TeamLease Services Limited (TEAMLEASE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to TeamLease Services Limited Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudheer Guntupalli. Thank you, and over to you, sir.

Yes. Good evening, ladies and gentlemen. Thanks for joining us today. On behalf of ICICI Securities, I would like to thank the management of TeamLease Services for giving us the opportunity to host this earnings call. On the call, we have with us Mr. Ashok Reddy, MD and CEO; Ms. Rituparna Chakraborty, Executive Vice President, General Staffing; Mr. Sunil Chemmankotil, Senior Vice President, Specialized Staffing; and Ms. Ramani Dathi, Finance Controller. We'll start with brief opening remarks from the management and then open the floor for Q&A. Thanks, and over to you, Ashok.

Thank you, Sudheer. Just as introduction, obviously, we entered the year with the uncertainty of the pandemic on us. And I think we had an impact on the headcount. The whole aspect of industry lockdowns, the country lockdown and everything else did put element of pressure on the headcount and the open position demand from customers, which kind of reflected in our Q1 with the overall headcount reductions. And I think from Q2 onwards, we have started seeing the opening up of the economy and some element of industrial activities starting to pick up. I think the most impacted in terms of manufacturing, auto and others have started to show earlier recovery on demand and open positions, which is reflected for us in our NETAP headcount growing -- or recovering from what they had lost by nearly 7,000. On the staffing front, some of the sectors still had an element of layoffs continuing into July and August. But from September, we have seen an uptick on the demand and open positions and client onboarding, which effectively has resulted in about INR 500 crores in the associate count for the staffing business. The specialized staffing business, marginal loss in numbers, but in line with what we had earlier indicated of wanting to lose certain mandates at a lower margin and playing to a higher-margin aspect on that front. So I think overall, we are lower on revenues, in line with the loss in headcount by about 10%. But the associate employee count has gone up by 4%, and overall, the PBT and margin improvement has played out in line with the overall restructuring that we had gone in for. Obviously, in line with the expected drop in business and the uncertainty, we decided to take calls on our own internal employee count, our own internal costs and also on whether we continue to exist in certain P&LS. And one of that was the decision to close the perm business, an impact of which we have seen in quarter 1 and quarter 2 in terms of additional expenses that kind of impacted EBITDA. But I think largely, most of those expenses are now accounted for with some trail impact into Q3. But post that, the perm business would be comprehensively sorted out. The institutional government training business that we intended to have a sunset clause on and not take any incremental business is also on track towards that. And we've not been able to kick-start the training programs even in Q2, with the government insisting [indiscernible] having to be physical rather than virtual instructor-led online programs. So I think the overall aspect of our restructuring has played out with internal headcount rationalization, cost rationalization and also the profit per employee -- core employee improving by about 30% overall. I think the focus as we go forward will be to look at growing the customers, growing the number of customers. We believe Q3 and Q4 should be positive. Obviously, the festival demand is not going to be as large as in regular periods of -- as in prior year. But we do believe that we should see positive demand and growth coming in, in Q3 and Q4. We would continue to focus internally on the team for productivity and performance. And I think overall, at a TeamLease perspective, we would continue to focus on growth, margin improvement and capital efficiency. So I think that's largely what we would be driven on as we go forward. I'll have my colleague, Ritu, give a introduction or input on the staffing side. Sunil will give input on the specialized staffing side. Ravi, our CFO, will give a financial update. And then we can open up for questions. Ritu?

Thank you, Ashok. I think taking forward from what Ashok has already spoken about, I think the quarter remained by and large flat for us. However, there are some positive signs from some of our key metrics that we've been closely monitoring. I think for sure, the productivity gains are visible. I think our FTE improvement has been decent. I think we are at about 300 as against 283. So there are existing productivity gains. Also, we are seeing -- while July and August, we continued to see losses or exits that have been happening across customers; however, from September onwards, we've been noticing distinct improvement in customer behavior and appetite to grow and hire. However, it is still sectoral- and industry-specific in nature. Just to give you a little bit of color on that, I think we've seen about 43% of our overall customers de-growing during the second quarter. However, about 30% were -- have been showing signs of some amount of growth. And the balance pretty much has remained as is status. We've also -- in the month of September, I think, where we've added about 29-odd customers during the quarter, I think during the month of September, we also managed to gain one large ticket customer. So I think we've been able to win back a large chunk of business from Samsung, from some of our peers in the space and leading staffing organizations. So taking our share to a considerable number within Samsung's scheme of things. We've also seen hiring improving over the previous quarter. I think we've seen the overall TRS upside, overall contribution from hiring go up almost double. Of course, it's not so material, the growth, given that the previous quarter was quite slow. But at least there are some green shoots in terms of hiring. So 3 key profiles that we are seeing hiring picking up is delivery agent, telecallers and sales executives. And some of the sectors, which are showing some signs of hiring, includes consumer goods, e-commerce, telecom, manufacturing and a little bit in the financial services as well. So also from a margin perspective, as against an expectation of general staffing closing at about 1.8%, we've been able to close at 2%. Also, yes, I think one of the interesting aspects that I'm discovering in hiring is that nonrecruiter channels have contributed to almost 77% of the overall volume. I'd also take a bit of the opportunity to share with you a little bit on the labor costs. I know they have been talked about quite a bit in recent times. And given the time that we've spent in this particular agenda, I thought I'll try and give you a compressed view. It's very compressed, because we're talking about 400 pages of document across the 4 codes. The objective ahead of doing this reform process have been largely to take care of the challenges associated with having multiple laws, having multiple enforcement authorities, having multiple licenses, registrations and returns and multiple definitions. The core objective was how can we reduce the burden of [indiscernible] employers struggle with and improve ease of doing business. So the first court is a wage code. That obviously got past the Parliament about a year back. That is subsumed 4 of the old act. I will just touch upon some of the key highlights that each of these codes we bring in front of us. Essentially, the entire ambit of minimum wages, while it was earlier restricted to these -- those in the organized sector and the formal sector, now there is an attempt to time cover all kind of workers. Most of the transactions have been -- the government is pushing for complete digitalization of the payment process, payment of salaries and wages. Contract labor is expected to be treated at par far with any regular employees and complete eradication on gender discrimination. On the social security, I think much talked about is subsumes 9 act. But the interesting one is gig workers have been included and refined. And there is an attempt to include all of workers, organized and unorganized, under social security. OSH, which subsumed about 13 acts, I think is important for the staffing industry per se, because the Contract Labor Regulation and Abolition Act first trial runs have been subsumed under this. And one of the agenda that we've been pursuing since 2011 of having national licensing doing away with the segmented approach towards licensing currently in practice and which also leads to a lot of retail corruption can be done away with and also help eradicate a lot of mom-and-box shops who are around our contract labors. There is clear definition, responsibilities of principal employers, contractors as well as workers. And of course, industrial relations, I think it's subsume 3 of the important ones. Besides provisions of changes around trade unions and their -- how they operate. I think the fact that fixed-term employment has been legitimized in all possible ways. But the large -- the only difference, honestly, between government employees and fixed-term employees is the fact that fixed-term employees have an end date. Otherwise, everything else has to be at par. There's also the retrenchment process currently where one needed to take approval from the government for anything above 100 now has been -- that limit has been stretched to 300. I think also there's an introduction of the re-skilling fund, which is essentially to ease the process of retrenchment and termination. There is -- the 29 acts of the 44 central acts have been reduced. However, the balance, which is almost 438 remains the state labor laws, which of course will be the next focus or should be of the reform agenda. But however, based on the ones that have been rationalized, we've seen significant gains for employers in terms of reduction of compliances across registration returns and registers. So while it's the beginning of the reform process, I think it's important to call out that one should not assume that this should immediately translate into business transforming overnight. I think the rules are yet to be notified. And I think it is just the beginning of the agenda. And I think in terms of the benefits of it, I think it should be into the long term, that's what we anticipate. But we don't think there will be some immediate changes besides the reduction of cost of compliance for much of existing employers. I'll try and touch a little bit on the outlook for staffing. I think we feel that Q3 definitely has -- showing signs of there being an upbeat momentum in consumption. However, it is nothing still compared to the pre-COVID level. So same quarter of previous year would have -- had been behaving differently. It's also very specific to certain organizations. So while we will see positive gains, but it's also important to not compare it to the previous quarter, because I don't think we will be keeping that level growth in volumes -- quantum of hiring rather to be more precise. PAPM, definitely, we expect the average realizations will come under pressure, because pricing and cost effects are considerations across all our customers. And -- however, it's important that's why for us to continue our focus on improving our operating cost and the way we manage this business and improve productivity so that we are able to tide through the current situation. So that's about it from my side. Thank you.

I think [indiscernible] labor code aspect is that we have always said that if -- any crisis is also an opportunity and the government acting in these times to bring about legislative changes around ease of doing business and driving formalization in the long run will lead to the benefit of the industry overall. With that, Sunil will give an update on the specialized staffing segment.

Thank you, Ashok and Ritu. Good evening. I trust you and your loved ones are doing well. We had a great quarter overall. Particularly from the sales front, we had bagging around 24 new logos. And together, with this 24, we have bagged around 40 new customers in H1. These customers definitely have come at a much higher margin than what we earlier had. This is going to completely change the product mix in our system, and this is going to propel the growth in the coming quarters. The shared services guidance, which we kickstarted in Q4 last year, actually played into -- played well and we are seeing significant improvement in the productivity and cost savings. While overall the hiring activity remains subdued in Q2 across the IT and telecom sectors, our clients were majorly focused on aggressively backing new digital transformation deal, which kind of translated into new kind of requirements which we received, which were at a higher margin than the regular margins. So overall if you see, the kind of hiring we did in Q2 is at a much higher margins. The change in the skill sets and -- the change in the skill sets of our consultants, which we deployed, actually helped us to give a better performance. If you look at our overall PBT achievement in Q2, we moved from 7.7% last quarter to 8.2% this quarter, with a margin expansion of close to 60 basis points. So that's a good jump what we achieved. The revenue remained flat. Particularly, we had to change -- we had a product change mix. So some of low-margin mandates, which we let go, were replaced by high-margin mandates. So overall, I would sum it up saying that we had a better quarter compared to the last quarter in terms of the results.

Thank you, Sunil.

Thank you.

Ravi will give an update on the finance side and then we can...

Good evening, everybody. Just a quick update on the financial matters. We began the year not knowing how the year would actually pan out to be. But what we did focus on was management -- balance sheet management, because we said, we'll try and recover as much of our dues as possible, we'll try and control our costs, and we'll try and improve profitability. I think we've done reasonably well on all these fronts. Especially, our cash flow conversions have actually improved during the first half of the year. And we believe we will probably be able to continue the same trend going forward as well. Our DSO has actually come down from about 22 days overall for the company as a whole in Q1 to about 20 days. We also did get tax refunds for TeamLease and for a subsidiary one during the quarter, during Q2. And this pertains to financial year '16/'17. We did -- I mean we do -- I mean there are some more tax refunds that are due for the current year, which we will talk about later. We also did focus quite a bit on trying to see if we could get some of the litigative matters out like we had a onetime settlement of an arbitration case. We kind of closed that out. So it doesn't niggle us going forward. We spent a fair amount of time on optimizing cost. I mean as Ashok alluded to earlier, there was a lot of cost actualization done on the headcount. We did get away from the permanent recruitment business, which led to a significant drop in headcount. In addition to that, there was a lot of resizing of teams that actually took place consequent to work-from-home, et cetera. All these things have led to lower headcount and headcount-related costs. In large part, the benefits will probably start kicking in from Q3 onwards. We have also given up a fair amount of real estate space across the length and depth of the company, wherever we had offices. And those benefits also will start coming into play from kind of Q3 onwards. So by and large, I think overall, we have done reasonably well on the cost front, although revenues were completely not under our control. All those which were under our control is something that we focused on. And I think it has given us the desired result. We still have a long way to go. We're still working on quite a few of them, and we hope to deliver on some of these between Q3 and Q4 and beyond that as well.

I think, as Ravi stated, focus on cash flow -- operating cash flow, tax refunds, we've been continuously getting those. We expect to receive some more in Q3 on the tax refund side. The focus on cost optimization and keeping the costs aligned to business volumes and focusing on productivity and technology implementation are key variables that we are focused on. Obviously, with the assumption that the worst of the pandemic is behind us, our key focus from all businesses is on sales, is on acquiring more customers and growing the existing customers, hiring for the open positions that are coming onboard and looking for growth in an aggressive manner, which is what we should be focused on. So with that, Sudheer, we can open it to questions.

[Operator Instructions] The first question is from the line of Sudheer Guntupalli from ICICI Securities.

Yes. My first question is to Ashok. Our general staffing headcount in September 20 remained almost flattish on a sequential basis. And we are still almost 12% lower versus pre-COVID on headcount. Now that we have clarity and visibility on some more moving parts than earlier, what is the time frame you're looking at to reach pre-COVID kind of headcount? Keeping in mind the seasonal factors, any supply side bottlenecks due to the nonavailability of resources, so on and so forth?

No, I think as we've all -- as we stated last time and as we continue to work, we look to end the year with a higher number than we exited last year. So I think what we have lost, we would like to recoup and be larger than at the Q4 of last year. And I think as Ritu stated, we are seeing opportunities towards that from the demand and the industry is opening up on open positions. We are not betting too much on the seasonal aspect of the hiring end demand because that is more for a shorter period of time, typically between 45 to 60 days. But I think what we are looking at is the demand that will be more sustained for the longer haul that will carry the headcounts through as we go forward. So I think we would like to say that we -- our internal aggression on sales is that we will end the year clearly with larger numbers than we exited -- we entered the year.

Sure, Ashok. That's helpful. My second question is to Ritu. Thanks for those insightful comments on the labor codes. Does the new labor law paradigm treat the concept of part-time temp staffing any differently than the old? As in, does that bring in further legitimacy to the concept of part-time temp staffing? What would be TeamLease approach going forward on this area?

So based on the erstwhile legislation, part-time temp staffing was definitely possible even before, simply because minimum wages have been determined and classified across the 4 buckets of skill on an hourly basis. It's just that it's also a matter of appetite for you to kind of opt for that. And I think as an industry, that's an option that has been exercised in different pieces, however, haven't seen dramatic success at scale. Having said that, the pandemic has also kind of opened up options and have also made it clear to job seekers and livelihood seekers that short-term part-time work, gig work is something that is sustainable and that can be an option for livelihood. So given that gig work also has been effectively legitimized in a big way, you will see emergence of alternative forms of employment in livelihood beyond just the traditional concept of permanent employees and having direct contract or contract employees. So there are different layers, which are being legitimized and recognized by the government, and hence, hopefully in the days to come, would be added options for employers as well as job seekers.

Also, I think just to add to that, to the legitimacy to staffing existed. I think the regulatory complexity overall from a compliances perspective was quite large and has been from overall compliance perspective. And I think the whole labor code, labor act consolidation, simplification of compliances and all of that will benefit from the aspect of our cost to delivery and compliance activity. And secondly, it would also drive from a formalization at the corporate end, where if things are simpler, are rationalized, are digitized, the need for formal employment and not playing below the radar becomes imperative as we go forward.

Sure, Ashok. So if I understand your comments and Ritu's comments correctly, you're essentially stating that this part-time temp staffing, the particular piece I was talking about, can actually become a big opportunity going forward. So in that case, I would like to just know your thought process on how TeamLease will -- will we be aggressively venturing into this area of part-time temp staffing or not?

We cater to all customer demands and effective requirements. So as we go forward, through the test platform that we have through our channel partner and hiring network, the ability to deliver to customer requirements is something that we are building up on. As demand comes in on that front, we will work to deliver to that.

So Sudheer, essentially, even at this point in time, like, just a while back, Ashok mentioned and alluded to the fact that we are not getting carried away with the up business that is now being talked about on festival hiring or festival-led. The reason is, already we are noticing that a large number of employee supplementation have moved towards engaging part-time workers. Part-time, by way of hours, part-time by way of the days in the week, part-time by way of being hired just for a period. So I think that's already a place. So whether it's hiring due to Onam, hiring due to the Dussehra, hiring due to Diwali, we are noticing that trend already. Hence, from our perspective, we look at it as an opportunity to have some big gains on the revenue front. However, on headcount, because of fact nonpermanently or the fact that they're for limited duration, we're really not banking on that from that perspective.

Sure. That's very helpful. Last one from my side to Ravi. How should one think about margins going forward? Some aspects of the aggressive cost rationalization that you had undertaken may unwind going forward? Like for instance, the salary cuts you had taken in the June quarter, so on and so -- or real estate savings, so on and so forth. In that context, it will be helpful if you can give us some puts and takes on where you see the steady-state EBITDA margins.

What we had -- if you recollect, Sudheer, even way back in the month of April, May when we had spoken to all of you, we had said that our focus is for the current year. Given that our performance for the year ending March '20 was not up to the expectations, we had said that our primary objective would be to take the margins back to FY '19 levels, which was, say, about, 2%, 2.1% by Q4. And that's what we would be focusing on in the immediate short term. And our long-term objective of taking margins to 3.5%, 4% continues to be on our radar, and that's what we are constantly working towards.

Sudheer, to add to that, the pay cut that were impacted and the furloughs that were done have all been reversed effective Q2. So we don't carry back element of a cost benefit anymore. So the profit and the performance is inclusive of the fact that, that has all been reversed and we are back to normal on that. The office costs and office spaces that have been given up, we will not be requiring, and we can continue with that cost reduction on a permanent basis.

The next question is from the line of [ Rahul Ramaswamy from Perfect Research Fund ].

I have a few questions. I'll list them together, sir. Even in mature markets like the USA, the staffing industry is extremely fragmented. So can leaders here in India consolidate and gain market share? Next, what threats in India are we seeing from automation, reducing our long-term demand of workforce, as our global peers are not able to grow revenues, fighting an automation issue. Finally, as per our channel set, even large corporates are tying up with regional players. What advantage do you have against these regional players as they offer cheaper services than us? That's all, sir.

So staffing industry has always -- I mean if I look at it from a global aspect, there are about 8 to 10 large players. There's a huge missing middle, and then it's a highly fragmented market. And the same reality has played out in the Indian context also. So there are a few large players, missing middle and highly fragmented market, primarily given that the entry barriers are low and it is easy to build an income-generating business out of this. But as -- if you -- as and when you want to scale, investments are required, and that's where people tend to back off or get integrated into the larger players. Also, globally, staffing companies have played to a market that is 100% formal. So there's no informality. There's no structural challenge on formalized workforce, and a certain percentage of the workforce tends to get outsourced. And your opportunity to grow there on is effectively a reflection of the economic growth that the country has and employment generation thereon. I think in the Indian context, we are far from being formal. We have a huge element of informal workforce, a huge element of informal outsourcing that happens. And hence, the opportunity for growth for us is not just from the aspect of economic growth and GDP growth, but also an element of the formalization that needs to happen. So even if you look at the historical trend for the growth of the staffing industry has always been higher than the GDP growth as a reflection of the overall employment generation that was happening, combined with a transition -- a part transition and a gradual transition from informal to formal. While automation and robotics and artificial intelligence and all of that will always play out with development of technology and otherwise, I think employment opportunities will also continue to parallelly evolve in different forms and modes. And I think from that perspective, opportunity for growth for staffing is not going to die away. And from that perspective, we still believe that the headroom for growth is quite substantial. The headroom for formalization is quite substantial. And the opportunity for any staffing company will be high. We still believe the structure of the industry will play out as it is being globally. And that's really where, at a point in time, the consolidation can also be inorganic for growth for the larger players. Hope I have answered your questions, Rahul.

The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

I have 2 questions. Firstly, on the new labor code, Ritu to you, any new clients that have come onboard, which may not have discussed with you earlier, but now is a reality because of the new labor code?

Too early to say. The labor code has been notified. The rules have not even come into play. So like we said earlier, I don't think the labor code rollout and the rule issuance is going to lead to an immediate translation of market opportunity. But it's in the right direction, and that is really what we are looking forward to.

Got it. The second is just other HR services, right? And you mentioned that maybe Q3, we have a little bit more and less. Is there a way that we can encircle the quantum that is left to be recognized in the P&L?

Should not be more than INR 1 crore in that sense.

So this INR 4.6 crores this time would go down to INR 1 crore, is my understanding right?

Yes.

Okay. And the third is on pricing pressure, which Ritu alluded to. So I'm just wondering if the way you are pricing the contract is now changing as you're realizing higher productivity. So are you now you able to price the contract lower, because you have higher productivity and hence the same margin? And does that open up better or bigger client in yours?

So we do have the leeway because of productivity and cost rationalization at our end. But having said that, I think we have, across the 2 quarters, maintained our average realization per associate per month, and we have not fallen on that. But I think what Ritu was commenting on that is the fact that a number of customers coming in with the uncertainty of how the business is going to be and the asset of support from a pricing perspective to see them through, while in quarter 1 we gave certain discounts, most of those discounts have been reversed. Quarter 2 has very marginal discounts left over as a carryforward. But I think if certain mandates are there for the peaking at a slightly lower realization than our current PAPM, we would be fine to take them now, given that the cost rationalization and productivity factors will offset that.

Correct. So you're open to that and that...

Yes.

Okay. And one more question I want to ask. One question, is that -- has there been reduction in competitive intensity that you have seen?

Can you just repeat that question, Susmit. Didn't hear you.

Any reduction in the competitive intensity? Because there was a mushrooming of a large number of small players backed by a lot of TV money. Has there been any reduction in that? Are you...

Small players really backed by PE money, I think the number of competitors in place still the same. But in certain areas -- I mean, not so much in general staffing, but in specialized staffing, the smaller players are challenged for working capital, because the times are tough, the need to follow up and maintain your relationships and ability to get bank loans and stuff of that are limited. So I think the benefit for us is we are still debt-free. We are cash flow positive. CDS refunds have put money in the bank. So all of those are good situations to be in. But per se, I don't think the competitive intensity has reduced. Some of the smaller players clearly are under working capital pressure and [indiscernible]. But that's the ups and downs that we get to see.

And lastly, one request. Now that the tax refunds have started coming in the cash in the bank, from our experience, if you can put out capital allocation policy, that will be really forward-looking and help to for us as analyst community.

Yes. So I think at this point in time, our outlook for utilizing the capital -- I mean the money that we're getting is primarily towards inorganic and acquisitive growth. There are certain opportunities that we are evaluating that complement our existing portfolio. We don't intend to get into any new lines of business. I think strategically, what we've chosen to operate in we'll hold out for the coming period. But clearly, given that there is stress in some of the smaller players, there are opportunities that we could roll up from either specific team, clients or complementary service offering that we could do. So I think at this point in time, we are looking at the capital as acquisition capital that we would like to use in the coming period.

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

I had 3 quick ones. One is with the new labor codes, do you foresee any specific areas of the workforce seeing an upward reset in salaries due to the labor codes anytime soon?

So I think on paper, given that minimum wages now encompasses even those in the unorganized sector, so definitely on paper, there is a possibility. But however, there is still questions on execution and implementation. But otherwise, there is no other indication by which one can assume that because of the labor codes, wages could get affected or improved upon. Of course -- and even for fixed-term contracts, whatever is the current norm for permanent employees, employers have to be consistent. So that could possibly be a scenario and improved scenario. However -- I mean I -- we'll have to watch this to see how much difference it makes to wages. One way of looking at it is that in the long run, if there is more formalization of workforce, how the -- it impacts the per capita income in general, but it's really a long shot from now.

Sure. So you're not really seeing the labor departments come out and sort of try and enforce specific salary levels and things like this at this point is what you're seeing?

At this point this time, no. However, the central government has given itself powers to come out with 4 indicative [indiscernible] minimum wages. So if that comes into play, whenever it does, essentially, across state governments, it's binding on them to have minimum wages at par with that or above. So at that point of time, we could see movement on wages. However, it will have its own set of consequences as well.

But also, Nitin, at this point in time, whatever are the minimum wage requirements and so on are adhered to bias. We just hope the government would enforce it on everybody else from the perspective of the informal lot that would then get formalized. But at this point in time, all the requirements from wages and an enforcement perspective are taken care of by us.

Sure. The second one was, have you done any assessment in terms of how much the compliance costs could decline or come down by for your existing client set? And does this mean that the productivity per core employee could be much higher than what we had seen earlier?

So I think we have done a little bit of an assessment, not just for our customers, but in general for employers. So for example, on account of the rationalization that the wage code bill has made possible, we anticipate that the cost of compliance for returns should go down by almost 67%, because the activity is getting reduced to that extent. And similarly, for registers, around the same benefit. On social security code, we see that on account of reduction of the number of registration, there is a 75% gain. On returns, almost a 97% gain, because [ average of 36 ] they need to now have to file only one return. And on account of registers also as against 20, they might have to do 1 or 2, which is almost a 90% gain. The largest gain comes from the OSH, or Occupational Safety, Health and Working Conditions one, where across licensors that are gaining 75% registrations 90%, returns 95%, registered almost 95%. So the maximum load at this point of time has been reduced by the OSH. And industrial relations, in any case, doesn't have applicability of licenses registrations, and the returns will just become one. So just to give you a little bit of quantitative analysis of the gains that employers can anticipate.

And also just on [indiscernible] perspective, we have about 100 people in the team who take care of all the various statutory compliances for the activity that we do across the country and across customers, we clearly can improve productivity, listing from compliance perspective are reduced and are digital.

The next question is from the line of [ Nishant Karkera from Abhi Capital Partners ].

I had a couple of questions. Firstly, I just wanted to understand the income tax assets a little bit better. So I think in March '20, we had about INR 245 crores, INR 250 crores of income tax assets on the balance sheet. Could you just give us rough numbers on how much of that has come back refunded in the past couple of quarters and how much has gotten added to that base?

What -- we've actually got about INR 37 crores including interest in Q2. And that's the only refund that we've got in the current year. And probably we -- and the balance amount is what has been added during the current year.

So we've got INR 37 crores and maybe about INR 25-odd crores would have gotten added back. Because I see there's a INR 10 crore difference in that line item?

That's right. Yes.

Okay. Okay. Understood. The second question is on the...

And it should be INR 30-odd crores in Q3.

Yes, yes.

Sorry, sorry. Could you repeat that? I missed it, sorry.

It should be getting another INR 30-odd crores in Q3.

Understood. Understood. Okay. That's helpful. The second question is on the hiring bid. I think Ritu made a comment that about 77% of the volume came from the nonrecruiter channel. Could you elaborate -- I couldn't understand what that means?

So essentially, historically, a lot of our ability to close the open mandates or hiring mandates were dependent on recruiter headcount. So we have been consciously, over the last few quarters, attempting to move away from that model, which is besides the choke on productivity, I think it's a nonscalable model. We wanted to explore online channels. We wanted to explore vendor network. We wanted to explore other sources like retros and so on and so forth. So we have been able to consistently make a movement, and as of now, 77% of the number that -- volume that we are closing and adding are coming through nonrecruiter-led [indiscernible].

Okay. Okay. Understood. So recruiter channel is essentially where the employer himself or herself recruits and then onboards it on to your goals. Is that understanding correct?

No. Essentially, what we are saying is that if I am using my recruiter headcount, like our TeamLease own core employees. Earlier, most of the hirings were happening through individuals, right? So now we have been consciously making an investment to leveraging, let's say, teamlease.com, which is a key source of hiring for us through referral network, through vendor network, through a lot of associations with the government and other partners, right? So our dependency on having recruiter to enable us to close positions is actually diminishing day-by-day, and we are seeing greater leverage through nonrecruiter, which has actually improved the productivity as well as helped us deliver [indiscernible].

I think what -- just to add and clarify, the recruiter hiring is effectively end-to-end activity done by an individual on finding a resource for an open position, whereas the vendor channel and alternate options that we have contribute to the hiring coordinated by the recruiter but not done end-to-end. So what it does is effectively, like Ritu just mentioned, increases productivity, reduces our cost of hire, variablizes our costs to some extent and effectively gives us a larger reach for being able to deliver the positions without necessarily creating a fixed cost structure around it.

[Operator Instructions] The next question is from the line of Nilay Pratik from Samara Capital.

My question is about the IT staffing business maybe for Sunil. So first of all, I think it's a fantastic job that you have done on the IT staffing piece, where despite the decline in revenues in H1, there is a substantial improvement in EBITDA. So I think Sunil alluded to a change in mix in terms of getting better quality business, and that apparently is leading to the improvement in margin. So if you can elaborate a little bit more on that. That's what I wanted to understand.

So what we have witnessed is that in the Q2, the kind of requirements what we picked up in new-age requirements, which are digital engineering, cyber security, cloud adoption, et cetera, which were giving us a better return in terms of our margin and on our bill rate. So these got replaced with the low-end business, what we used to pick up earlier. So that's the change in the product mix.

Okay. But some of this essentially is -- I mean it's a completely different kind of skill sets that is required to deliver business on the -- in these areas. And I think even in terms of the nature of the projects, there might be a little bit more on the, let's say, scope of work, ODC kind of side rather than pure play staffing. So how does that get taken care of?

With the acquisition of IMSI, which we did last quarter, we had a capacity or in build capability to deliver to higher skill set, which is kind of, as you rightly said, it requires a different kind of capability that was built within our overall portfolio. So that's how we were able to deliver.

Okay. And just as a closing thing on this one, was there like -- I mean is the improvement in the EBITDA almost completely attributed to this change in mix? Or were there, like, substantial cost reductions here as well?

It is a combination of product mix change as well as, as I explained, the shared services projects, which we kickstarted in Q4, kind of started giving us benefits in this quarter. There as some benefits in Q1 in terms of headcount optimization. But in Q2, we were able to witness the productivity improvement, and the shared services is catering to all the business units within specialist staffing. So that's kind of helping us to give better productivity. So it's a combination of both.

But just to give context to that, we have reduced headcount as a year-on-year by nearly 150 resources at a core employee level.

The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management.

I wanted to check on the other income. Is there any write-back of provisions? Or it's just all treasury?

So we have brought down our office space by almost 30%. So on account of that, there is a reversal of certain amortizations that we did on the rentals. So that is to the tune of about INR 3.7 crores. So that's the main component in other income.

[Operator Instructions] The next question is from the line of Alok Deshpande from Edelweiss Financial Services.

A couple of questions, firstly on the core employees. So as you can see from your presentation, the staffing core employee number has gone down from 830 to about 630. My question is, as we see our reversal in the headcount, are we going back to a pre-COVID level in a couple of quarters or probably 3 quarters. Will we need to redeploy more core employees? Or you think that this is the core employee number we'll be able to manage it?

So we would -- from a service delivery perspective and a sales perspective, we would not need to add headcount much. There will be a marginal addition on that front. Also, this is on the back of a number of technology developments and rollouts that have happened over the last 9 months. So I think productivity from a service delivery perspective, will stay on track. Some element as more open positions and demand comes in, we might hire on the hiring side. But other than that, we don't look to getting back to an 830 level even by the end of the year by any [indiscernible].

The next question is from the line of Kaushal Shah, an individual investor.

So I had a couple of questions. Firstly, on the general staffing side, I want to understand that the associates which are employed by TeamLease, what percentage of those -- the social recruitment effort as well as cost is incurred by TeamLease? Because my understanding on certain retail outlets in Mumbai is that these retail companies actually find and recruit the employees and TeamLease is largely brought on for payroll processing. So would this be an exception? Or can you broadly quantify what percentage of cases where TeamLease would have such an understanding? Also, can you quantify broadly -- I understand you're not going to give exact numbers, but what percentage of the associates received some form of trailing before this -- to the client location just on the general staffing side? Secondly, on the specialized staffing segment, if I look at the stand-alone financials of TeamLease Digital, the PBT losses have expanded for the third consecutive year. So can you explain what is happening here? Because this is a subsidiary where we have the 2 of the earliest acquisitions, which is ASAP Info Systems and Keystone, which were actually acquired in mid-2016. So can you explain directionally, at an acquisition level, what is going on, on the margin front?

Yes. So on the staffing side, we have a combination -- we don't do 100% of hiring for customers in general staffing. In specialized staffing, we do 100% of hiring as a function of the fact that customers are willing to pay for it. So the pricing model that we have is effectively a combination of recurring service fee for administrative aspects of keeping the employee transaction element for life cycle management. And there is a onetime cost for hiring. So customers have a choice around that. And rough estimate -- and it will be -- it will not be across the board, but about 30% to 40% of our customers require us to source. Others effectively say that I have the bandwidth to identify and track the resources. I will identify them and then pass them on to you to onboard and take it on from there. So that's really how we look at. So upfront, ideally, we'd like to source for all, but it's the customer's choice that comes on to the table. On training front, also in the NETAP side, which is our apprenticeship program, 100% of the apprentices get trained. We have a 200-hour program that's rolled out to them. Over and above that, we have additional training programs that are effectively choice for customers to take, which is similar in the staffing side. So we do what we call onboarding and induction training for all, but specific functional industry training is a choice for customers, and it is costed as an additional payable from therein. So that's really how we drive it. On the specialized staffing front...

Yes. So the difference in TeamLease Digital is on account of the goodwill amortization. So at TeamLease group level, at the consolidated level, while we don't amortize the goodwill and text it only for impairment at the end of every year in line with the Ind AS accounting. So TeamLease Digital as an entity is created by way of High Court demerger process with the ASAP and NichePro both put together. As per the guidelines under that, we are amortizing the goodwill over a 10-year period. So that's the main difference that you can see as below line 8 and below EBITDA line, the other expenses will be TeamLease Digital.

Due to time constraints, that was the last question. I would now like to hand the conference over to the management for closing comments.

Thank you. So I think broadly, we've been able to stem the losses that we had in Q1 on the headcount front and start to show a positive trend on the deployed base. We, basis the aspects of demand and customer feedback, do look to continue the trend of associate additions and effectively end the year better than we entered the year. And I think the continued focus on productivity, cost rationalization and our core employee development is something that we will drive on while we look at the aspect of growth of cash flow management and capital deployment towards acquisitions as we go forward. We do believe that the margin loss that we had last year, we will be able to recoup into this year as we go forward. So I think we are positive. Obviously, there are still many uncertainties around the pandemic and the COVID out there. But overall, I think we should look at a more positive aspect of growth as we go forward. Thank you.

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