TeamLease Services Limited (TEAMLEASE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TeamLease Services Limited Q3 FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Heenal Gada from ICICI Securities. Thank you, and over to you.

Thank you, Stanford. Good evening, ladies and gentlemen. Thanks for joining us today for the Q3 FY '22 earnings call of TeamLease. I would like to start off by thanking the management of TeamLease for giving us the opportunity to host this call. On the call, we are pleased to have Mr. Ashok Reddy, Managing Director and CEO; Ms. Rituparna Chakraborty, Executive Vice President, Staffing; Mr. Sunil Chemmankotil, Senior Vice President, Specialized Staffing; and Ms. Ramani Dathi, Chief Financial Officer. We will start off with remarks from the management after which we will open the floor for questions. Thank you once again for joining us today. Over to you, Ashok Sir.

Thank you very much. Good evening. Just wanted to reiterate that we had a strong quarter on headcount growth. We added about 22,000 associates trainees across our 3 businesses. All 3 businesses of staffing, specialized staffing, and the degree apprentices saw growth in headcount numbers. Quarter-on-quarter, we had a 9% growth in headcount numbers. And top line revenue growth of 16%. Our EBITDA and PBT has also seen a trajectory of growth in absolute and broadly flattish on a percentage basis. But at a PBT level, we've had an 18% growth quarter-on-quarter in Q3. I think our industry-focused approach to sales and hiring has been delivering on the growth results and we believe that we will continue to make investments in talent, technology and brand over the coming quarters to drive the volume, price and productivity aspects. While we have been exploring the inorganic investment opportunities, nothing has [ fructified ] on that front, multiple dialogues happening, but no closure. In the interim, we will effectively be looking at organic investments that have been enabling the growth and I think that is something that we will continue to focus on for the various businesses with the results that we are seeing on the sales outcomes and on the hiring outcome. This will drive absolute growth in revenues and profits and we believe that, that will give us a strong footing as we go forward. All our businesses, staffing, specialized staffing and NETAP degree apprentices has seen growth, some element of a flattish to a negative trend in the process of specialized staffing on account of the seasonal impact of furloughs that have come in, which Sunil will cover. But -- and I think even our HR services businesses have started to deliver on the growth and profit and [indiscernible] to deliver as we go forward. So I think overall our element of growth trajectory stays strong with the kind of demand that we are seeing with the customers. Omicron, the wave 3 has slowed down the demand a little bit, but we don't see it being a headwind at this point in time. Also, the coming together of our teams in the various businesses and structures are complementing the element of growth and volume. We are also making some investments additionally in the areas of the HR Tech and hire tech where we have hired new leaders and will complement them with teams for future growth as we go forward. I think as we see the market at this point in time, we are positive about the growth outlook and we are positive about our positioning to draw on that opportunity as we go forward. Largely, most of our other parameters on funding, on operating cash flows and everything else stays healthy. More details will be covered by Ramani at a later point in time. I will call on Ritu to give input on general staffing, Sunil on specialized staffing and Ramani thereon before we open it to questions.

Thanks, Ashok. Good evening, everyone. Hope you are riding the third wave cautiously. We continue to improve TeamLease's best in general [indiscernible] I'm pleased to share with you that we managed to aggressively grow our base in Q3 to add around 15,600 over Q2 base. Each of the 6 business cohorts in staffing came together to deliver a strong performance in terms of absolute growth in business and also in terms of the key financial metrics inhibiting exceptional teamwork. BFSI, e-commerce, telecom and consumer business is clearly leading the way for us. Growing contextual mastery of the fixed business is visible in various aspects, however, mostly in hiring. As we've been able to showcase depth, reach and spread nuance to each business and the job roles which are in demand. The pandemic had limited our options to hire using traditional channels and we were gainfully compelled to constantly innovate and change our mix, which has improved our overall hiring deliveries as well as efficiency. We witnessed the most aggressive net positive headcount growth in BFSI, telecom, e-commerce and consumer. We maintained our sales aggression and we signed our 53 new logos during the quarter. Hiring contribution to gross additions continued to improve and was about 33% in Q3, a marginal improve over Q2. This should be indicative of future trends where more contribution to our growth shall come from those we ourselves hire for our customers. Contribution of hires through non-recruiter channel stayed strong at about 54%, improving our fulfillment ratio, which is almost over 60%, improving our time to closure as well as reducing our costs for hire. Our FTE productivity ratio for staffing alone improved by 12%, with improving operating leverage and associate growth. We also managed to improve our associate markup in absolute rupee terms through the quarter. Undoubtedly, there is optimism and business outlook and the addressable market is wide. And hence, we shall continue to invest in leadership, digitalization, sales and hiring capabilities to aggressively pursue the opportunity that we see ahead of us. A bit on the Q4 outlook. I mean a stable GDP for past 8.5% for 2022 has spread considerable optimism across sectors. The hiring intent rises by about 23%. This is based on the TeamLease outlook report study that we come out every quarter. 23% for Q4 of this fiscal compared to the previous, a [ former ] economy is delivering on increased demand, although we see an unprecedented churn in the technology sector. The global demand for technology services from India surged, the continued health of high-frequency indicators and positive credit growth of large businesses, rising exports indicate a promising surge in hiring across the country in the upcoming quarter or the current quarter. The recent employment outlook report actually captures the intent to hire for Q4 is at about [ 15% ], an increase of 9% from last quarter. Some of the key takeaways, IT education services, health care and pharma, e-com, tech startups, the highest in terms of intent to hire. Metro cities and Tier 1 cities are surging here in Bangalore, Chennai important hiring markets. Junior and entry-level hiring is out doing probably all other categories, sales and IT roles very much in prominence. Of course, there is an Omicron impact, which there is a little bit of an apprehension on. But I think while we are cautious about it, we are also noticing that most organizations are still searching ahead with their plans to hire and there is no diminished sentiment as of now. Return to office plans might be unpredictable as of now, but the business impact of the virus isn't a big concern. We are not past the pandemic and need to keep a close watch for the warning bell and hence, we shall continue to act with [ Fuder ], but we remain overarchingly optimistic. Thank you so much.

Thanks, Ritu. Good evening, everyone. We had a strong performance in a seasonally weak quarter. We grew year-on-year 28 percentage on headcount, 34 percentage on revenue and 25 percentage on PBT. We witnessed broad-based hiring across the skill sets and industry verticals, helping us to grow our headcount base to 9,152. This growth also helped us to increase the market [indiscernible] substantially. . Our sales team has been consistently delivering. We bagged 43 new deals, including few large [indiscernible] IT projects. The number of existing clients where we are the #1 partner with highest valid share has doubled, reflecting our strong focus on customer centricity. The investments we made in adjacencies like digital solutions, telecom technology, engineering, technology, gaming, health care and other service lines has helped us to offer one-stop shop solution to fulfill requirements across the spectrum of our customers. The investments we have been making to improve the capability of our hiring team through various training programs and digital interventions along with the capacity expansion has helped us to capture substantial share of the available business in the market. In terms of headwinds, we had a 60 basis point sequential drop in PBT and a nominal 1 percentage increase in the revenue due to furloughs, unplanned leaves taken by our associates owing to the festival season. And we also made some investments towards increasing the hiring capacity. The impact of furloughs and leaves also led to a onetime impact on our quarterly revenues. However, this will not have an impact in the coming quarters as the same shall be a recurring revenue. Overall, the demand environment continues to be robust. We are confident to continue delivering better numbers next quarter and close the financial year '22 on a high. Thank you.

Thank you, Sunil. Good evening, all. We have a good quarter with about 9% sequential growth in headcount and 15% growth in revenue. Also, at PBT margin level, we have an improvement from 1.77% in last quarter to 1.81% in Q3. So in this quarter, we do not have any major nonrecurring items or onetime impact, except for the seasonal impact of furloughs in specialized staffing. Our core employee headcount in this quarter has gone up by about 5%, roughly translating to about 90 net addition in core employees. So this is mainly into sales and hiring teams in line with the business growth and opportunity. Overall, our operating cash flow conversion to EBITDA stands at 85% on a 9-month basis and the funding exposure in our largest business staffing stands at 14.5%. We expected some collection in government training business for which provisions have already been, but those collections to the tune of about INR 2 and 2.5 crores got deferred on account of the third wave impact, which we are expecting either by end of Q4 or Q1 of next year. Yes. So we can move to the questions now.

[Operator Instructions] The first question is from the line of Heenal Gada from ICICI Securities.

Thanks I mean, congrats on the new quarter -- on a good quarter. So just first question in terms of the hiring trends, right? So I mean, as mentioned in the last quarter as well, that because of the great [indiscernible], we are seeing a lot of job openings which are more than actually unemployed people. These are especially obviously in the developed markets. And you did mention that those trends have not really started with India. Just wanted to get an updated view on this. Are we seeing these trends now play out? And how do we expect this to impact TeamLease?

This is Ritu. So I think the fact that the technology in industry today going through an impact of high attrition is a fact, but that is also on account of the fact that the demand is very much in excess of the available supply and the available skill set. So the pandemic definitely has preponed some of the skill sets, which were probably anticipated would be hugely in demand 3, 4 years, maybe 5 years down the line to being in demand today. And the skilling and upgradation programs within the country has not really kept pace. So because of which every [indiscernible] skilled used is at the moment [indiscernible] point of time. However, that the case for highly skilled backgrounds particularly. Yes, there would be in certain sections, certain cities, some amount of impact of the jadedness or the mental anxiety associated with working from home, which could lead to some kind of a temporary lull and wish or an urge for individuals to quit. But I see that it is a temporary blip and as we progress as normalcy is restored, we will see some amount of sanity around this. However, there are other interesting trends we are observing where we feel that a lot of skilled work, which is currently centered around the cities and the bigger metros would actually move towards remote locations. So organizations might move away from actually attracting talent just in the cities to more smaller cities where talent currently exists. So these are some of the emerging trends actually which are more relevant to India that we feel we should be watching out for.

Okay. Okay. And my next question was in case of -- PAPM. So we've got a further improvement over the last quarter in those numbers. But again, margins are still not shown an improvement. So any color on that would be helpful.

Yes. So 2 elements to that in. One is the -- we have had an absolute PAPM increase, the salary levels of the associates have been seeing consistent growth number. So we are seeing a lot more payout, whether it's wage inflation or one-time payments happening to the associates. So just from a percentage perspective, the realization is actually lower than when we look at it from an absolute term perspective. And the second element that we had called out earlier about our strategy to market playing out we feel is a continuance that we should take to investing in more talent and people at this point in time to draw on the opportunity that is there. So we do believe the element of leverage will kick in down the line and I called that out even in last quarter. But I think in the coming few quarters, we will look at it as investment phase in talent and leadership. In absolute profits, we will go up. But as a percentage, given that salary levels outside are increasing and we are making the investment, we might be flattish from a percentage perspective.

So if you could just kind of give like a rough time line as to still when are we expecting such increased investments from my side and when you think the operating leverage should start kicking in?

So the 2 areas that we are looking to make investments in. One is in terms of talent and people, which will continue to be there for the next 2, 3 quarters. And I think with the lag thereafter, the return on that investment should kick in. The other investment that we are looking at is in technology and digitization. The investment itself will be phased out over an 18 to 24-month period. And in a phased manner thereafter, we should see a return on that.

Okay. Okay. And just last question from my side. We had done a INR 75 crore provision in the last quarter. So how is the PF return looking right now? And are we expecting any further provisioning or you see a reversal in the near-term sale?

So Heenal, on the INR 75 crore provision. As of now, we are not anticipating. And as we mentioned in the last quarter currently the yield shortfall is at 1% on the total portfolio. So we are also evaluating the auctions of migrating to the EPFO. And as and when we have more clarity on the migration aspect, we'll come back and inform you.

But at this point in time, we do not think that we will need any incremental provision on this.

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

Yes. One question from my side. You have seen a very good addition in headcount, not just this quarter, but even in the previous quarter. So can you clarify if there was any large contract win in this? Or was it spread across [indiscernible] clients?

It's been spread across clients, Alok. So it isn't any one or a few mandates. Like I had called out earlier, we have seen growth across the 3 businesses, the 3 employment businesses. And it has been across sectors and across clients. .

Sure. And given the inquiries that we are getting from clients and the momentum that you are seeing for the past 2 quarters. Would you say that this kind of addition is not 15,000, I mean no healthy addition anywhere between 5,000, 10,000. Is that something which is a steady state now, given the breadth that we have for -- in terms of clients?

Yes. So I think at this point in time, the market sentiment to hiring and demand still seems to be good Alok. I think like Ritu had called out, there is the element of the uncertainty of Omicron at this point in time. While thankfully, the element of impact on individuals hasn't been as bad as in wave 2. And hence, there is still an element of business continuity and business plans that corporates are talking about. So no one has actually decided to defer or cancel their business plans and their hiring plans. So I think at this point of time across the 3 businesses we still stay quite confident of a healthy growth as we go forward.

Sure, sure. And just to round off this on this topic...

It's also giving us the impetus to make the investment in sales, account management and hiring teams to leverage the opportunity that continues to play out.

Sure. So -- And Ashok, any in this last 2 quarters, that was September quarter and the December quarter, any 1 or 2 standout sectors that you feel have really come back very sharply in terms of growth and have stood out for you in terms of headcount.

Before Ritu answer the specifics of sectors, just answering personal, IT has been consistent all year. So I think IT didn't have a downturn in Q1 either. And actually, as I mentioned to the earlier question the demand in IT has been very aggressive and healthy and we've been delivering consistently across the quarters to IT. That's on the specialized staffing side. On the general staffing side, Ritu.

So on the general staffing side, I think the standout sector in terms of net growth, obviously, is e-commerce, but I would not call it as a turnaround sector. It's been like this. And with the entire [indiscernible ecosystem [indiscernible] , hyperlocal, business model emerging, there is a constant requirement for hiring. I think the sector -- the couple of factors, which I can call the bounce back factor have been BFSI and telecom. And the other cluster where we are seeing obviously a lot of consistent, sustained demand will be -- I mean it may not be a huge big ban, but more sustained and gradual would be consumer and health care. So in a nutshell, that's what where most of the action is.

And also in degree apprentices, we have seen an uptick from the manufacturing sector.

The next question is from the line of Yogesh Kirve from B&K Securities.

I had a question. We look at the -- if I look at the [indiscernible] realization for associating the general staffing -- up -- and has grown by cumulatively above 50% over the last 2 years. So how should we look at -- so what should we interpret in terms of -- Are these wages levels which are going up on some more higher bonus payout, anything that related bad during this quarter? . And secondly, related to this is PAPM side was growing at a more steady rate. So is there any attempt or [indiscernible] talked about trying to move towards more [indiscernible] kind of a deal other percentage share kind of a deal. So has there been any moment over the last couple of quarters.

Yogesh, first, let me cover the second [indiscernible] our default offering or our preference for signing up a client is on variable markup model, there is a pushback. And as of date, only 72% -- sorry, only 28% of our business is on variable markup model. And over the last 1, 1.5 years, we haven't made any progress on improving the variable market [ observation ]. And in terms of PAPM growth, in Q4 of last year and Q1 of this year, the PAPM got impacted with COVID discounts on which we said it would take at least 3 or 4 quarters to get back to the previous levels of 740, 750 kind of PAPM level on which we are making quarter-on-quarter progress. However, the wage inflation in associate salaries much higher than the growth that is happening at PAPM level, which is kind of having the pressure on gross margins in staffing. However, with the productivity enhancement that we are doing at our backend in terms of our core employees and other cost. So that is helping us at PBT level at EBITDA and PBT level to improve the margins in staffing and also at the overall portfolio level the margin expansion will continue.

I think there's some -- I mean, the intent is obviously to try and increase realizations of the PAPM at the PAPM level. Multiple approaches in terms of negotiations, new contracts in terms of the aspect of partly the person contribution. All of these are being tried out, Yogesh. No one driver. But like as Ramani pointed out and as we had called out earlier, we are seeing the wage inflation happening, which is effectively also from a percentage perspective, dampening that element, but we are compensating that by the productivity impact.

Yes. Going back to the point where I started into of realization per associate. So the kind of increase that you are seeing for 2 years. Is it really only the function of the inflation, which has happened? Or has -- -- there been any sort of a change in profile or are we on more cases which are getting involved. I understand [indiscernible] related to PAPM, but I just want to understand this metric [indiscernible].

Not a huge change of any sort in the composition of our associate base, Yogesh. So while we are continuing to deliver to the volume requirements across the various industry sectors. And obviously, there's some element of sectoral composition mix that changes depending upon the outlook or employment that the sectors are doing. At a broader level, there has not been a functional composition mix change that has happened. I think it's just the element of wage inflation that we are seeing coming through on the aspect of the talent that is being onboarded.

Okay. The second question is slightly related to this. So as this wage inflation keeps playing out. So if you look at our income tax benefit on the 80JJAA and it's sort of linked to certain salary threshold. So based on this inflation trends, so are we confident that over the next 4, 5 years, we would be sort of close to 0 tax rate in terms of the effective of tax rate?

Yogesh, while the average salaries are going up consistently and currently standing at 23,000. Our median salary is still at about 18,500. So it takes a while to get to the 25,000 limit. So at least for the next 4- to 5-year time frame, we don't see any major change in the quantum of tax benefit that we are aware.

[Operator Instructions] The next question is from the line of Nilesh Jethani from Bank of India AXA Mutual Fund.

The first question I wanted to understand was, so across our 2 business models, a revenue model would be [indiscernible].

Sorry, Nilesh, your voice dropped.

Am I audible now? .

Yes.

So my first question was across business model I wanted to understand what is our share? Do we take as a percentage cut? Or is it fixed in general? The reason I'm asking this is, I just wanted to understand, say if salary growth continues for next 2, 3 years, we would be in a position to enjoy double benefit of headcount increase plus the salary increase or it is generally fixed in nature?

So in general staffing needed 72% of the business is on fixed markup model. So where we really don't get a benefit of inflation naturally. However, every year, when we go back to clients on renewing the contracts, so we ask for increasing the PAPM but largely 92% the percent is on fixed markup model. In specialized staffing, it is on a rate card model. So wherein -- I mean our share of margin is baked into the overall charge that we charge to the client.

Got it. Got it. And second question, I don't know if it is related or relevant at this point of time, but what is our strategy on the online side? So I read about a few articles on newspaper about app called apna, which conducts more than 18 million job interviews on a monthly basis. So where are we on this online platform or online investments? And what is our thought process in the next 2 to 3 years? Because lastly, a lot of the blue collar job, et cetera, can be easily transitioned to online. That's my belief is at this point of time. Just wanted to understand management's thought process on this.

I think we welcome innovations of the sort that apna.co has reaching to the ecosystem because it improves the entire engagement and the quality of the ecosystem. So we do view them with as allies in our own journey and there are common synergies that we are already seeing, like we work very closely with, for example, apna.co and then there are many various such other aggregating models that we are also seeing. It gives us an opportunity to learn, engage as well as we innovate at our end in terms of our own journey towards creating better matching techniques, given that clearly, blue-collared or less skilled, remote hiring, rural hiring is one of our future -- -- current as well as future priorities. So honestly, these are models which we are absolutely welcome. They are actually improving the entire staffing ecosystem today and this learning process was absolutely essential to kind of address one of the perennial challenge that the entire employment ecosystem in this country has been struggling with, which is how do we get the [indiscernible] and the like kind of profiles into a digital environment. So I think we are very optimistic and hopeful that this is going to overall improve the quality of matching in the country.

So just to add to that, Nilesh, criticality for us from a hiring perspective that we have to achieve the trinity of scale, which is volume, the reach, which is multiple locations and cost being at the lowest cost for it to be viable in the long run. So I think one of the investments that we made in an earlier business Freshersworld was with the belief that the technology is going to play a key role in the aspect of hiring. And we need to -- while we will use the learnings and experiences of others at our end. We also need to innovate and kind of drive on the platform. So I think the past 2, 3 years, a lot has been done internally around hiring ops being technology-driven and the framework of that is kind of working for us to drive productivity and volume delivery. I think one of the investments that we are looking to make as we go forward in hire tech is also to improve hire tech as a variable that complements hiring operations to enable the trinity of scale, reach and cost. Like Ritu said, we'll obviously leverage on innovation that's happening in the space outside, but we will complement that with our own platforms also.

Got it. So follow-up question, sir, on this. Just today, if you want to say today, we would be working or associated with many sectors. So just wanted to understand any low-hanging groups which are there that if we transition some of the businesses or some of the recruitment towards online, any savings which you can do at this first and second one clarification. So technology hiring at TeamLease or technology -- using technology for hiring for the clients. So what did you mean. I did not get it.

So this is hiring at TeamLease for client requirements. So hiring our own requirements is not that large volume growth. But typically, at this point in time, we have nearly 18,000 plus open positions with us across sectors, across profiles and across different locations. We cannot throw people at the job. It becomes a very expensive proposition. And leveraging technology as an intervention for hiring ops and hiring tech is really what will drive down the cost of hiring and improve the fulfillment ratio. So it is leveraging technology for the open positions that customers give us that becomes our growth engine as we go forward.

Just to add to that, in our opening remarks, I was mentioning something called the contribution of non-recruiter channels to our overall [indiscernible]. Now it's just from using teamlease.com, that is almost 20% of our overall hiring. And as we continue to hire more and given our optimism in terms of growth that will come -- or addition that will come to our own highway. Large part of it, we intend to do and increasingly and progressively we'd like to do it using online channels like teamlease.com. And if we can make -- penetrate into being able to do so across a much more diverse set of profiles through online platforms, it obviously brings in a huge leverage for us. So it's not -- not only does it improve the thing -- the 3 things that Ashok mentioned, it helps us reduce the cost to hire, it helped us be able to hire faster and [indiscernible] in remote as part of the country. So it's already in motion.

But just sorry to add to that, Nilesh, and your first question about any specific low-hanging sector that plays to this. As of now, no, we are using it across the board.

Got it. And one last clarification. [indiscernible said we have a 1% stock fall in our [indiscernible] book. So largely, if my math is correct if the book size is INR 1,300 crores. So broadly INR 13 crores could be additional provision if we move to the PFO that could be coming in from the operating revenues in the future? Is the expectation right -- is this the current number?

Nilesh, when we created the INR 75 crore provision, we also factored for this yield shortfall of INR 15 crores for the next 2 years. So if we move to EPFO, we don't have to create any additional provision in future.

The next question is from the line of Vidit Shah from IIFL.

Sir, the first question was on the specialized staffing business. So we've seen a healthy headcount growth, but hardly any growth in revenue. So you said it's largely due to the seasonality, but could you shed some light on the seasonality, like is the large part of this headcount addition towards the end of the quarter? Or is there just a discount that we gave during the third quarter? .

So during this quarter, when there is -- in the December, you have a huge furlough, 15 days furloughs is given to employees. So that hits our cost and revenue as well. Similarly, there were some unplanned leaves which will -- which normally they take during the festive season. So that's the reason in spite of the headcount addition, the additional revenue got adjusted against the loss in the revenues towards the furloughs and the leaves. But on an ongoing basis, this will come back.

So the 400 headcount addition that we've had has been kind of spread across the month. But the IT staffing, which has the largest wage brackets, taking the hit on the unplanned leaves and the furloughs is the only reason for the aspect of a flattish quarter, but this would correct itself in Q4 where there will not be this impact.

Got it. And you've previously stated that steady-state EBITDA margins of this segment are around 10% to 11%. Like we've basically done 9.1% in the first 2 quarters and roughly 8.5%. So like what sort of expense or cost cutting will be done to take these margins up? Or when can we see these margins sort of start increasing from?

In specialized staffing, now that we have telecom and IT verticals added, which are relatively lower margin businesses with it compared to IT staffing. So we said that we are currently at optimal levels of margins in specialized staffing. So our focus is more in terms of improving the absolute margins, absolute profit because at March in front of 8% to 8.5% is an optimal level for this vertical.

For the vertical, including the infra and the telecom?

Yes, that's right. On a blended.

Understood. Fine. That's helpful. And just a couple more questions. One was regarding the shift from -- in hiring from metro cities to small cities that is to kind of talked about earlier. So just wanted to understand like, like is there enough presence of these large companies across these small cities or will this sort of need more investment to be made across the country to hire from smaller cities?

So obviously, this is an emerging trend, but here is how it's looking like that organizations obviously are still conflicted on whether work from home is better, back to office is better, the impact on engagement, impact on things like mental health, so on and so forth. So -- but then a large number of employees and this is obviously not a trend across any and every sector, largely centered around the knowledge workers, I guess, where a lot of people come to the metros in different parts of the country. And with this pandemic phenomena, many of these people, because of work from home, remote working, has chosen to go back to their hometown and are pressuring that ecosystem. So many -- there is an emerging trend where organizations are seeing that rather than having large office spaces in bigger cities, why not have smaller cohorts in smaller towns and cities, which are essentially places from where a large number of people are actually migrating to the cities. And whether that is a more viable model to ensure that there is some kind of a physical connect with these employees, so it's like in-between kind of a solution which might blow up into a bigger trend. But honestly, we have to see how the next 3, 4 quarters go. As of now, we are seeing that as a trend around for knowledge workers, for technology and some similar kind of role.

Sure. But let's say, if it does blow up, do organizations have the sort of capabilities and the database to start hiring from these places or it would be built up?

Even today [indiscernible] talent for companies is coming from all places. So what we have been doing historically is migrating talent from home locations to the metros. I think what we are now talking about is that there will be a dispersion of employment base to probably the [indiscernible] kind of location. So historically, also the talent was not purely constrained only to the big cities. It was coming and it was a migratory population that was there. I think what the opportunity this provides is an element of being able to hold that element of a migration. And our belief is that as you are able to take jobs to the people, your quantum of talent pool would actually increase.

Understood. Understood. Just one last question on the couple of leadership, hiring positions that you put in the HR tech space. So just if you could shed some light on the broad strategy in this space. So how quickly will it grow? And are you looking to monetize it? Or it's largely fall cost efficiency? .

So 2 elements, both we've made leadership hires in Hire tech and HR tech. Hire tech, we have discussed slightly earlier around how we view it as adjunct to our employment cluster and our hiring capabilities to deliver to open positions as a function of scale, reach and cost. So they will make investments to enable scale productivity. To some extent, they will have an external independent market focus that will have TeamLease businesses as their largest customer to drive volume. . In HR Tech, historically, we've been talking about the element of the DWS solutions that we have been doing to give value to the customers in different areas of people management, which are today, we have a minimum viable product in certain areas, which are being used across customers and across associates. There, the clear idea is to monetize it to from external clients and non-associate employees who are outside. While we would also parallelly make investments in innovation around future product pipeline. So they will -- in both the businesses, there will be a future road map of investment that we would do on product and innovation, but they will be called out as P&L.

The next question is from the line of Utsav Mehta from Edelweiss Asset Management.

I just noticed that your spread per employee has been going up quite steadily in the last few quarters. It's almost up to like $1,000 per month. It's almost up 20% year-on-year. Do you think this number is sustainable? Or is it just a function of stocking mix? Or has there been an improvement in pricing?

Utsav, when you mean employee spread, are you referring to the salaries or the volume growth? .

I'm just netting out the realization per employee from the cost [indiscernible].

Okay. Can you please repeat your question?

Basically, I mean, we've called out that we have about INR 700-odd realization in general staffing, which has incrementally been improving. Specialized staffing has higher margins. So I don't know if you're combining a combination of both, but not clear how you're coming at INR 1,000.

No, no, I'm just using the overall numbers, right? I'm just taking your revenue number and dividing it by average employees and cost. Your total employee cost divided by the total number. Just a rough math to see where your spreads are heading. .

Not able to -- I'm not able to understand the question and the cash math at the back end, but we could take this offline and Ramani could answer that.

Yes Utsav, I'll take it offline with you. .

[Operator Instructions] the next question is from the line of Sumit Jain from Goldman Sachs. .

So firstly, I wanted to just check on your specialized staffing headcount. You mentioned that in IT staffing, you had a very strong growth. But when I look at your disclosure, the specialized staffing has gone up by 4.9% quarter-on-quarter. So shall we assume there was a decline in telecom staffing or IT infra, how should we look at it? .

So the telecom staffing and the IT infra compared to IT staffing, as there has been a little less number additions. But predominantly, we have been adding more numbers on the IT side.

So can you quantify? I think you stopped giving that disclosure. So any reasons for that? Because I think IT staffing headcount growth used to be a pretty decent number for you. .

So we just now combined the 3 businesses and are working under single leadership and not specifically vertical focused as a linear line thereafter. So that's really why they have been combined together now. .

Got it. Got it. That's helpful. And my second question was around your margin profile in terms of EBITDA margins. If I look at the HR services have gone now into profit. Whereas general staffing and specialized staffing, both have seen a bit of a decline for last 3 to 4 quarters. So I guess despite a very strong Q-o-Q growth trend and improvement in realizations as well, we haven't seen the margin benefits coming to general staffing and specialized staffing. So is it because of the investments that you are doing or any other competitive factors out there in the market? .

So firstly, in general staffing, I mean, before we even go to the investment level on PAPM itself there is a continuing pressure until Q2. So in fact, we get substantial COVID discounts in the last 12 months of time frame. And that has impacted the gross margin. So while we are enhancing the productivity and contributing to higher profitability at the bottom line. So there is a slight impact on PBT margin, which is essentially percolating down from the COVID discounts from PAPM. Specialized staffing in this quarter, there is a drop in the EBITDA margin because of the furlough and this is one-off. Otherwise, they'll continue to maintain these margins of EBITDA margins of 8 and 8.5% in coming quarters. HR services, the long-term aspiration or the long-term margin target for HR services is upwards of 10%. And again, this is subject to the new investments that we are planning to make in higher tech and HR tech business lines. But however, under EdTech and RegTech and compliance businesses all put together, we should be able to maintain a steady state of -- upwards of 10% of net margin.

Got it. That's helpful. And I guess, Ashok, in the past, you have mentioned your aspiration to take EBITDA margins to north of 3.5% to 4%. And we are still operating at 2.1% kind of levels. So can you just help us understand what will be the key levers for profitability to go up to maybe 3.5% to 4% in the longer term? I'm not asking the duration by when it will go, but at least the levers, which will [indiscernible] to that path. .

So north of 3% is what I have always been saying, Sumeet. And I think that is the trajectory that would happen with the portfolio mix of the various P&Ls and scale that comes about. So I think a combination of those 2 is really what would be the driver. So HR services has now come into profitability, and now we are focusing on scale for them. And since it will be a higher margin business, it will -- and it won't really be a large mover on the top line, it will lead to margin improvement. Specialized staffing has reached that steady state, but now we need to drive on growth. I think the immediate quarters where we are making the investments in talent and team and other areas don't give operational leverage, but those will also start playing out down the line. So I think a combination of these is really what would move towards the company delivering on the 3% plus kind of margin.

Got it. Got it. That's helpful. And also, can you also talk about the consolidation in the market happening because we generally don't get any industry-level data as to how the overall staffing industry has performed. So given that you had 9%, 10% quarter-on-quarter growth, I'm assuming you must be consolidated the market at a broad level. So maybe I show quickly if you can comment something as to how consolidation is happening at the ground level?

I wouldn't say consolidation is happening at this point, Sumeet. I'd like -- the demand has come back into the market. I think the business that was there at the start of the year on account of wave 2 is behind us. Our clients have resurfaced their plans for growth and volumes leading to hiring. I think hiring is happening across the spectrum of on-roads, outsource, formal, informal, all areas. I think it for us, a function of having strong sales and account management teams on the ground that can leverage the aspect of the positive outlook in the market, giving us -- getting us more clients, getting us more open positions and our ability to deliver better on the open position, that's giving us the growth at this point in time. I don't think -- I'm still at a point in time to be able to say that there is a strong element of a consolidation from informal to formal or from smaller players to bigger players that's happening at this point in time.

Got it. Got it. That's helpful. Ashok, I think in terms of FY '23, I mean, clearly, we saw a V-shaped recovery in FY '22. And of course, the headcount growth has been pretty strong in that perspective. So what is the sense you are getting from your top key customers in terms of their growth addition for next financial year, would it again be a strong year? Or you think the pent-up demand-related phenomena has already played out in FY '22? .

No, I think the outlook from industry is quite positive, leaving aside any uncertainties that could crop up down the line. With the aspects of the given facts on the table, the outlook overall on India seems to be strong and translating that down at company -- -- industry levels and company level, the outlook is quite strong. So we don't see it's tapering off at this point in time, unless some external variable [indiscernible] to play on that.

[Operator Instructions]

If there are no questions we could come through. .

Sure, sir. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you. So I think it's been called out. We've had a strong quarter on growth in line and in continuation of the earlier quarter. There are no exceptional item call out in this quarter. All parameters of P&L and balance sheet are healthy. And with the current outlook on industry and company aspect, we do believe there's opportunity for sustaining the element of healthy growth as we go forward into Q4. We obviously are working on improving the absolute profits at this point in time. The margin percentage aspects as the levers of the current investments that we are looking at start to play out in the future will lead to that operational leverage and margin improvement happening. But we believe that just given the market, the market opportunity, it's the right time to make the organic investments in technology, in digitization, in team that we will continue to drive on. We look to the aspect of no surprises in the future around the pandemic or anything else. And with the sustained positive outlook, we stay positive to the future. Thank you very much.

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