TeamLease Services Limited (TEAMLEASE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call with TeamLease Services management, hosted by IDFC Securities. [Operator Instructions] Please note, this conference is being recorded. I'd now like to hand the conference over to Mr. Rohit Dokania of IDFC Securities. Thank you, and over to you, sir.

Thank you, Vikram. Good morning, everyone, and welcome to the Q4 and full year FY '20 results conference call of TeamLease Services Limited. Firstly, apologies for the minor delay because of some connectivity issues. I hope all of you and your near ones are doing good. I would like to thank the management for giving IDFC Securities the opportunity to host this call. The management team is represented by Mr. Ashok Reddy, MD and Co-Founder; Mr. Ravi Vishwanath, CFO; Ritu, Head of Staffing business; and other senior management personnel. We'll start the call with a commentary from the management and then move into the Q&A. Thank you, everyone, and over to you, sir.

Thank you, Rohit. Apologies for the slight delay. So just as an update, obviously, we are going through difficult different times. And I think we have seen the start of the impact on that from March, but I think we have been taking the necessary actions from our end for business continuity and to stay in touch with the customers, the associates, the employees and ensure that we are able to operate and also effectively be prepared when the market and the clients start to open up. I think, effectively, we did see an impact on the headcount coming in from March. If -- we have had a reduction in the associate count and the NETAP trainee count, while the specialized staffing business has been kind of consistent. So we had about a 7,500 reduction overall in March. However, as we look forward into Q1, given the April numbers and how it is playing out, we expect about a 16% to 19% impact on headcount to come in from the aspect of the COVID reductions that clients are having. I think, overall, we have kind of clocked in a revenue growth of about 17% year-on-year. EBITDA was flattish. PBT was down largely on account of provisions and some of the other HR service performance and P&L. We've had a much lower net profit largely because of the MAT write-off that Ravi will cover. If you look at it as a stand-alone aspect, the general staffing business has added headcount, grew about 16.5% in revenue, increased about 12% in EBITDA. EBITDA margin was kind of flattish at about 2 -- 1.9%. The IT staffing business also grew in revenues at 61%. The EBITDA grew by 28%. We have a provision in there just as a cautious approach under COVID. We were looking at some element of collections that might not happen. And hence, we decided to make a provision there. The IT staffing business has maintained a 9% -- has got to a 9% margin, which is what we believe will be the steady-state margin in IT staffing. Telecom has stayed flat, both in revenues and profits and margins. But I think the -- what we had indicated earlier of exiting certain projects and staying focused on margin-accretive verticals will play out into this year. So I think the margin improvement as reflected in Q for us will play out into the coming year. IMSI is integrated now and integrated with what we call the specialized staffing vertical which has IT, telecom, and IMSI. And I think that will stay steady on numbers and margins at around 11%, 12%. Other HR services is where we've had a decline in revenue. That's also in line with the aspects of sunset that we would like to do on the government business and that is kind of on track. I think we've also taken caution to provide for receivables in the businesses there, just given the whole COVID impact and layoffs and customer liquidity issues on that side that we expect. So I think we have an additional INR 4 crore-odd provision that is impacted there. I think Freshersworld is the other P&L where we have consciously made investments in building the technology platforms for hiring both as an applicant tracking system and as a database for TeamLease, which has enabled us to move up the hiring contribution to 20% from the platform which we think this year will move up substantially more. Also, what it does is drive up our delivery capabilities on the hiring front in a large way. And now all recruitment teams across businesses are on these technology platforms. Instead of capitalizing those platforms, last year, we decided to take it into the P&L and write-off that investment. But I think effectively, what will happen is that now we work with a much more truncated team because the upfront development on that front is completed. I think overall, at Q1, we will be looking at a reduction in headcount, but some of the other P&Ls, like our compliance business and the digital platform have seen an increased demand. And I think there is onboarding of customers that has been happening there. And we think that, that trajectory should sustain itself. Ritu will cover a little more. I think we are also focusing the whole activity on staffing from Q2 onwards to trying to drive on growth and hopefully by then the industries and companies have opened up. And effectively, we will be able to look at positive movement in numbers thereon. Internally, I think what we have done is effectively tried to work on our own headcount rationalization and cost rationalization in line with the reduced associate headcount and business. And a lot of that has been initiated from March, will get completed by June. And I think we will have impact of that coming into the quarter and thereafter into Q2 and onwards. I think there is, hence, a reduction in the core employee headcount which is kind of reflected towards between Q3 and Q4 itself of about 150 resources. We believe there will be a further rationalization on that. Employee costs accordingly would come down. Other expenses also in Q1 would go down primarily because the offices have been in lockdown. We have started working from the last 3 weeks. We have 10% of the staff working out of the office in Bangalore and a partial number from the other offices. So we've been, I think, cautious in ensuring the work from home, our business continuity, connect with customers, associates and employees during these times. Happy to say that we haven't had any employee falling ill. And there's been good business continuity that we will sustain out into the future. So I think, overall, the -- we could have had a better growth, should have driven for a better growth and profitability, but I think that will be something that we will focus on into this year again. Growth will get impacted in Q1, depending on how industries and companies open up, we will look at reinitiating to that in Q2. And obviously, the cost controls and productivity aspects being worked on to drive the sustainability on the margins would continue. Ritu would just give an introduction -- I mean, give an overview on the staffing side of it, general staff.

So good morning, everyone. I think just to give you an overview to begin with of last year's performance, the last quarter's performance. Well from an annualized perspective, we have seen growth on the top line to around 16.5%. From a revenue perspective, we are looking at about 12%. However, particularly for the last quarter, I think the -- I think industries and sectors have probably started seeing the possible impact of COVID and then we started losing associate headcount in the month of March. And that essentially kind of slowed us down to some extent. Yes, from an EBITDA margin perspective, it has remained flat at around 1.9%. From an FTE perspective, I think we fell marginally from our last quarter performance to about 264 as against 266. I think, of course, we've been making steady progress in terms of how we'll be managing our headcount, and hence, there has been, in the last quarter, a significant amount of rationalization that has happened from a headcount perspective. I think in terms of the hiring mix, I think overall additions that we have seen over the last year, 17% of them has been through hiring that we have done from our side. In terms of the funding customer mix, I think we pretty much remained at the same level as last quarter. In terms of the fixed, even the number of associates who are in fixed markup remained kind of flat. So just to give you some perspective about how we are looking at markets hereon, I think the fact that we are springboards in good times and shock absorbers in bad times has never been more evident than in current times. I think since March onward, we have started seeing the impact of lack of revenues showing up in terms of the associate headcount. We believe that we will see around 15%, 20% reduction through the -- through Q1 in terms of headcount. And at our end, I think we have taken all the necessary steps in terms of sustained rationalization of costs, largely by way of headcount restructuring and headcount rationalization and reduction. Of course, there are some benefits we've got in terms of the operational costs having come down. I think the way we look at the future hereon, I think, from Q2 onwards, it's clear that there is going to be a phased recovery process across the top 15 segments, the 15 industries. And in our view, we would like to stay focused on the few sectors which seems to have a much more predictable path towards recovery and focus all our energies and resources in terms of maximizing our growth opportunities that are emerging. Of course, there seems to be some shift in terms of demand for profiles, which are emerging. And whether it's in terms of our hiring capabilities and servicing, we are making changes at our end to ensure that we are able to deliver to those opportunities which are likely to emerge in the future. Clearly, segments -- agriculture remains a sector which has been unaffected largely, and hence, we would continue to chip in towards that sector. We believe that chemicals will make a rebound as a sector. E-commerce, of course, remains -- will become and is probably a sector that should see steady growth. Even in the retail space, we feel that essential retail and nonmall formats continue -- will continue to see demand. We see some pockets of positivity emerge even for FMCG, which is largely around processed foods and staples. Health care and pharma, again, some sector, which has remained COVID-proof throughout this journey. We believe logistics and also, we expect some amount of revival towards the latter half of the year from manufacturing and energy. Interestingly while telecom have had a difficult last few years, but it's been quite steady, and we believe that, that steadiness will also be a window of opportunity for us. So I think with that I've tried to give a bit of an overview in terms of, well, how we are looking at the future from a staffing perspective.

Right. So while we will have the sectoral mix playing up depending on the economy opening, I think one key variable has been that we've been able to sustain the average markup over the quarter. And I think what we are seeing some clients is some ask corporate discount in the short run to tide over the current period. So we are doing that on a per client discussion basis. I think the whole mix of funding to nonfunded has stayed consistent so we still have only about a 12.5%, 13% being funded and the balance is collect-and-pay model. And I think the whole element of hiring capability enhancement and delivering to a larger percentage of the positions as a mix between recruiters, our technology platforms and our vendor channels has gone up quite substantially. So also on the productivity front, if we didn't have the March reduction, we would have had a productivity FTE improvement, but that kind of stays flat. But I think with the headcount adjustments, we should be able to drive that back as we go forward. Ravi will just cover a little bit on the numbers.

Yes. So good morning, everybody. As we have been talking about this for the past couple of quarters, and we have chosen to adopt the new tax regime and the lower tax rate, which meant that the MAT tax credit that we had accumulated over the past few years are an eligible amount that we could have possibly adjusted over as against our future tax liability, had to be written off. And so we have taken a onetime charge of about INR 50 crores in the current quarter in Q4. So we have adopted the new tax regime and believe that we would -- it would benefit the company significantly both in terms of cash flow because we would not have the MAT tax outflow that we have seen in the past and have the advantage of the lower tax regime. So we have seen -- we've also seen reductions in the DSO, overall DSO. Collections have improved across businesses with barring a few. Like we mentioned, the total funding exposure in the staffing business continues to be at about 13%. Other businesses too have seen collections kicking in between Q3 and Q4, including the government business we have seen some collections coming in. So overall, I think our DSO seem to be on track. We have continued to maintain a very strict focus on our collections even during the current times. And things are the same, if not better in the -- right now. Our -- we continue to stay focused on what we need to do. We continue to stay focused on capital allocation during these times. Certain decisions have been taken which we'll probably announce over the course of time. And we stay committed to get the margins back to the level -- the staffing margins, the company-level margins, back to the levels that they were at in FY '19. And so we are focused on that. And we believe we have done the necessary groundwork over last couple of months to deliver to those numbers once the market and the economy kind of revives over the next couple of months.

I think also, overall, over this period, over the last 2, 3 months, the aspect of engagement with customers on invoicing collections and all of that has been lot more rigorous. And we have seen a good element of collections coming in over this period. I think we are cash positive month-on-month. We still have -- while we've received about INR 40 crores worth of TDS refund letters from the IT department, we haven't yet received the money in hand, and we expect that to come in probably over the next 2 months, it's already late. Normally within a month of receiving the letters, we receive the cash on that front. Also, I think, effectively with the cash accumulation, foster cash flow and all compliances and all payments being met, we should be able to, month-on-month, increase our free cash flow position and keep a higher cash reserve available with us. We've also kept a INR 25 crore line of credit with a bank just in case should we require it, but we don't see any need for drawing on that at this point in time. So I think the key focus will be to be frugal with capital, to be consistent in the follow ups, collections and capital allocations across the businesses. And I think we will work towards the aspect of in the short run, adjusting costs, but in the long run, revenue ramp-ups to drive on the profitability and the margins into the future. But I think what we are trying to do is work with companies and industries during this difficult time to effectively handhold the work from home, handhold the associates, handhold the tough decisions that are being taken both at their end and our end. That's it from our side. Happy to take questions.

[Operator Instructions] We have our first question from the line of Sudheer Guntupalli from Motilal Oswal Financial Services.

My first question is to Ashok, coming to the 15% to 20% headcount reduction you spoke about in June quarter, is this a cautious and conservative estimate we are looking at, at this point in time? Or have we already seen that kind of numbers pan out in April and May months itself? And now as the economy has largely opened up, is there any incipient change in the direction of hiring discussions you're having with clients or in the pipeline?

Yes. Sudheer, so I think current situation that we are in is frankly not modelable. And I think we are trying to model the unmodelable. And from that perspective, have been looking at sectors, companies that have been impacted, sectors, companies that have been able to function in the lockdown and function and people who have effectively been looking at increasing headcount. So it is the combination of all 3. So while we've been making an estimate on the number reduction basis what we think, we're not sure of it. So obviously, April is done. We have a view on the number there. May payroll is still going on. It will take another 3, 4 days before we close out on May. And there have been -- has been a revival of some of the companies and industries in terms of the working. Employment has kind of started coming back into -- employees have started coming back into offices, have been working from home, a combination of all of that. And I think even in April, we've had some new clients who'd come onboard and onboarded new associates. Obviously, the attrition from existing clients have been larger than that. But as you pointed out, there are some companies and sectors that are seeing and having discussions on positive growth. But overall, I think given the current situation, we do expect the Q1 to be negative. But the dialogue with corporate, with new clients, with prospects is about how we can complement for growth in their requirements.

Sure, sir. That's very helpful. And regarding the PF trust issue, if you look at the unrealized gains on the investment in the trust, it has been increasing over the previous 3 quarters. So from INR 47 crore in September to INR 66 crore in December to INR 78 crore in March. So in March month, both debt and equity markets witnessed a significant correction. So just curious on why there is a meaningful increase in the unrealized gains by end-of-period March?

Sudheer, so the -- some of the investment in the bond markets, the state government instruments have witnessed some demand over the last few months. And that probably explains how the unrealized gains have actually increased to INR 78 crores. So we would probably be taking advantage of some of these -- of the gains and booking profits in the current year but just to make sure we don't miss out on those opportunities.

Fine, Ravi. And one last question. So if you look at the provisions in other HR services, so both central government and state government seem to be sounding quite proactive in terms of releasing pending dues and payments to different vendors and even releasing tax refunds to people also quite early. So even in that background, you expect the probability of delay or a credit loss in this dues, I think the provisions were largely taken in other HR services.

So the provisions are actually being taken against corporate receivables, not the government receivables. I think actually between late March, April and early May, we've had some good collections come in from the government projects. And there has been some element of movement on that front. And we -- so the government projects have given about INR 20 crores of collections over the last 45 days kind of a thing. But I think some of the corporates are seeing challenge on headcount, working and all of that. So our belief is that the aspect of a playout on headcount reduction or nonperformance and stuff might translate into them backing off some of the payments. And that's really where we said it's better to be cautious. And while we will continue to chase for those follow-ups, I think it was just better to look at it from a provision perspective.

We have next question from the line of Vimal Gohil from Union Mutual Fund.

Sir, my question is on margin expansion. You said that you are wanting to get back to 20 -- sorry, the margin level of -- overall margin level of about 2.12% that you had delivered in FY '19. But given the fact that you have done a lot of initiatives at your end, you've probably stepped up hiring from your platforms. You've sort of reduced cost. Going forward, I mean, over and above FY '21, do you expect margins to be at a higher level even at a higher level as compared to FY '19 also given the fact that there are multiple initiatives that you have initiated even before the COVID. So where do you see your long-term margins settle in going forward?

Yes. So I think at least for '21, we would like to bring back the margins to the '19 levels and work it up from there. So I think some 2, threefolds. One aspect is, obviously, staffing, we would have to look at how the current negative impact can be offset by cost adjustments and then look at growth thereon playing through productivity in the latter half of the year. The impact in specialized staffing in the current scenario has not been much. I think across the 3 verticals of IT, telecom and network security, the demand has stayed consistent while some of the mandates that were to have come onboard in Q1 has deferred to Q2. We haven't had a major reduction play out in headcount, other than some of the projects that we have consciously chosen to drop on that side. So as I had mentioned over the last 2 quarters, TIRF as a vertical play was something that we were looking to exit and some of the lower-margin play in services and stuff, we were looking to exit. But I think overall, the demand in specialized staffing seems to be there. And specialized staffing is compared to the general staffing business, the higher-margin play. So in IT, we have about a 9% margin that we're looking at. Telecom, should get back to the 3%, 4% margin, network security should be at a 11% to 12% margin. So I think stability in that with some element of a growth in the second half should enable us to move the margins. And in other HR services also I think the aspect of some of the revenue growth and the element of cost productivity aspects that we were doing, one of the P&L in Q4 has turned positive, will continue to stay positive as we go forward. They have also been adding revenues during this shutdown period. I think overall, the portfolio playout, while it's really what will contribute to the margin getting back on track, growth will really be a function at this point that we will have to effectively wait to see how the economy opens up. But I think we would -- we are the eternal optimist. We would like to believe that formalization will have to be the way forward given the whole migration that has played out and the impact for the unorganized sector and all of that. So I think even for the government, trying to work on formalization would be a key imperative. And obviously, as formalization happens, we would play on that wicket. But I think hope that the future has a growth potential, and we will continue to work towards that is how we would look at it.

Sir, your provisions in the HR business are largely done. Would you -- would it be safe to make that statement?

Yes. I mean, I think, effectively, the way we are looking at it under a new surprise come, but I don't think there should be any. We have looked at all clients, looked at all the elements of the outstanding and the possible feedback that we've had from them and then looked at the provisioning.

So the reason why I'm asking this question is because we had some government receivables that we wrote off earlier in the year. And now we have some corporates -- private corporate where we have had to write-off. So how are we looking to improve the overall quality of client conversion?

Government provisions have been written off. They were short-term provisions, which on collections get reversed. So we haven't had any write-offs in the government revenues.

These are only provisions being made, Vimal. So these are not write-offs. These are just provisions being made on a prudent basis and on the basis of the policy that we have for provisioning. So this is purely on that front, I mean, we have not written these debts off. These continue to get focus, these continue to get collected. And as and when they get collected, they get written back.

So what is the total provisions that we have made in the HR business for the full year, including the government and the private corporates that we made this quarter?

Vimal, I'll just get back on that question.

He said, we'll back to you on that question.

Okay. So lastly, I just had a question on the working capital. You said that the company has about INR 40 crores worth of TDS refund letters from the IT department. That should -- that would significantly help our working capital position next year. Would that be right?

Yes, absolutely. Absolutely.

Okay. So your working capital on absolute basis should reduce going forward in FY -- maybe in FY '21?

Absolutely, yes. You're right.

Okay. Okay. Yes. That's all from my end. If you could just give us -- please, give me the provision number for the HR business, that will be it.

Yes, sure.

We have next question from the line of Susmit Patodia from Motilal Oswal PMS.

Good morning, everyone. I hope everyone is safe and sound. A couple of questions. Firstly, just to -- just a bookkeeping question, out of the INR 6.5 crores of provision, INR 4 crores is for other HR services. Is that right?

Yes.

Yes.

And INR 2.5 crores is in IT, specialized staffing?

Yes.

Yes.

Okay. And so if you could tell us how many accounts would these come from?

So this is a general provision we've made not specific to an account. So we've just taken it as a view looking at the overall outstanding and the client portfolio and some of the feedback. So it's not attributed to a specific client as such.

Okay. So actually, just to finish on this aspect and picking up on the last participant's question. Out of the total provisions you've made, have you written back anything yet? With government, plus all the other provisions that you may have made on receivables?

Yes. So on a recurring basis, there are write-backs that keep happening.

So we have written back almost INR 4 crores provision, what we created in Q1 of FY '20.

Okay. Okay. So -- okay.

This is an ongoing activity. And so of the total provisions that we made in Q1, we've written back about INR 4 crores. And as and when these amounts get collected, they continue to get written back actually.

Okay. The second aspect is the MAT decision that you have taken to move to the new tax regime. I was wondering because of the massive 80JJ benefit that we have, which year does this breakeven for us? I mean -- or is it a pure cash flow call?

No. This is a pure cash flow call and -- because if you go back, I mean, under the earlier regime, the tax rate used to be 33%, but given that we were not liable to pay any tax on account of 80JJAA, we came under the minimum alternate tax, and that was a 22% tax outflow for us on our book profit, which was what got accumulated as the MAT tax credit, which was a INR 50 crore opening balance that we've written off. Under the new tax regime, the tax rates have been lowered to 25%, so if you want to take -- if you were to adopt to the new tax regime, the tax rate for 25%, the 80JJAA continues to be available for us, I think we know, probably one of those few sections that continue to remain in the stack, in the tax books, which means that we will not be required to pay any tax. So under the new tax regime, the MAT has also been eliminated. So we would not be required to pay any minimum alternate tax. So thereby, the tax outflow for us, which used to be 22% of the book profit would not be there going forward.

So you'll have 0 cash tax outflow in FY '21. Is that the right understanding?

That's correct. Yes, you're right.

Oh, wow. Okay. And just lastly, Ashok, I wanted to ask you this, and Manish has been talking about this in various platforms. Is that only 5% of India's labor force can actually work from home. So are you -- when you said that the demand profile is changing, are you seeing any significant change or are you seeing more work from home enablement at your end?

Well I think it's effectively a new norm. And I think 2030 has been pulled forward to 2020 in terms of digital transformation, whether it is e-learning, whether it's online learning or work from home or technology platform adoption and stuff of that sort. So I think frankly even if I just look at it as a microcosm of TeamLease, we had 100% of the employees working from office. And for the last 3 months, we have actually had 100% working from home. Even in the new normal as we go forward, we are actually dialoguing to say what percentage of our people can continue to work from home. So I think, it is going to be a differential strategy and approach for different companies and different sectors. Obviously, there are companies in manufacturing and retail and stuff where you do need the employees to come to the construction and all of that, where people need to be on site. But purely in service sectors, in IT and in other areas, the opportunity of work from home or work from anywhere comes in as a viable option. So I think industries are gearing themselves up for the new norm. And I think we will see a lot more adoption on technology, adoption on variable models of working and see that evolving as we go forward. But I think Ritu also has something to add on that.

Yes. I think it's a fact that the workforce of India has, I mean, like close to almost if you're looking at 88% of the work being informal in nature, by default, these are work which are -- cannot be done from home and are done remotely. So we need to mentally make that connection. Also COVID has exposed the divide between mind workers and hand workers. So I think while work from home has been talked about largely, but we have to realize that, that's the possibility largely of those who use their minds. And definitely, we are likely to see a huge shift in terms of organization decisions about moving such kind of workers, maybe permanently to a work from home kind of a arrangement. However, large part of the economy is still dependent on people who work outside of workplaces. So while COVID has allowed these people to being at home, we are not particularly sure whether all those people were actually working from home or were in a position to work from home. I'll give you an example of the call center segment. I think call center segment was deeply impacted because of the -- because of COVID in a way which we have not seen maybe in other sectors. For example, their work has security requirements, privacy requirements. And I don't think -- I mean even in their offices, mobile phones are not allowed. So those kind of profiles unlikely can immediately move to a work from home kind of an environment. So I think that, just to give you a perspective about the whole directive around work from home.

Yes. And specifically, if you were to look at it in our context, in the context of our temporary staffing business, 75% of our headcounts are sales, customer support and logistics people. And that's how it's been for actually for the last many years now. And we don't expect any significant -- these are activities that can't be worked out-of-home. So those will continue as and when the economy requires, we will have sales people coming back. We will have delivery boys coming back, and we will have your customer service people coming back to our homes to fix stuff and stuff like that. So I think that's how it's going to be as far as the business need, especially to our business that's particularly that.

But an extension of that in specialized staffing, in IT and in network security, 100% of the workforce was working from home. Even the temporary forces, clients wanted platforms and apps to monitor and manage them, but 100% of the work over a month was happening from home.

Just one last question to Ms. Ritu, and to Ashok as well is that have you seen -- we've heard lot about these labor regulations being changed in a couple of states. Have you seen any initial interaction with any large companies? And could these states be a big growth engine for us for the company?

Yes. I think, first and foremost, I think as an organization, we feel that it is a positive move in the right direction where states are coming forward in terms of taking lead on making necessary legislative changes in the -- within the state governments, within the state territory boundary. While we might have essential views on decisions taken by different states, but I think it's a move in the right direction. At this point of time, I think most of the legislations that the states have come out with are pending executive decisions from the cabinet and bench from the President. So we'll have to wait and watch how that has -- that translates in terms of impact on our customers and us. But we do believe that we would probably going forward, we should anticipate a lighter touch of legislations. And I think that's a bright spot out there for us. I think besides the state legislations, I think there are many representations that we have made over the course of the last 2, 2.5 months. We try to be specific in terms of making specific changes and amendments, which helped the industries as well as the staffing fraternity. So I think if COVID doesn't make all concerned public policymakers aware of the need for labor reform, I think no other situation possibly can. So the focus of all the labor reform agenda has to shift towards job creation rather than job preservation. Some of those measures that we have taken during the month of April under the Disaster Management Act, which kind of tied down the hands of many employers, have definitely -- that has been done away with and which gives a little more freedom to industries as well.

[Operator Instructions] We have next question from the line of Garima Mishra from Kotak Securities.

First question, this NEEM cash tax outflow. Till when do you think this will sustain? Is there any sunset on it at all that you envisage?

At this point in time, I mean, it's very difficult to answer that question, Garima. But at this point, given that when the new tax law, when the new tax regime were introduced in September, October last year, the only section that the only reduction that they are allowed is 80JJAA. It clearly shows the intent of the government to formalize the workforce. And given the current situation we are in, where we've had these migrant issues, where most of the migrants where actually -- are -- were working in the unorganized sector. To bring them back, et cetera, I think the government will probably keep the 80JJ section for a while, till they believe that there is -- that there has been some movement from the unorganized to the organized sector.

Okay. But otherwise, Ravi, there is no other sort of hindrance, which can come in and I mean barring any regulation change, but there's nothing else that basically hinders you from availing this benefit in the years to come, right, assuming all else is equal, is same?

Yes, absolutely because we also have completed our first tax assessment last year where this particular section was claimed for the first time in our tax returns, that has been -- the case was taken up for scrutiny. And after scrutiny, the tax officials have allowed the deduction so -- which means that what we have done is right and this section is here to stay for us as a benefit for years to come.

Okay. One question for Ravi and Ritu, could you please comment a little bit on demand for your general staffing segment from BFSI because that's been an important one for TeamLease for the last few years?

Yes. I think what we are trying to do is unpack BFSI and not look at it in inventory as BFSI because different elements of BFSI is likely to get impacted differently. For example, the entire NBFC side of BFSI is heavily dependent, has a retail demand. And as you understand, as you are seeing all around that overall, there is a different retail consumption. And hence, the retail demand is likely to not go up for probably another quarter. However, I don't see BFSI being completely damp. I am looking at a revival of that sector from the -- in the second half of this financial year. Because while our existing customers, because I take feedback from them, they have been concerned because of the dip in revenues. They somewhere still see -- they are cautiously optimistic, if I may put it that way, about a possible revival from Q2 end and Q3 onwards. So I think it's a sector which will still -- I don't see new additions, but I don't see too much of reduction out as well at this point of time. So this probably will stay flat post whatever numbers we end June with for about a quarter, and then we might look at -- see a increase in headcount as -- coming from that sector.

We have next question from the line of Jason Soans from Monarch Networth Capital.

I just wanted to have a broad outlook. I understand right now that situation is pretty fluid. But just as a broad outlook on generalized staffing as well as specialized staffing. As in, in the post-COVID scenario, post June or July say, how do you look at the demand scenario?

So Jason, as I mentioned earlier, I think we are just -- and this is something that no one has ever faced before. And it is a situation that people are evolving on, on a recurring basis, the whole lockdown, the opening up of the lockdown, the phased work model, the fear it has created in people in terms of social engagements or in office and work and stuff of that sort. So I think clearly Q1 across industries and companies is going to be bad. Our belief is that with the phased opening up that we are seeing, companies coming back to work and life, employees coming back with precautions and all of that, we should, in certain sectors, start seeing some element of demand improvement, whether that will more than offset the negatives of other sectors, we'll have to wait and see because there's -- I think the -- for overall employment and industry pickup, there is a supply side constraint and the demand side constraint, and we have to ensure that both of these are effectively being addressed for the industries to come back. But I think, like I had mentioned earlier, we are eternal optimist. We do believe that the economy will pick up again. We will start seeing formalization and employment in a longer time frame. And we will be working towards that. In the specialized staffing, as I had mentioned earlier, the immediate impact has not been much. I think the nature of the resources, which are essential for delivery work and also in essential services, such as telecom, we haven't seen an impact on headcount per se. But I think what we are looking at is a push out of some of the new mandates into Q2 and thereafter. So I still believe that for the year, there is growth potential in the specialized staffing business. Whether that comes as an account of consolidation from the multiple vendors that we have been working with, formalization, the aspect of general growth. We will be open to all of that. So I think specialized staffing has -- will stay stable to growth. General staffing will have an element of a reduction in the Q1 and we'll wait to see how we can drive that up to growth as we go forward.

[Operator Instructions] We have next question from the line of Abhijit Akella from IIFL.

I just wanted to understand the segment EBITDA breakdown that's been given in the PPT. It seemed a little bit different from the format we used to follow earlier. So the sum of the segment's EBITDA doesn't seem to reconcile exactly with the P&L. Just wondering whether other income has been included within the segments here. And also the unallocated line is not provided there. So if you could just help out with these details, please.

Abhi, so yes, other income, which is pertaining to the respective segments, we always add it back to the respective P&Ls. And that's how we have been presenting like since we got listed. And at a consol level, at an analytic contribution is similar to what was there for last year which is almost around INR 15-odd crores between year-on-year.

Okay. All right. Fine. Maybe I'll take the details from you offline tomorrow.

Yes.

We have next question from the line of Sandesh Shetty from PhillipCapital.

Am I audible?

Yes, Sandesh.

Yes. My question to you is with respect to -- sir, the employee addition has been just 4,000 for the whole year. And -- but our mark-ups have gone up. Hello?

Yes, we can hear you, Sandesh.

Yes. But sir, the mark-ups has gone up to 7.44%. So if you can explain what drove the growth in markups? That would be helpful.

So associate additions and the markups are 2 different variables. And I think we were driving for a larger number associate additions. But I think the March reduction as against a positive growth -- Q4 reduction as against a positive growth impacted the overall plan on additions of associates. The markup PAPM is a function of the percentage markup that we have with customers, the new customers coming onboard, our ability to price and renegotiate existing contracts, offer some of the value-added services as the elements of the ATL, attendance tracking and stuff of that sort. So I think the combination of all of that goes into the PAPM. And we have been able to drive that again over the year while over the last 2 quarters, it's kind of been flat. The PAPM, we have been able to drive up a little bit.

Okay, sir. And sir, one more, if I may squeeze in. Sir, in the notes to accounts, it has been mentioned that INR 2.81 crore deferred tax charge. I wanted to understand if this has an P&L implication?

Yes, it will have a P&L implication. Since we moved from 34% to 25%. Like 34% was the old tax regime and 25% is the new tax regime. So that's the difference between the percentage movement, that's what we have presented is the note.

We have next question from the line of Tarang Agrawal from Old Bridge Capital.

Pardon me if this has been addressed before because my call dropped in between. But -- so when I look at your P&L, your specialized staffing business mix has improved in FY '20 over FY '19. Yet, I noticed a 50 bps drop in gross margin, that is revenue minus employee expenses. So what happened here? And how should we look at it going forward?

So if you look at specialized staffing is largely in 3 vectors that we have. So we've got the element of IT, telecom and the network security. The IT margins, as we had indicated, we've done an additional acquisition of eCentric, which was a lower-margin play, merged it with our earlier business that we had. And the aggregate margin play, we said would be at around 9% EBIT. And that's roughly what it has come in at and will sustain into the future. The telecom, we have actually gone kind of a negative, but our belief was that we should be able to bring it back to a 4% margin. Some of the project closures and stuff have been happening over the last 2 quarters, will play out to another quarter. But I think we've got that effectively to about a 2.8% EBIT, and we should be able to improve it thereafter as we go forward. In IMSI, roughly -- I mean, it's relatively new. It's about 4 months into the system. But around 11% to 12% EBIT is really where they should land in at. I think what we've also been able to do post the element of the acquisitions and the 3 verticals is integrate them under one leadership. So we've got [ Sunil ], who's come onboard to take charge of the specialized staffing business viewing these 3 as 3 verticals. With the leadership reporting in, they've managed to create a shared service between the 3 verticals so that the cost overlaps and headcount overlaps are kind of taken care of. So we will see a huge element of a core headcount reduction per se happening in the specialized staffing business as a function of the integrated play that they will be doing as we go forward. So I think that's really where we would be working out to. So I think overall while we effectively have about between -- about 400-odd people in the consolidated specialized staffing business, we will see that reducing substantially as we go forward to about 250 in the future.

No, I understand that specialized staffing, you have it going all right. My question was on the gross margins. So the question really is that if the mix of specialized staffing services is increasing in the overall revenue, logically, because it's a high-margin business, my gross margins should expand, right? And your realizations in your general staffing business have also improved. Yet on an overall basis, your gross margins have come down by 50 bps. So is it because of margin pressure or cost pressure in the general staffing business?

Well I'm not sure where this number you're referring to. If you could -- because I mean, if you could specifically revert with that by mail or a follow up call, we'll be on to that.

Okay. So I'll do that. I'll -- we'll do it over the call. The second question I have is what do you think are the benefits of increased hiring through your teamlease.com portal?

So I think it effectively enables us to get greater reach, conversion and a lower cost per hire. So I think the variables that we look at from a hiring perspective on the staffing side is how can we do more open positions closure. How can we do them across multiple locations and how do we effectively do it at a lower cost. I think the digital platform enable us to achieve all of those 3 gauges.

[Operator Instructions] We have next question from the line of Nitin Jain from UTI Mutual Fund.

I have just one question. So in the...

Sorry, Nitin, your voice has dropped.

I'm sorry, we couldn't hear your question. Please, repeat the question again.

Maybe he is dropped out.

We have next question from the line of Madhu Babu from Centrum Broking.

Sir, last 2 years, we have done a fair amount of acquisitions to build the specialized staffing portfolio. Now with the minimal cash on balance sheet and a weaker cash flow trajectory, so are we saying that acquisitions would not be any -- we would not look for any acquisitions in the medium term?

So I think we continue to stay debt-free, and we are cash flow positive. And if a acquisition made sense, we would still explore opportunities. But also, if you look at the historical trajectory of our inorganic growth, none of them have been really very big-ticket items. So I think they are all latch-on, add-on verticals that effectively add to the current portfolio of products or technology or team. And I think to that extent, we would continue to stay active to look for opportunities. If an opportunity is right, we will either fund it from our internal cash approvals that are happening month-on-month. We can look to raising debt if required or look at other options into the future. So I don't think we're in a rush to doing any inorganic growth. But should any good opportunity come by, I think we will stay open to it.

Sir, and just do we expect the festive season again to show a pickup because, I mean, 1Q anyways is a washout but when we are building a back-ended momentum, so you're saying that festive season, again, things could pick up?

Right now, it is so difficult to comment on what is going to play out into the future. Primarily because that is really demand growth, and that is going to be driven by liquidity in the system, employment for individuals, the layoff impact. So I think there are multiple variables that are going to impact. But like I said earlier, the festival season is many months away. I think in the interest of the economy, people and the overall business sentiment, I'd like to stay positive to saying that demand and supply would have sorted itself out by then.

We have next question from the line of Soumil Zaveri from DMZ Partners.

Just something I noticed in the CRISIL rating report from April is that it said that we are looking to invest in a new business associated with ready-to-move-in office spaces. Can I request you to address that a little bit and give a little bit of color on that, please.

So we don't invest in any -- I mean, ready-to-move-in office spaces. But for 1 or 3 of our clients, we provide office infrastructure as a service. So besides the element of staffing that happens, we also front end the office space requirements that they have. And that is the only add-on as an offering that comes in, in there. So it's not a conscious business line that we are getting into. This is purely specific to 3 customer requirements that we do the service on.

We have next question from the line of Nitin Jain from UTI Mutual Fund.

Sorry, my line got disconnected earlier. So I have just one question. So are you seeing any opportunities for market share gains from smaller players in the new staffing business? And did you have any conversations with the clients in this regard?

So Nitin, I think clearly, our belief is that corporate will act differently post this crisis blows over. But having said that, I think right now, everybody's focus is avoiding the crisis. So I think while we have dialogue with people around consolidation of vendors, a larger share of wallet with the customers and all of that, decisions per se will happen when some sense of normalcy returns for them. So which is really where I was earlier saying that Q2 onwards is really where we would actively look for dialogue on growth because our belief is that customers have then come back into office, the new normal has kind of set in and then the leeway for dialogue around growth, whether it is consolidation, whether it is growth because it's business demand risk or whether it is formalization could start to kick in. Having said that, like I mentioned earlier, we did have an element of associate addition happening in April, that was obviously offset by the negative from other clients. So there are dialogues with specific clients for growth in numbers that are either shifting from other vendors or coming in new per se.

Also, just to add there, that the crisis also kind of exposes organizations in the same fraternity, especially staffing in different ways. For example, the resilience, the ability to engage and the ability to handhold customers through the difficult times is -- that is suddenly starts becoming visible and far more visible. And we do feel that there is a possibility of an -- or an opportunity to take advantage of some of those relationships at this point.

We have next question from the line of Alok Deshpande from Edelweiss Financial Services.

Yes, can you hear me guys?

Hello.

Yes, yes. Good results as well. I had a question on the pricing bit. So have any of your larger or medium-scale clients come to you in April and May and asked for any sort of temporary cutting the pricing?

Yes. Like I had mentioned earlier, we do have requests come in from customers to support them during these difficult times by reducing the price temporarily and stuff of that sort. We -- it is very client specific. We have been dialoguing with them about it. And we have given some price cuts for specific clients.

And what part of your overall client portfolio would this be for, any weightage of...

Very small portion.

Very, very small amount.

Very small portion.

Very small. Okay, fine.

The way we have structured it with them is that we hold the old pricing and give them a credit back for that discount rather than factoring the discount per se into the price right now. Just so that we'll be able to revert back to the old price when the market improves for them.

We have the last question from the line of Rohit Krish from VRDDHI Capital.

Sir, just wanted to understand, out of our overall cost, other cost which we have in around -- in this year, around INR 170 crores, how much of that would be like your fixed cost? And what is the kind of reduction that you envision in this year, owing to all the cost-cutting measures that you're seeing?

So effectively, the employee costs will see a reduction primarily from the perspective that we are reducing the headcount. So from Q2, we would have a larger impact coming in on that. The rental spaces and the office rental and stuff, which is the second largest cost item. Effectively, while we will have some leeway for leading up some office spaces into Q3 onwards. I think given the social distancing requirements and even if we have 50%, 60% of the staff coming back into work, we would still need to maintain a certain element of office space. I think at least in Q1, we see a huge reduction around travel convenience and other overheads because, frankly, that's not been happening at all. And for about 1.5 months, all offices were closed. So the overhead impact on that also would be much lower. So I think overall, while we have not worked on the annual cost play cut, we do see a substantial cost reduction coming in into this year.

Got it. And sir, just as a follow-up on this, what would be the core employee cost in FY '20? And do you see reduction in that also in the coming year?

So we have an average of -- so our average monthly wage bill is about INR 12 crores. And we have about 2,000 odd employees. We are looking at about a 300-odd reduction on that count. So I think at least about INR 1 crore, INR 1.5 crore wage cut is what we would potentially look at as we go forward.

Thank you, sir. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Rohit Dokania of IDFC Securities for closing comments. Over to you, sir.

Yes, thanks. Ashok, Ravi and Ritu, would you want to make any closing comments?

Just -- I mean, just a comment on the fact of the uncertain times that have been playing out from March, obviously, none of us, no -- this generation has clearly not experienced it. I think we are trying to work in a situation where any kind of modeling isn't exactly playing out to the reality. But I think staying true to the core staying resilient, staying focused and taking the hard decisions as required will see us through on this. I think a crisis also throws up opportunities from a macro perspective where things that were on a regular run could get shaken up, whether it's reform, whether it's labor law reform, whether it is formalization or whatever. And we do believe that these triggers could help the overall industry play into the future. So I think staying true to the core, staying focused, staying -- taking the hard decisions, working with clients, employees and associates is the way that we would look at the way forward. And so that's done.

Okay. Thank you, everyone.

Thank you very much, sir. Ladies and gentlemen, on behalf of IDFC Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.

Thank you all.

Thanks all.

Thank you.

Thank you.