Quess Corp Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Record profitability, margin story intact: Quess delivered its highest-ever quarterly and annual EBITDA, with the seventh consecutive quarter of sequential EBITDA improvement, driven by structural mix shifts and productivity initiatives.
• Workforce Management crossed 400,000 headcount: The platform added 10,000 associates in Q4, cementing its place among the top 5 global staffing companies by headcount, even as IT staffing remained soft.
• foundit hit operational breakeven: The platform reached breakeven in Q4, aided by reduced burn and the launch of the AI-driven foundit 2.0, with management expecting a move from negative to net zero in FY25.
• Three-way demerger on track: The scheme filed in February 2024 is progressing through regulatory approvals, targeting completion within a 12- to 15-month window to unlock value across three independent listed entities.
• What to watch next quarter: The sustainability of the INR 37 crores ACV jump in GTS, the pace of foundit’s revenue ramp post-2.0 launch, and any stabilization in IT permanent recruitment headwinds.

Platform-Level Margin Expansion

• GTS structural margin drivers: Three non-seasonal levers are at work: a favorable geographic mix biased toward higher-margin international revenue, a service mix shift toward higher-value offerings like transaction processing and collections BPO, and a right-sized cost structure with IDC and SG&A stable over the last four quarters.
• GTS margin trajectory: EBITDA margin expanded 208 bps year-on-year and 46 bps quarter-on-quarter; management believes the combination of these structural drivers can sustain margins in the 17% to 18% range with the current domestic and international mix.
• OAM margin improvement: A focused initiative on internal efficiency and customer contract reworking delivered a 106 bps year-on-year EBITDA margin increase, with the last three quarters showing consistent results; growth was aided by a business mix shift toward food services and telecom.
• Workforce Management margin stabilized: Despite competitive pricing pressure and a significant flat-fee business model, EBITDA margin held at 2.6%; wage inflation cost pressure was offset by an increase in wallet share from value-added services.
• Productivity drove headcount efficiency: Investment in technology and process automation, complemented by BCG-led productivity projects, reduced FTE headcount from 5,500 in Q1 to 5,300 in Q4.

Pinaki Kar: "drivers for that are three and they are not seasonal, but are structural."

Workforce Management: Scale vs. Headwinds

• General Staffing crossed a milestone: The platform added 10,000 associates in Q4, crossing 400,000 active headcount (450,000 overall), making Quess one of the top 5 global staffing companies by headcount; management aspires to become the largest globally.
• Vertical-focused strategy paying off: Four verticals (BFSI, retail, telecom, manufacturing) each ended the year with 50,000 associates; BFSI crossed 120,000, while manufacturing was the key growth driver, adding 22,000 headcount, up 47% year-on-year.
• IT staffing remains a drag: Softness in the overall IT industry was reflected in the aggregate headcount decline of the top 5 IT companies; open mandates saw only a marginal increase to 1,100 positions from 1,000 in December 2023, and the IT permanent recruitment business lost approximately INR 17 crores of EBITDA year-on-year.
• GCCs partially offset IT weakness: Additions to the IT workforce in India came mostly through GCCs, and Quess continues to focus on capturing a larger share of this market.
• Manufacturing staffing economics: Early-stage plant ramp-ups initially tread lower on unit metrics, but as each plant gains heft in numbers, unit economics improve and become better over time.

Lohit Bhatia: "So early days when you start, it would slightly tread lower, but as it catches up and at each of the plant you'll start to get heft in terms of numbers, the unit metric starts to improve and become better."

GTS: International Mix and Pipeline Sustainability

• Conneqt BPM crossed INR 400 crores revenue: Key drivers were BFSI, manufacturing, and retail segments; non-voice BPM grew significantly, led by the collections business which clocked 24% year-on-year growth.
• Allsec CXM international outperformance: High-margin international business grew 39% year-on-year and now accounts for 74% of overall CXM revenue, up from 69% in the same period last year.
• ACV jump raises sustainability questions: EXM ACV jumped to INR 37 crores in Q4 from a prior run-rate of INR 7-10 crores quarterly; management clarified that while INR 37 crores should not be extrapolated every quarter, the pipeline is not one-time, with multi-year North America-centric CXM contracts and long-term enterprise payroll transitions underpinning it.
• Product-led business saw degrowth: The break-fix business experienced some degrowth in spare services revenue during the quarter, and the divestment of Qdigi was completed effective 31 March 2024 with a 15% IRR.

foundit: Breakeven and the 2.0 Bet

• Operational breakeven achieved: foundit reached breakeven in Q4 with a reduction in burn; sales grew driven by both enterprise and B2C channels, and management expects a move from minus 56 to net zero in FY25, with volume growth driving further improvement into FY26.
• foundit 2.0 launched: The disruptive AI product was successfully launched for the SEA and Asian markets, with 100% of users in a single geography migrated to the new platform; operational metrics showed consumption up 18%, NRR above 100%, and profile updates up 31% quarter-on-quarter.
• Hiring slowdown is a manageable headwind: When hiring declines, recruiters buy fewer profile views, but management argues Quess is still small enough that a superior product and the 2.0 launch can drive share-of-wallet gains and new customer acquisition even in a down market; when jobs are lower, more revenue comes from candidates.
• IT concentration being addressed: IT remains a very large sector for foundit from a revenue perspective historically, but there is a stated plan to grow in non-IT verticals including BFSI, retail, and manufacturing.

Guruprasad Srinivasan: "we are still small enough to say, even if the overall hiring activity goes down, driven by our superior product at this point in time once we launch 2.0, we still expect to grow our share of wallet with the customers that we are serving as well as being able to acquire new customers."

Demerger and Capital Allocation

• Three-way demerger progressing: The scheme filed with stock exchanges in February 2024 is awaiting SEBI approval; once received, the first motion can be filed with NCLT, with the overall process expected to take 12 to 15 months from start to finish; the company is currently 2.5 months in and on course.
• Value creation thesis: Each business will receive enhanced management focus and pursue an optimal capital allocation strategy, enabling value unlock for shareholders over the medium and long term, scaling businesses to new heights, and attracting separate investor bases.
• Capital allocation priorities unchanged: The first priority remains retiring as much debt as possible (INR 700 crores cumulatively reduced over the last five years), followed by returning balance money to shareholders in line with the stated dividend policy.
• DSO reduction sustainable: Disciplined working capital management over the last 18 months, a business mix advantage (general staffing at 70% collect-and-pay, foundit advance collections), and the divestment of higher-DSO Qdigi all support management’s view that the reduced DSO level is sustainable.

Kamal Pal Hoda: "The first and foremost priority is to reduce the debt level, which we have done. See, in last five years, cumulatively, we've reduced INR 700 crores of debt."

India Macro Tailwind

• India in an investment phase: Sharp investments in infrastructure, public utilities, and capex are intensifying manpower-related activity; manufacturing is attracting investments with mega plants coming up that employ 1,000 to 10,000-plus people.
• Post-election reinforcement expected: Management expects the investment cycle to reinforce as elections conclude.

Guruprasad Srinivasan: "India is in investment phase. And I'm sure I think it will reinforce as we come out of the elections."

Guidance & Commitments

Key Metrics