybody. I hope all of you are doing well and keeping safe...

Mr. Ravi , sorry to interrupt. Can you speak closer to the handset, please? Your voice is not audible.

Yes. Is this better now?

Yes, sir. Thanks.

Yes, it is.

Okay. Good morning, everybody. I hope all of you are doing well and keeping safe in -- during these difficult times. I'm excited to be part of Quess Corp and looking forward to the next phase of my journey with the company. Let me now walk you through the financial performance of the company and our main businesses. So talking about financial updates. Our overall revenue in Q4 grew about -- grew by about 7% as compared to the previous quarter. For the full year, we continue to maintain the revenue at the same level as last year despite the massive COVID impact we saw in Q1. Our businesses have returned to secular growth, and we continue to focus acutely on collections. In the process, we have evaluated all receivables, specifically receivables to the government across all our businesses. While we don't foresee any increase in current risk in receivables from government, we have been reducing our exposure to certain government businesses. Over the past few quarters, we've been talking about the need to create provisions that we made in certain receivables. These deals have been further accentuated due to the second wave of the pandemic, and therefore, has led the management to believe that this is the right time to provision these government deals. Accordingly, we have provided for an amount of INR 119 crores in Q4 of FY '21 out of abundant caution. It's imperative to note that this does not, in any manner, indicate any concerns with respect to the recoverability of the amount in the future. These are mere provisions, and the receivables have not been written off. We will continue to pursue the collection and write back provisions to the P&L account as and when the said dues are collected. With this provision, we are confident about taking care of all the credit risk exposure that exist from such receivables. Consequently, EBITDA in Q4 '21 was down 75% to INR 38 crores as compared to INR 151 crores in Q3 FY '21 owing to the aforementioned government...

Mr. Ravi?

Yes?

Sir, sorry to interrupt. We are getting some disturbance from your line, sir. And your audio is sounding bit feeble. If possible, can you speak closer to the handset, please? And mute your Zoom -- Teams?

Is it better now?

Yes, sir.

Okay. Consequently, EBITDA in Q4 '21 was down 75% to INR 38 crores as compared to INR 151 crores in Q3 '21, owing to the aforementioned government provisions and COVID-19 related impact of INR 20 crores from the Excelus and skill training development business. However, the normalized EBITDA for the quarter grew 5% quarter-on-quarter. Similarly, for the full year, reported EBITDA was down by 30%. Adjusted for one-timers, EBITDA was down by about 12.3% versus FY '20. The impact of COVID-19 related lockdown on high-margin Training and Skill Development and Food business was approximately INR 98 crores for the year. The reported PAT in Q4 '21 was impacted by a onetime charge on account of goodwill -- on account of a deferred tax liability that was created on goodwill. The charge was about INR 52 crores and was -- and came about due to a change in the tax laws announced by the Finance Minister in January '21. However, for the full year, reported PAT stood at INR 74 crores, down from -- I mean up compared to about a negative INR 432 crores last year. I would now like to update you on our balance sheet guidance. We are glad to inform you that we continue to maintain a net cash position of INR 99 crores in Q4 '21 as compared to INR 355 crores as of the end of last year. As alluded by Suraj in his message, in April '21, we purchased the remaining 30% stake in our Conneqt business from Tata Sons for a cash consideration of INR 208 crores. This could probably see an upward trajectory in the gross debt and -- however, we do assure you that we will bring the gross debt down to our net cash position over the next couple of quarters. Our relentless focus on cash conversion/generation has seen Q4 '21 delivering an OCF EBITDA conversion of 93% versus 33% for the same quarter a year ago. It's important to note that this reflects true business performance without taking into account any tax refunds or other extraneous items. For the full year, our OCF grew by about 151% with OCF EBITDA conversion of 131% in FY '21 versus 44% in FY '20. We continue to focus on achieving the 20% ROE by '23 through judicious capital allocation. The Board and senior management of the company have also been contemplating for several quarters now about paying some of the cash flows back to the shareholders. Accordingly, we have announced a first-ever dividend since our IPO of INR 7 per share, in our endeavor to optimize shareholder returns. We will continue to prioritize debt repayment and will return excess cash to the shareholders where appropriate. Given our confidence in organic financial growth and cash conversion, we have adopted a revised dividend policy, where we expect to return approximately 1/3 of the free cash flows to shareholders through a combination of dividend and/or buyback annually in the future. This will help us reinforce management discipline around maintaining optimum treasury levels for the company as well as reward shareholders who have placed their trust in us. We continue to simplify the organizational structure to ensure that our businesses can be understood seamlessly. Accordingly, we have made and continue to make improvements in bringing down the overall subsidiary count. We have filed for a merger of 2 entities before the NCLT, namely MFX and Greenpiece. Talking about simplification. We are also in the process of simplifying the way we work internally and driving uniformity in all our processes across all our businesses. The process of upgrading to SAP HANA has been largely completed. This is expected to put our businesses' accounting system on a single platform, thereby simplifying and aligning our processes under a single platform and reducing time and effort and improving efficiency in reporting. We thank you all for your continued support. And with this, I would like to now open the floor for questions. Thank you all once again.

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

Congratulations Suraj and team for a good close to FY '21. I have 3 questions. So one is from an FY '22 perspective. You alluded that we are extremely focused on the health and safety of our employees and associates and that has to be priority #1. But what are some of the other things that you're looking forward to in FY '22? If there are some milestones that you can share to our journey of 20% ROE, that would be helpful. So that's my first question. My second question is on the WFM platform. I understand that we are going slowly in terms of the Excelus business. And as a result, the margins have come off to 3.6%, 3.7% sort of a level. I just wanted to understand, is this a new normal? And how do we think about this from a medium term? That's my second question. And third question is, if you were to assume a high teens sort of growth over FY '22 and '23, how do we see cash conversion numbers over the next 2, 3 years? Do we see them coming back to 60%, 70% level? Or do we expect them to be structurally higher?

Thank you, Aditya. Thank you for the questions. Let me answer 1 and 3, and then I'll ask Ravi to take on your second question about the WFM margins. So FY '22, I think we want to -- we're targeting 20% ROE by next year. We want to get approximately half the way there this year. Frankly, this year, it's really going to come through growth. And our focus really is on growth in every platform. We've doubled down on sales capacity. We're doubling down on cross-sell. We're also doubling down on some of these new revenue streams I've spoken about, be it construction, manufacturing, health care, IT services. We have been very deliberate about identifying areas that can give us further tailwinds. So really, this year is about growth. Obviously, OCF, we would like to -- I think we would like to kind of target ourselves on 70% of kind of OCF conversion. I think that's what -- that's a minimum we'd like to deliver. And that's probably what you should model. Let's see how it goes. Look, I think our -- the reality is our engine is much better. I think we're -- we've been very disciplined about our cash management. At the same time, last year was an unusual year. So let's -- I don't want to overpromise, to be blunt about it. On the WFM business, Ravi, you want to go for the answer there?

Aditya, what -- the normalized EBITDA margin that you are currently seeing would probably be the kind of least that we probably would probably get to. The skill business contributes to a higher margin in the overall platform. And once that business comes back into its normalcy, we do expect margins to inch upwards. The second part of the margin improvement that we expect to happen is with the IT staffing business increasing its footprint in the higher-margin kind of businesses that it's been going after over the last 1 year. So on both these accounts, we do expect the margins to kind of kick upwards from what has been reported as normalized EBITDA for the year.

Understood, sir. Very, very helpful. Suraj, just one question as a follow-up. You talked about growth in FY '22. Can you probably help us understand which of the 3 segments do you think is going to be a flag bearer for us when it comes to growth? Do we expect significant higher growth in tech vis-a-vis workforce or OAM? Just some color on that would be helpful.

I think, Aditya, you should demand and we demand that all of our platforms sort of grow at, let's say, about 20% top line. So I think there are no free parcels this year for any platform. And I think all of our presidents are targeting that.

The next question is from the line of Sudheer Guntupalli from ICICI Securities.

Ravi, congratulations and all the best on your new role. My first question is on the INR 52 crore adjustment of the deferred tax liability. If you can help us understand which line item is this INR 52 crore adjustment reflected, in both the P&L and the balance sheet? Also, overall outstanding goodwill due to MIS is around INR 300 crores post the write-off which happened in March '20. This translates into around overall tax shield of INR 75 crores over the lifetime of the asset, maybe 5 to 10 years. In that context, adjustment of INR 52 crores looks high, given that the book base and tax base difference would have arisen only for a year after the honorable Finance Minister has changed the taxation rules. So any thoughts on this would be welcome.

Sure. So Sudheer basically, we have 2 categories of goodwill in our balance sheet. One is goodwill that does not get depreciated. And two, goodwill that has been used for -- I mean that is getting depreciated in the tax returns batch. So they -- so the one that's getting impacted due to the change in tax law is the second component. So in the -- so in our books, the carrying value of this particular goodwill is about INR 290 and odd crores. I'll get you the full detail. And in the tax base, the difference -- I mean the carrying value of this particular asset is about INR 207 crores -- roughly about INR 207 crore -- between INR 207 crores to INR 210 crores. The difference between -- so this is the value, the INR 200 crores of depreciated goodwill is the one that is thought to be -- I mean is the one on which the deferred tax liability has been created now. We actually debated this quite a bit, whether the change in law is, in fact, a temporary timing difference which is what the deferred tax treatment is actually or should be given for. But this is a consistent position that has been taken by the accounting firms. And accordingly, we had no other choice but to go ahead with this particular charge. Having said that, we would be making necessary applications to the agencies concerned to clarify on the correct treatment of this particular matter. And you could call our treatment of creating a deferred tax liability as a conservative -- I mean as a conservative kind of measure only to be kind of rectified, should we get a favorable ruling from the agency next year.

Sure, Ravi. But if I understand it right, the book base and tax base difference is roughly around INR 90 crores or slightly lower than that. And given a corporate taxation of around 25%, the DTL adjustments should have been lower. That's the first part of my question. And the second part is that how is it reflected in the P&L and balance sheet? Because balance sheet, DTL assets has not changed meaningfully. And in the P&L, we would have passed it to the taxation line item, I assume. But there also...

Yes. It is a taxation line item. The gap -- like I said, the gap is almost about -- about INR 200 crores is the gap on which DTL has been created.

Okay. And P&L and balance sheet reflection, where exactly is it reflected in the balance sheet?

Balance sheet would be in the [indiscernible].

Because the DTL items have not changed much from the September quarter.

I will come back to you on this question before the end of this thing. I'll tell you where exactly. I'll come back.

Sure, sir. No problem. Yes, and second thing on the INR 119 crore provision. When we say legacy government business, is this related to Trimax or is this related to the receivables in training and development? And also what is the status on Trimax? And any color on why the amalgamation of Trimax was rejected by the regulator?

So there are 2 things here. One, of course, it's a combination of both Trimax and the Training and Skill Development, so it consists of these 2 elements only. And second, the amalgamation of Trimax was not the -- was rejected by the regulator on account of a technical issue which is why it's being refiled currently with the NCLT. We have proposed a 4-way merger kind of last year, and we are now actually getting it down to a 2-way merger, which is MFX and Greenpiece. And so it is purely on a technical issue of the number of share capital for the shareholders needing approval was -- the technical issue on which it was actually injected by.

Sure, Ravi. And what is outstanding from Trimax, if I may understand? And any possibility of future provisioning on Trimax account?

We don't foresee any future provisioning on the Trimax account. We believe that the amount that we have provided for so far should be able to -- should be more than adequate to take care of any eventuality as far as Trimax is concerned. The total recoverability from Trimax is about INR 101 crores.

Which is still due?

Which is totally due, yes.

And Ravi, just one clarification on that because this is almost a 2-year back issue, right? And so if I understand it right, in 180 days or so, the accounting rules regulate or demand a provision on that account out of abundant caution, but this is more than a 2-year issue -- 2-year-old issue. So just trying to understand as to why we are not taking provision for the rest of the INR 101 crore amount.

So basically, government dues are considered sovereign dues, Sudheer. And the policy had been to not provide for government dues at all because it is a sovereign kind of due, which actually the state actually promises. So this is the reason why we had not provided for it. Having said that, out of abundant caution, we have come up with a new policy which will provide for a certain amount of total receivables to be taken care of as provisions on a going forward basis.

Sudheer, I just also want to just make sure that the question you asked first, I just want to make -- kind of clarify that. The question was an incomplete one. You asked why was -- why the regulator rejected the merger of Trimax. Let me put that fully in context, right? As part of our simplification exercise, we are progressively reducing the number of subsidiaries that we do not need to own or need to have independent. We have gone for a fast-track NCLT process with 4 of our subsidiaries including Trimax, requesting that they be merged into Quess. The reason it did not go through was, in the process, the regulator came down and said that 90% of all of our shareholders need to vote for the resolution for this to go through. It is a mathematical impossibility for us to get 90% of our shareholders to vote because many of the investment companies have a policy of not voting, right? So that is the issue. It's got nothing to do with Trimax, it's got nothing to do with the company. It's purely a process issue that we have now refiled with 2 subs. We decided to keep Trimax as a separate sub simply because we realize that on further consideration, given that [indiscernible] project exists, it is better to keep it as a separate sub for now. So that is the full sort of the full answer, if you will.

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

So I just wanted to check. So I think if I look at the operating asset management EBITDA and the adjusted EBITDA, there's an INR 83 crore difference. And I presume that would be related to the Monster provision. Now is there any -- now with reference to recovery of that amount from Ahmedabad, do you think it's something that is stuck because of technicalities with regard to the merger and having it as a separate sub? Or do you think it's just about collection rather than any technical sort of impediments?

So maybe, Guru, you want to take that question?

Sure. So Nitin, this is Guru here. So to set that context, we, of course -- I mean it is going through the NCLT process and the novation is taking some time, that's a technical impact. But otherwise, we don't see any project. This is one of the best awarded project and it has accolades of multiple awards that we have got, and we have completed 85% of work on the project. So it is just a technicality which is slightly taking some time. But otherwise, we definitely foresee in terms of getting this collections rolling up easy in the next couple of quarters coming.

Sure. That's very helpful. The second was in terms of provisioning or in terms of goodwill, I think most of it is just -- is already done, right? You don't foresee any more such thing in the future of the quantum that you have seen in the last 2 years. So just trying to ask that most of these large sort of numbers are largely through and you don't foresee similar large numbers going forward?

Not really.

Nitin...

Sorry, yes, Suraj, go ahead, please.

No, no. Nitin, we are absolutely done with COVID and legacy issues. We're done.

Perfect. That's quite helpful. Then the only other thing I wanted to check was in terms of what we are seeing today in terms of the second wave, how does -- how is that sort of impacting your thought process on the business for the year? I ask this because I think this quarter, we have seen some good pickup in operating asset management and even workforce has done well. Does that sort of put the brakes for a quarter? And do you think that's just a quarter's worth of pain and then things recover? Or do you think this could be a little more long run? Just wanted your thoughts on how one should think about the flow.

So the only thing certain about COVID, Nitin, is that anybody who's trying to predict how COVID plays out has got it wrong. So I won't give you a forward-looking statement on this. What I will say is we are holding our internal targets. We are holding on to them. It's certainly been a loss of momentum through lockdown, okay? So having said that, we genuinely feel that a lot of the contracts, assuming I think if the current lockdown is really sort of -- let's hope wave 3 is not debilitating. We still feel that we can make our annual targets. That's where we are right now. And that's the best visibility we have. Lohit, I don't know if you want to say anything specifically about WFM?

Yes. Nitin, I hope I'm audible.

Yes, you are.

Taking on from where Suraj was, I think the difference between last year's Q1 versus this year's Q1 predominantly has been that last year was a complete economic trough, which the whole country went into. And everyone, every organization, including Quess was thrown into that trough. I think what we did significantly in our sales process in Q1 itself and by the time we emerged in June '20 was to start talking about what are the resilient parts of the economy and the segments, where our sales can double down and get us wins and get us deals, irrespective of what happens in COVID. So this year, Q1, probably like Suraj rightly said, I'll take it on from there and forward-looking statement is a little challenging for us in these pandemic times and otherwise also. The speed may vary. But I -- at this moment, I do not see us getting down and thrown into a trough like last year. And as all of you have been reading in media and the way the economic cycles are continuing, there are parts of the economy which continue to function this year, unlike the situation which was there last year. That's number one. Number two, I think this year around what people have seen is just a sharpness of the COVID rise is also almost equal to the mirror of the sharpness of the COVID drop. From a higher 4,14,000 cases in a day, we are down to close to 1 lakh. We're not still there, but we are very much there. Four southern states put together is contributing now 80% of the cases. So I think this is known to India, this is known to a lot of corporates, and whatever people have lost in the last 4 to 5 quarters, they want to make to in the next 3. We will remain hopeful. I understand that Suraj is giving all of us a lot of messages on this call as well, and we take those messages loud and clear.

[Operator Instructions] The next question is from the line of Jasdeep Walia from Newmark Capital.

Sir, what's the total amount of receivables from the government as of now? Or as of 31st March 2021?

Ravi?

Yes. The total amount will be in the region of about INR 200 crores would be the total receivables, INR 200 plus about INR 100 crores in the Trimax. Between INR 270 crores to INR 300 crores will be the total receivables on the government.

Got it, sir. Sir, on this total amount of INR 120 crores, which was written off in the quarter, what amount pertains to write-off of receivables?

No, we have not written off any of these amounts. These are mere provisions, like I said. These are not write-offs at all.

Yes. So what's the provision on the part of government receivables?

This INR 119 crores is provision on account of government receivables.

Okay. I got it.

The entire provision for the quarter of INR 119 crores was all to do with legacy government business.

Sir I wanted a breakup of the provisions between Trimax and other government receivables. I don't know if that's possible for you to...

Sure. Sure. Absolutely. Absolutely. Sure, I'll give it you. I mean Trimax was INR 83 crores and government receivables was INR 36 crores.

Got it. Sir, the IT, you mentioned in your presentation...

Mr. Walia?

Yes.

If you can speak closer to the handset piece, your voice is a bit muffled.

Sure. Is it better now?

Yes.

Yes, sir, please proceed.

Sir, you mentioned in the presentation that EBITDA from IT staffing business have grown at a pretty significant rate in this year. What was the growth in sales in IT staffing in FY '21?

Lohit, you want to answer that?

Yes, I will. Mr. Walia, so I think what you're referring to is a real trend change in the IT industry across the board. And you've seen the results of the Tier 1 IT companies as well. I think with the plateau-ish kind of a demand in the last 3 years, IT is now coming to a multiyear cycle. What our teams have done is they've doubled down and added a few things. One, Suraj spoke about the large sales wins. The wins that we've got this year and Ravi also alluded to that, is not from the ITES or the perennial demand of Java J2EE and the front lines where the PO values typically remain close to the 25,000 to 40,000 per associate per month. We've gone for a digital strategy. And in the next 3 years, we're going to play that digital strategy significantly as far as our Quess IT staffing or erstwhile Magna Infotech was concerned. On a revenue basis, I would say, we're pretty much flattish. And so is it on the headcount. In fact, on the headcount, we would be marginally lower than where we were in March '20, but it’s the mix which has caused this 54% jump in EBITDA and this will continue to happen while beyond a certain time this year itself, you will start seeing the revenue and the headcount both climbing because the mix would have fairly changed by that time and our strategy on the digital sales were, on an average, the margin is 3x the potential existing margin of the [ past ]. So I hope that answered the question that you had.

Yes, sir. One final question, if I may ask. Or should I come back in the queue?

Go ahead, please.

Sir, in the presentation, your model -- you mentioned that GICs will be the focus area in your IT staffing business. If you could please elaborate on what kind of services are you focusing on to target GIC?

So GIC is a very generic terminology for captives. Within captives and within digital as a strategy, we have both the vertical as well as a horizontal strategy. So there's a horizontal which cuts across certain very niche skill, which will cut across all categories of GICs. However, GICs in themselves are verticalized for us, which could be products, which could be service-based companies, which could be Fortune 500 GICs in India, which would be health care-based, which could be global retail or FMCG GICs in India. So GICs, in itself, has multiple different ingredients. But digital for us starts as a horizontal. So when we call out GIC, what we are basically talking about is the 1,500 to 1,600-odd GICs that are in India, the investment which is coming into India in GICs. So both existing, which are growing as well as the new ones which are setting up. That's been our focus area, and a part of our Quess IT staffing team singularly focuses on this.

Next question is from the line of Amar Mourya from AlfAccurate Advisors.

Sir, my first question is...

Mr. Mourya, if you can speak closer to the handset, please.

Is it clear now?

Yes, sir.

So my first question is on the WFM. Despite the breakeven in the skill business, the overall WFM EBITDA has been down. So if you can explain me what has led this margin contraction? And what basically bleeded into this?

Sorry, which business are you talking about, Amar?

WFM business, Workforce Management. I mean despite the skill business -- I mean you alluded that the skill business had seen a breakeven this quarter. Despite that, the overall EBITDA is down. So what could be the reason?

Yes. No, it is absolutely about the skill business. See that business would be, let's say, INR 10 crores to INR 15 crores of EBITDA per quarter pre-COVID. So that is gone, right? You take Q4 without that. Otherwise, I mean literally, I think the IT staffing business, as we said, margins are up. GS has remained flattish.

And the INR 36 crore provision also has been [indiscernible] INR 36 crores [indiscernible]...

Oh, that's right. That's right.

So in this business also there is a provision, right?

The Training and Skill Development business was INR 36 crores onetime provision, right?

Okay. So that is the part of minus INR 36 crores, okay. So if I add INR 36 crores, then basically, you're saying the EBITDA was probably up?

Correct.

That's right. The normalized is about 3.66% versus 3.7% a year ago. You can see it on Page 34 of our investor deck.

I got that. And sir, this operating asset management business, this -- I mean INR 119 crores of provision is the part of this operating asset management business?

No, 83% is part of operating business.

86% is the part of operating...

83, 83, 83.

83. Okay.

So actually, Amar, again, if you go to Page 34 of the investor deck, you will see the normalized. The difference between the EBITDA and the normalized EBITDA is entirely due to the government provisioning.

[Operator Instructions] The next question is from the line of Soumitra Chatterjee from Spark Capital.

Ravi, just a couple of questions. First is, what is the markup per person -- per associate in the general staffing segment? Can you give a trend for '21 and fiscal '20 also? And second is in the general staffing segment, what is the funding proportion? While the collect and pay and pay and collect is at 73:27, what is the proportion of revenues or headcount, which we are funding the client in the general staffing segment?

Okay. So what we are funding is the 23% is what we are funding from it, because we have reduced our funding exposure significantly. It is what you said. And I don't think as a company, we have put out the per associate per month. But all I can assure you is that it is in line with what the industry trends are. We are -- we compete in the market actively and the markup at which we operate at currently is absolutely in line with what the industry trends are.

Okay. And just one question, if I can squeeze in, is the INR 300 crore receivables from government if you can split it between Trimax and the government training business, that would be helpful.

So like I said, about INR 100 -- about INR 100 crores is from Trimax, And then about -- and then the remaining would be between the Skill Development and a small portion into other receivables from certain other operating asset management verticals.

So the INR 100 crore Trimax receivable is after the provisioning of 83 or...

No, no, no. These are just prior to provisioning.

Prior to provisioning, of which 83 you have already provided. So 17 is still left, you mean to say? Okay.

Yes.

Okay. And the government is balance INR 200 crore of which INR 36 crores has been provided so far?

That's right, yes.

Okay. And as of today, have -- are we doing those government training businesses? Or is it completely stopped now? I mean as of Q4?

So as of Q4, we were operating at a 50% -- sorry, in Q4, the other centers opened up, and we were operating at a 50% efficiency, where 50% of our centers have actually opened up. But again, now with April and May getting into specific lockdowns across the country, some of our centers have again been shut. We will take stock of the traning business again once the wave start coming down, and then we will decide on which centers to open and then get the training restarted again.

But Soumitra, just to be clear on this. We are not taking on new projects. We are only running off existing projects. We do have commitments to run them off and we want to make sure that we fulfill our contractual obligations. That's what we're doing right now.

Sure. My only question is that while the Trimax issue is more or less over, that most of them has been provided for, in the government business, because of this lockdown and all the [ PAs ] and collectibles, can these provisions can happen in the next few quarters, because there will be delays and the auditors might say that some of the collections have gone beyond 120, 150 or 180 days, and you have -- may have to provide again. I mean excluding Trimax because it is more or less done.

We don't expect that.

Is it at risk?

Soumitra, we don't expect to do that. We expect we are fine.

The next question is from the line of Abhay Moghe from Bajaj Allianz Life.

One thing I wanted to understand regarding the put option of Tata Sons in Conneqt, which is being done in April '21. Was there any sort of charge or amortization or anything that was included earlier in depreciation and amortization in your P&L? And going forward, it will be not there because this deal is done? I just want to check. Like -- so how your depreciation and amortization will be there next year, will it be far lower because this deal is done or something?

No, I don't think this deal will have any impact on the depreciation or amortization, Abhay.

Okay. Second thing I wanted to understand was your tax rate because of all the goodwill and everything changing and obviously 25% tax rate. And because of that, there was some portion of deferred tax in your tax rate this year as well. So how do you see your tax rate, say, from next year?

We expect the tax rate to be in the 20% range, say, from next year onwards. I mean if we were to have -- of course, this is subject to 80JJAA. See 80JJAA will have a fairly large base in our overall tax rate. And so typically, our tax rate would be determined by the amount of 80JJAA provision. I mean benefit that we would be able to claim. So therefore, it would be a little out of place to really indicate what exactly would be the tax rate. But all I can tell you is it will hover between the 15% to 20% change, given that there are certain other businesses that are not entitled to the tax rates of 80JJAA dividend.

Okay. And last thing that I want to understand was your 73% of like workforce management or general staffing is collect and pay. So obviously, that's a sort of negative working capital. But I assume most of your other businesses will be positive working capital. So as you start growing your -- I understand in the opening remarks, Suraj mentioned that you will try to maintain EBITDA to OCF [ conversion ] around 70%. But do you think there are risks to it as other businesses also grow fast? Or do you think that's manageable?

No, I think that's a very, very good observation, Abhay. The thing that -- one thing that has actually helped us during FY '21 was the fact that our -- the demand on working capital was reduced on account of operating asset management business. But as we see all other businesses coming back on and kind of beginning to fire, we do expect the working capital requirements to kind of increase. And we have made adequate provision to take care of such requirement of it. So I don't expect it to be -- this is something that we are watchful and which we are acutely aware of.

Abhay, having said that, 70% OCF to EBITDA conversion, I would be disappointed if we can't maintain it. You see that Q4 also, there was almost a 7% growth, right, across all businesses. And you saw our OCF to EBITDA conversion without any one timers like tax and throughputs or whatever. So I would be disappointed if we don't make 70%.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Suraj Moraje, MD and Group CEO, for closing comments. Over to you, sir.

Thank you. So again, thank you all for being here today. I'm sorry we couldn't answer all of the questions of people in the queue because of time constraints. Those of you who are still in the queue, please do drop us an e-mail, get in touch, we'll absolutely be happy to engage. I just want to close by saying that we remain very resolute in our purpose. We're very charged coming out of Q4. We think that the business execution -- the businesses have shown their power of execution. We have [indiscernible] the core businesses would have been up 5% year-on-year, were it not for the Food and TSD businesses, so we've shown that we have the speed to recover quickly. Across platforms, that's been quite secular. Our cash generation, like I said, is more -- more than doubled in FY '21. It's the best in the history of the company to date. Our net cash position has improved. And we started paying dividends. We feel very, very charged as a management team about where we are. We are very focused on the way ahead. We thank you for your support, and thank you for your time on the call today. I wish you all good health, stay safe, and let's get the economy going again. Thank you.

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