TeamLease Services Limited (TEAMLEASE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TeamLease Services Limited Q3 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudheer Guntupalli from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thanks, Faizan. Good evening, ladies and gentlemen. Thanks for joining us today, and sincere apologies for a slight delay in opening the call. On behalf of ICICI Securities, I would like to thank the management team of TeamLease Services for giving us the opportunity to host this results conference call. We have with us Mr. Ashok Reddy, Managing Director and CEO of the company; Mr. Ravi Vishwanath, CFO of the company; Ms. Rituparna Chakraborty, Executive Vice President, General Staffing. Mr. Sunil Chemmankotil, Senior Vice President, Specialized Staffing; and Ms. Ramani Dathi, Finance Controller, on the call. We'll open up the floor for brief opening remarks from the management team and subsequently open the floor for questions. Thanks, and once again thank you all for joining us today. Over to you, Ashok.

Thank you very much. Thank you, and welcome all to the call. I think we have started to see demand coming back. And I think our apprenticeship program, the training program that had taken the biggest hit in Q1 has been rebound, and we have recovered the numbers back to and crossed the pre-March levels that we entered the year with. And I think even on the staffing side, we have started to see growth in numbers and demand coming in from customers' end. I think, overall, we have managed to drive the aspect of productivity and cost management through this quarter also. So we have had a marginal decline in our core employee headcount. While we've seen an overall 16,000 additions to our deployed resources, so staffing has grown by about 7,000 associates, and NETAP has grown by about 9,000 trainees, overall 16,000 crores for the quarter. The productivity aspect of an FTE ratio has also improved to 334. And I think during this period, we have managed to sustain the level of PAPM and the funded percentage broadly. I think the big positive, which Ritu will cover on has been the big jump that we have had in hiring for our customers and the various strategies that we have been working on over the period playing out for the aspect of hiring for the open positions and delivery thereon, complementing and supporting the clients' desire to ramp up. Overall, on a quarter-on-quarter basis, we have had a revenue growth of 13%, EBITDA growth of 8% and PBT growth of 17%. And even for the 9 months, we've had a PBT growth of about 4%. The PBT margin has also improved to about 1.8% for the 9 months. We've also seen an EPS growth of about 24% from INR 10.9 to INR 13.5 as a quarter-on-quarter aspect. I think overall, the trajectory with the open positions and demand that we are seeing from customers is quite healthy. And we believe that we should be able to get back on an associate headcount and revenue run rate to the pre-COVID levels soon. And obviously, the aspect of the cost rationalization and productivity aspect will help in the aspect of margin improvement or going back on the margins at the PBT level as we go forward. With that, I would ask Ritu to give a commentary on the staffing side.

Good afternoon, everyone. It's been a good quarter overall for us. We've managed to consistently grow our associate base over previous quarter, especially since September when we noticed a net jump. We continue to improve our productivity and also profit per associate. After the last 2 quarters, spike in funding, we were able to plough back that exposure to a reasonable level. And I think we do hope we'll be able to sustain it. Our PAPM remained flat. And while all past discounts have more or less been reversed, we are seeing more long-term downward rationalization expectations coming in from some specific sectors. However, we are quite confident about maintaining our profit per associate, if not improve on the back of consistent investments in digitization, digitalization of processes and various innovations to kind of kick up the operating leverage. Our biggest improvement and turnaround, of course, has been in hiring. I think we've tripled the count of TeamLease hired temp which is at the -- I mean, for the last quarter, we've rolled out almost 9,000 offer letters. And that is also a 37% jump over Q4 of the last financial year. We've improved the average per client conversion rate, which is about 60% currently, and that's quite an improvement over a pre-COVID level. Incidentally, with some of our clients, we've managed to deliver up to 100% of their requirement. We've also successfully contributed to almost 21% of our additions through hiring as against 15% last quarter. And I think, one interesting thing which obviously helps us build confidence amongst our customers as well as within ourselves is the fact that we've managed to successfully deliver some profiles which emerged as an opening for the first time in terms of a former temp job, and I think that's been an interesting experience for us. Just to give you some sense of the future outlook and how we have been using the market. Clearly, intent to hire is improving and vaccines have added to the optimism. However, caution isn't being ruled out. Metro and Tier 1 cities are likely to gain from the optimism with increased hiring in sales, marketing, technology and blue-collar roles. Health care and essential sectors such as FMCG and retail as well as technology-intensive sectors like education, e-commerce are expected to scale up hiring. Manufacturing sectors actually leading the positive hiring outlook while services sectors are largely cautious. However, the exception with services would be telecom, essential retail, IT and e-commerce. I think within manufacturing, FMCG and pharma companies are largely focused on hiring around the large cities. FMCG, engineering, chemicals, power and utilities are hiring at the lower levels and the division more spread out. From a sectoral change, I think some of the government announced initiatives, PLI, PMJAY, easing of the FDI have definitely given boost to some sectors, specifically pharma, education and manufacturing. So our sense is that the sectors which essentially have been contributing since the first unlock, we are seeing a magnified interest in hiring coming in from those sectors. And few of the laggards, which were struggling a little bit, for example, BFSI have also now started -- kind of woken up. A brief or some of the updates on what's going on, on the labor reform side. I think government is acting on warfooting to close out the deliberations around the rulemaking for labor codes. Considerable pushback has been received from the trade unions on the 4 codes, especially OSH and the social security code. From the corporate side, there has been considerate -- considerable pushback on the wage code, and I think all of them are being factored in. I think from a staffing perspective is done -- we've had some positive movement and good progress around the rulemaking process on our national licensing. Our belief is that by 1st April, most of the labor codes with the rules will become implementable. And by mid-Feb, we should be able to see the final rules -- final jobs. I think in closing, our focus for general staffing into the future shall be on organic associate growth, aggressive hiring, either by nonrecruiter-led channels, improving operating leverage and sustaining capital efficiency. Thank you. Thank you very much.

Sunil will give an update on the specialized staffing business.

Thanks, Ashok and Ritu. Good afternoon, everyone. Specialized staffing business this quarter had a nominal revenue growth of around 2%. Headcount remained flat due to some drop in telecom staffing business. The [ PBT ] grew marginally from 8.3% to 8.5%. However, there is a sequential growth quarter-on-quarter on the [ PBT ]. Although this quarter our recruitment has doubled from last quarter in terms of the gross additions, still the net additions did not happen as expected because we had a huge attrition. This is also a good indication that there are -- the market is opening up and there are new opportunities available for the resources. So we are just able to get as many onboards as possible against the possible attrition. The good news is that the replacement positions what we have done is mostly in high-margin positions like Data Sciences, ML, AI, U.S., mobile application development, video production and so on, which actually, in a way, gives us a better overall margin. Along with this, we also had operational efficiency going on from the quarter 1 and -- which has resulted in a better PBT for us. The change in requirements, we feel that, will continue in the coming quarters because we are seeing the -- there is a huge change in the kind of positions which customers are requesting us because of the adoption of digital technologies across the industry sectors following the business disruptions caused by pandemic. On the sales front, we have been very focused on our sales approach, because we wanted to expand our client base. This year, it was one of the major focus along with operational efficiency. And we were able to continue this effort. We added 17 new logos in Q3, which takes us to more than 50-plus new logos for this year. Majority of them are long-term and large customers which are going to help us propel our growth towards our goal. To sum it up, the strong delivery, focused sales approach and improvement in operational efficiency has ensured a consistent and good results in this quarter, and I'm confident that this will continue going further. Thanks. That's it from my side.

Thanks, Sunil. Ravi will give an update on the finance front, and then we can open up for questions.

Good evening, everybody. A quick update on some of the finance matters. We continue to focus on cost. While most of the play has -- the cost play has been done, we expect some of the costs that we've not incur in the past 3 quarters to slowly start creeping up, though it will not be to the same levels as what it was in Q4 or Q3 of last year. Some costs, like we said, will come back as offices reopen. And that's bound to happen and we are kind of prepared for it and kind of factor... [Technical Difficulty]

Ladies and gentlemen, the line for the management is disconnected. Please hold while we reconnect them. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.

Sudheer, we are open for questions.

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

Yes, sure. Ravi, I think you were talking something about -- you're saying something about margins, and it looks like the investor presentation had some typos in terms of margin. So any clarification from your side on this aspect?

Yes, we have updated -- yes, there was a typo. The error is regretted. The updated presentation has been uploaded now.

It's uploaded, just give them.

So the consolidated numbers have been mentioned as stand-alone, Sudheer. So that's the error. So you should read stand-alone numbers as consolidated and consolidated as stand-alone. Rectification is already filed and it's reflecting in the portal now.

Effectively, EPS has seen a growth quarter-on-quarter.

With that said, in terms of margins, we had undertaken some cost rationalization initiatives earlier and we were talking about reaching FY '19 level EBIT margins by FY '21. But if you look at this quarter numbers, 2 questions. One is it looks a tad lower than what we were expecting, let's say, 3, 4 months back. And given these numbers in this quarter, are you still confident -- the second part of the question is, are you still confident that we'll reach FY '19 level EBIT margins for the full year?

I think we should be able to get to FY '19 margins by the end of Q4. We are reasonably confident, and we do believe that all the -- that we have done all the necessary things for us to get to those margin levels.

We already had about 2% on the EBIT margin, and I think the aspect of sustaining that as going forward will happen. And at the PBT margin level, Sudheer, at a 9-month level, we've improved from 1.6% last year to 1.8% this year. So I think the overall trajectory of margin improvement, both at an EBIT and PBT level is in line with the play out for the year.

Sure, Ashok. And any moving parts that you want to add as to which would have impacted margins in this quarter versus the previous quarter, be it pricing or -- what exactly would have impacted as a pass-through?

Yes. So I think we have a provision that we have made in the Learning Services business for a part delayed payment from a government. While we've received 50% of the payment, some of it was delayed. So just as abundant precaution, we have made a provision for that amount, which has impacted the profit for the current quarter. But we believe that, that amount should be collected in the Q4. And from that perspective, would have a write-back element in there. Other than that, we've also had some element of continuance of the firm business provisions that we have decided to exit on. For the earlier receivables, that clients are delaying that deferring. So other than these 2, which will not be a running account as we go forward, other businesses have all stand-alone improved on their numbers.

Sure, Ashok. That's very helpful. And my next question is on the sourcing aspect. So sourcing is one of the key areas of micro level improvement for us for some time. And as you mentioned, the non-recruiter channel seems to be picking up over the previous couple of quarters. So how does our unit economics in sourcing look like right now? And in the steady state, what would be our aspiration in terms of the share of general staffing associates who would be sourced by TeamLease and not by the non-recruiter channels.

So I think non-recruiter channels are also managed by us. But effectively, what happens is that we are not increasing resources at our end nor are we having fixed cost play from our end. So part of the non-recruiter channels are free of cost, and some of them have a variable cost attached to the element of delivery that happens. So effectively, I think what it enables us to do is have a broader footprint at a lower cost and effectively ensure that we are delivering to the client open positions across locations. Our -- these channels are managed through technology and our team at the back-end. And from that perspective, I think the key focus for us is to ensure that we have a larger number of clients that we are delivering to and a larger percentage of their open positions that we are delivering to on a consistent basis. And I think, clearly, we've had that trajectory of improvement on number of clients and the percentage of positions that we've been able to deliver to, which is kind of complementing the element of the numbers that come from customers and also offsetting the acquisition that is happening. So effectively, over the last 3 months of the quarter, we've had consistent net growth in staffing.

From a unit economics perspective, the cost per hire trended to be in the region of between INR 2,500 to INR 3,000 per hire, I don't think it would've come down significantly. But our target is to take it down to the area between INR 750 to INR 1,000 per hire.

Sure, Ravi. And will the clients be willing to compensate us for this? Or this is kind of going through our pockets?

So it's a function of the client agreement. There are some clients with whom we have an element of a sourcing fee for the placements that we do. Some of it is factored into the existing pricing.

Sure, Ashok. One last question to Ritu, if I may. So Ritu, I just want to understand in detail about how the overtime related labor laws are changing and how that would potentially impact the volume numbers for us going forward. So will the allowance of higher number of working hours essentially deflate our headcount numbers? And how would the payment dynamics, how would the wage dynamics work in that situation?

So I think first and foremost, there have been considerable deliberations and pushback as was expected from corporates on the timing of some of the changes that have been recommended by the government given that industry is already down and out and recovering, whether they will be able to afford some of those things. I think we must admit that while on paper some of them, like increasing gratuity provisions, the fact that over time as a concept has been standardized to twice the wages, I think all of that has, while has happened, but side-by-side government is also looking at opening up alternative avenues for organizations to manage their employee supplementation reach. Also from an EPFO perspective, there's already a narrative in terms of whether the contribution can be brought down from the current level of 12%. So I don't think -- while the rules will get notified by the -- I mean we expect it somewhere around the mid of Feb, but implementation horizon will take time. So it's not going to happen before 1st of April. So I think organizations do have time to kind of look at the alternatives. And I believe that once the revenue kick-up happens, which is already clear, some of the apprehensions and worries that are being tabled shall be addressed. I personally feel that there are greater upsides which organizations will see by reduction of their cost of compliance. And those reductions and improvement, for example, on account of rationalization, if I were to take just the OSH course, as against 123 compliances, we'll have to end up doing not more than 6. There are cost benefits which are coming into play, and some of the initial reactions of increase in wage costs and wagerers will in the long run get negated. And I don't see any negative or adverse impact on account of that on staffing from where I stand, Sudheer.

The next question is from the line of Garima Mishra from Kotak Securities.

I had a question first for Ritu. Amongst your interactions with corporates, do you think the corporates in general are getting more inclined towards general staffing post pandemic, as this can be something that can help them save cost in general over the future?

Yes. There is definitely an improvement in mood in organizations to discuss and engage with us as this being a viable option for them to manage their workforce. I think organizations are more inclined towards considering it on account of the flexibility it offers them, given that they are right now quite affected by the impact and repercussions that the pandemic had on them. I think that is the primary factor. I don't think the staffing options provides them an ability to have high cost arbitrage on account of the wages because the government is very clear even in the labor force that there cannot be much differentiation based on job role. But I think there are implicit advantages of working with staffing organizations on account of flexibility, on account of scale, on account of hiring, for example, their ability to ramp up as well as ramp down, I guess. And also having a partner, a large professional organization who understand the law of the land well and would be able to guide them in the right fashion to be able to manage the needs of their business and yet keep them compliant. I think from that perspective, Garima, there is definitely a growing interest in staffing as an option for meeting their workforce requirements. And I think clearly, there is a shift from moving away from the traditional approach of having a large core of permanent employees. Organizations are looking at alternative options of managing their headcount based on the ups and downs of the business, and staffing is probably one of the most win-win bet for them at this point of time.

So are you seeing -- in the terms of TeamLease's own pipeline, are you already seeing some buildup on account of this shift happening? Or currently with the increment to your pipeline is purely because of some economic activities coming back? What I'm trying to ask is, I guess, has there been some structural improvement already that you are seeing? Or is it a little too early for that to happen?

Yes. So I think, Garima, like I said, at the moment, we are in engagement stage with most of these organizations. So even they are looking at it as a long-term play, and they are not committal at this point of time. That's why I keep mentioning that we notice optimism, but we also note cautious optimism. Net of it, we've seen data points which clearly suggests that while November -- October and November were good months, things started becoming subdued in December. So we actually have to see how the -- how things pan out over this quarter for even organizations to frame their mind in terms of whether and at what point they are willing to commit. So I would categorize all of this as discussions and engagement rather than an active pipeline at this stage. We do have pipeline for this quarter, but I wouldn't necessarily attribute it to this new discussion that we just mentioned.

Also, I think, Garima, just to add to that, it's difficult for us to distinguish between the growth or demand coming in because of economic factors and because of structural change. I think overall, the willingness to dialogue, like Ritu said, is a lot more even from existing and from potential new clients. And frankly, as a waiter in the restaurants, we are fine for it to be structural and/or economic to be driving up the numbers as we go forward. But clearly, our belief is that these kind of shocks to the economy tend to make corporates more open to dialogue given the benefits that the staffing element and outsourcing element, staffing element and outsourcing element can bring to the team.

Understood. And my last question, could you help us with some update on what's the latest at Schoolguru and IMSI?

Schoolguru has turned profitable for quarter 3. We've effectively looked at Schoolguru having 3 streams of revenue. One is the university revenue, one is corporate revenue and one is the element of student revenue. Obviously, there are no physical training going on at this point, very few. Most of it is virtual instructor-led training, leveraging the learning platform that Schoolguru has. So in terms of number of students, number of corporates and number of universities, there is a greater acceptance and buy-in. And to some extent, the seasonality of billing has kicked in, in Q3. The business has turned profitable and has a healthy pipeline for billing in Q4 also. I think the technology platform investments have happened, our further improvements as we go forward in line with feedback that we received from the customers and from the users, and that is a path that we will continue on. But I think effectively, we do see the aspect of continuous growth in revenues and profit play as we go forward from the Schoolguru perspective. And I think the team has also fallen into place comprehensively and will sustain itself to the future. From an IMSI perspective, I think that business also continues to be profitable. There's still -- like we had mentioned some element of the focus on scale that we will drive on as we go forward. But I think the aspect of productivity, the team being in place, the aspect of focusing on new sales, as Sunil had communicated earlier, will be focus for us. Effectively, at a PBT percentage level, for the quarter, the Schoolguru is at about 24% margin and IMSI is at 14% margin.

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

A few questions. Firstly, on the reported EBITDA margin for general staffing that did quarter-on-quarter...

Sorry to interrupt, Mr. Patodia. This is the operator. Sir, the audio is breaking from your line, sir. Please check.

Okay. Is it unbreaking now?

No, sir. It is the same.

Okay. Let me try then. Okay. Is -- if you can just explain the general staffing Q-on-Q a bit as reported in the presentation. Because I'm asking this in the context that Ritu did mention of rolling back of discount and EBITDA, not EBIT because EBITDA has the other income angle to it.

Just to confirm your question. You are asking for general staffing EBITDA Q-on-Q movement?

Yes. Yes, mam. And why this is down.

Yes. So during the quarter, we've had some billings on which -- being a festival quarter, we've had some billings, some gross billings on which we wouldn't have had a markup charge to some of our customers, which would then result in our percentage margins actually dropping. That is probably -- that is what has contributed to the drop in margins from the 2.1% to 2% between Q2 to Q1 -- I mean, Q2 to Q3.

[Technical Difficulty] 75% of our [Technical Difficulty].

Sorry to interrupt you, ma'am. The audio is breaking from your line.

It's actually not from us. It's coming from somewhere else. We are getting the disturbance.

Okay, sir. Let me check.

Yes, it's clear now. Sorry. Hello?

Yes, sorry, you were saying something.

Yes, yes.

Sir, if you can just mute your line while -- I think there's a disturbance coming in from your line.

Yes. So in absolute rupee terms, EBITDA for staffing has gone up by about INR 1 crore between Q2 and Q3. But however, since 75% of our associates are on fixed markup model and during Q3, during the festive season, we processed additional billings, but the markup being fixed, so on percentage basis, there will be a slight dip in the EBITDA margin percentage. So 2.1% has come down to 2% in Q3. But however, by end of the year, on a full year basis, we are confident that we'll get to last year's EBITDA margin.

Got it. Okay. And the second question was on Specialized Staffing. As the environment picks up, I'm guessing the portability in Specialized Staffing is easier than General Staffing. Because of that, you have higher attrition. So does this make it a little anti scale?

Sunil, do you want to address this question?

So this is normally the model which -- how we work in Specialized Staffing. So since the markets have just opened up, there are a lot of employees who have been waiting for making the movements. That's the reason that Q3, we got that hit. Normally, the number of attritions are far lesser than the onboardings what we do. So I think in the coming quarter, this will be balanced, and we will see more additions happening than the attrition. I don't think the kind of attrition what we witnessed in Q3 will repeat in Q4 because that's just an opening kind of a syndrome of the market and -- which is a very good sign for us because it also tells us that there are a lot of positions available across, which is also visible across the job side. So we have ramped up our delivery teams, and we are fully prepared to overcome this short-term challenge. But on a long term, I don't think that should have any effect on our overall growth trajectory.

And my last question to Ritu. There is this interpretation in the new labor code that PF and gratuity may have to be calculated on total CTC and not on basic, and this will lead to lower salary in hand than on paper. So is this issue that you would see and this could actually be anti-formalization?

Okay. So I think what has -- I know this particular narrative has been overplayed and if I may say, misinterpreted as well. In last -- February of last year, the Supreme Court judgment clearly spelled out what constitutes the PF wages, which essentially incorporates everything that is part of an individual's gross wages, excluding HRA from the calculation. So if organizations have already started to follow that norm, I don't see too much of an issue, honestly, on this front. What essentially has happened is the labor courts have mandated that the allowances cannot be more than 50%, which, in effect, has ensured that your basic plus DA will definitely go up. Because gratuity calculation is not on CTC, it is on your basic plus DA, there will be an increase in the provision that companies have to make on account of this. So that essentially what has happened. And I guess that we have -- what has ended up happening is organizations have mixed up all of them, and that's why the narrative sounds the way it does. Does it increase the cost of organization, cost to company of organization? Yes. Does it increase the net take home? It actually reduces; however, employees definitely stand to benefit though it's a kind of a hit for organizations who are not complying by the rules as mandated by the Supreme Court and those who wage structures are highly allowance dependent and to keep PF low in the erstwhile structure. Does that answer your question?

Yes. So -- thanks for explaining this, Ritu, but is this a little anti-formalization? Like something what happened with a 6-month maternity leave? You have unintended consequences.

It is a short-term impact, of course. But the thing is government is also side-by-side opening up avenues to reduce, for example, the PF contribution from the current 12%. So I think ESIC has already reduced. So essentially, it's going to be a dance between what you give up and what you get.

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

Sir, just a clarification on the margins this quarter. There seems to have been a fairly sharp jump in other expenses sequentially on the P&L., from about INR 21 crores, INR 22 crores to about INR 26 crores. And then similarly, when we look at the segment reporting, if we calculate the unallocated expense, that also seems to have increased from about INR 3-odd crores to about INR 6-odd crores. So is there any element of like just expenses coming back now that business is recovering or any one-off items within that?

Abhijit, our operating expenses has a combination of the overheads -- the general overhead as well as business expenses of other HR services. So if you notice, other HR services, revenue has gone up by almost 38% sequentially, which is almost a INR 4 crore growth. So that has a corresponding increase in their operating expenses by INR 3 crore. So the balance, INR 40 lakh, INR 50 lakh overheads have gone up with the offices opening up and capacity being operated at a 50% capacity.

Okay. Just to clarify, when I look at the overall segment level EBITDA, it seems like the unallocated overhead portion has increased quarter-on-quarter. So is this a good run rate we should work with going forward, INR 6-odd crores per quarter?

Yes. So around INR 5 crore to INR 6-odd crore will continue as the run rate.

Okay. Got it. And just 1 last thing from my side. In terms of the growth in revenues this quarter, sequentially, it has been almost, I think, 13%, 14%, which is significantly faster than the growth in headcount we have seen. So -- and I'm just trying to reconcile that with the fact that you mentioned PAPMs are actually flat. So was there some element of seasonal hiring and then layoffs again? Or what exactly resulted in this?

It's not seasonal hiring, Abhijit. It is seasonal billing. So there is an incremental billing that happens during the festive season, so which has led to almost a 14% -- 13% to 14% growth in staffing sequentially, whereas headcount growth is only 5%.

The next question is from the line of from PhillipCapital.

2 questions. Firstly, sir, pre-COVID, we had this narrative of the Specialized Staffing share of revenue sort of going up and that being one of the key levers to our margin trajectory towards 3%. However, post-COVID, the narrative has been more on the cost front on the GS side. Wanted to get your views on the Specialized Staffing because I see that both the IT service and the IT infra businesses are already at 14% EBITDA margin. So do we see any further scope of margin improvement in these 2 business verticals? And how should we look at percentage increase or proportion increase in specialized staffing as a percentage of total sales going up from the current 8%, 9%? Should it sort of trend towards 15% in next 2 years? Or will it hover around the 10% mark? That's my first question.

So I think the aspect of Specialized Staffing being a margin contributor to the business will continue to play out. And I think for the year, we have focused on -- as we had said at the start of the year, that we'll work on consolidating the various units of the Specialized Staffing and bring about rationalization around the aspect of the team, the productivity and the working. And I think that has kind of played out. We had also said that certain low-margin volume businesses, we would exit in the Specialized Staffing business. And that has also been playing out. So while at a net headcount growth level, we've been kind of flattish, I think clear margin improvement and profit improvement has been there. So even if we look at the 9-month like-to-like comparison, there is about 14.8% that has gone to 24.6%. And I think that trajectory of profit improvement has been positive. I think overall, moving the PBT percentage to about 9% to 10% and sustaining it there will be the primary focus. And our belief is that we should be able to do that as a mix of the client portfolio, the mandates, the margin structures and the cost structures that we have at our end. Obviously, as Sunil said, the focus now has been in adding on new customers who have potential to grow with us. And effectively, now that we've signed a number of accounts and we continue to have the focus to sign more accounts, it will be on ramping up the numbers for them. So I think overall, even at the back-end, the hiring team size play and the hiring team productivity is a key focus area that we are driving on. So I think while we don't have too much of a control on attrition, what we are focusing on is the gross additions, and that comes by effectively having a higher productivity that ensures that we are putting more into the bucket of joining so that even if there's attrition, the net growth becomes a corollary thereafter. So I think growth will be key. The cost rationalizations are done, the productivity aspect, there's still some element of play on that front and driving the PBT to a 9%, 10% is going to be the key focus for us.

So this -- so sorry, so just to add on that. So the INR 400 crore average -- so the INR 100 crore per quarter kind of run rate, do you see that trending closer to INR 500 crores in 2 years' time based on what the new account additions or the synchronization of the sales and everything...

I would love it if Sunil were to do the INR 500 crores next year. So I think the market is opening up. Clearly, new accounts take a little more time to effectively ramp up in numbers. So it takes between 12 to 18 months to ramp up new accounts, but the focus will also be on driving numbers up with existing accounts. So yes, we will exit at about INR 400-odd crores this year. I mean at least a 20%, 25% growth should get us to INR 500 crores, and that's what we'll be targeting as we go forward.

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

Sir, my question is on the Speciality Staffing and primarily from the productivity side. So I believe in this quarter in this quarter we have seen roundabout a 11% increase in the Specialized Staffing productivity. So do we see this kind of productivity to continue from here on? So I'll tell you what I'm doing is Specialized Staffing revenue divided by number of employees, total ID staffing plus telecom staffing plus IT infra.

Yes, Amar. So we expect the productivity in specialized staffing continue to improve because we are not adding cost linear to the growth in revenue. So this will continue, but may not be at this rate because this year we have done substantial rationalization in terms of cost and headcount, not at this rate of -- the current year's rate. But definitely, the productivity enhancement will continue.

So just to understand, like you know, if I see probably by the end of the year, your yearly productivity wound be roundabout 54,000 approx. So is it fair to assume that at least next year you will at least maintain that?

Sorry, what is the 54,000 that you are referring to?

So basically, what I'm doing here is that the annualized revenue of Specialized Staffing divided by the total employee base.

Are you saying the total employee base of Specialized Staffing or...

Yes, yes, Specialized Staffing.

Yes. So you are taking the place associate base, right, not the core employee?

No, no. I'm taking the whole, whole associate base, IT staffing, total...

That doesn't reflect productivity in any manner.

It has to be core employee.

I mean division by core employees will reflect revenue per employee, but division by the associate count will give us actually broadly the cost -- the bill rate per employee.

Yes. So basically, that is what probably my question is. The bill rate per employee which has gone up this particular quarter, do we at least can maintain that kind of bill rate going forward?

So we will largely sustain the bill rate per employee because, as has been stated before, the bill rate is a combination of the 3, 4 verticals that are there in the specialized staffing business, and we are focusing on getting higher rate card mandates from customers and taking it on. However, specific to telecom and network security, the bill rates are lower. So should the volumes go up substantially in those 2 lines, it could impact the bill rate per associate. But I think for us the focus is really on the gross margin and the aspect of the employee productivity that leads to profits.

Ladies and gentlemen, we'll take one last question from the line of Alok Deshpande from Edelweiss Financial Services.

My question was more on the competitive landscape. I mean when COVID came into picture, there were these talks about how small players would -- small staffing companies would actually suffer because of that. Now 8 or 9 months down the line, what is your sense on the competitive landscape? Probably barring the top 3 or 4 companies, has the landscape really deteriorated with the smaller companies? Or given the recovery we have seen in the last quarter or so, even they have come back to normal? Just your sense on that.

Yes. So I think if I were to give you -- I mean, of course, we would not be able to comment on quantification from what's happening in the outside market. But yes, from the client acquisition that we have noticed happening or the consolidation that has happened in some of our existing mandates suggest that there is some movement from the smaller organizations to professional -- the organized companies like ours. And thing is -- I mean, at this point of time, we see -- that we'll have to see how it goes in the near run. Our estimate is that we would definitely -- even if it's not a rapid or a massive shift, this chipping in of the smaller companies moving away from the smaller entities to the -- to companies like ours will happen. It would not be a switching on of a -- I mean, it wouldn't be Eureka moment, but it will be a gradual shift that we anticipate.

And also just to add, I think the overall landscape of large players and some fragmentation of the market will never disappear. But clearly, some of our growth in numbers has happened as a transition from some of the smaller players is an element of a consolidation discussion that is happening with some of the other customers. So like I had said earlier to Garima's question that we will not be able to unpack what is structural growth and what is effectively economic activity growth. To some extent, it will be difficult to quantify the transition growth also in this situation. But I think by experience on the field, we do see some element of a consolidation, but that does not mean that the small players will disappear.

Alok, again, here, one of the ask that we've been having for a long time is for the invoice matching of the e-invoicing team to go live. October was when it was made mandatory for companies with turnover over INR 500 crores, January was when it has been made mandatory for companies with over INR 100 crores and April is going to be made mandatory for everybody. That, coupled with the labor codes going live, will probably aid -- I mean, aid a lot more formalization than what you've seen before. I mean like Ashok said, some of the smaller players will probably turn a new leaf and become formal. We saw -- the informal guys could probably turn formal. But these are things which are -- which need to be done for the formalization story to continue.

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thank you. So I think, overall, like Ritu was mentioning, and we have been stating there is cautious optimism and demand coming back into the market. Overall, I think from a headcount and revenue run rate, we are going to be soon getting back to the pre-COVID level. Our free cash flow reserves have improved substantially as a function of operating cash flow and TDS refunds that we have got. We will be continuing to focus on driving margin expansion through operating leverage and the turnaround of the HR services that we have been seeing. The glide past for firm business is more or less completed. The institutional business will reinitiate activity once classroom trainings start. But clearly, we are not taking any more new mandates, and we will be exiting that to focus on corporate training activity. I think the future growth and volume increases, we will work to support through our core employee headcount. We don't look at any major increase in headcount happening at our end. And I think the sustaining of that growth through the current employee count will aid productivity and will support the element of margin improvement. We are quite bullish as we go forward in the current element of the market feedback. We do look to the demand sustaining, and we're driving up the numbers basis on that as we go forward. With that, thank you very much.

Thank you.

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