Quess Corp Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Steady EBITDA growth, margin story intact: Consolidated EBITDA rose 16% YoY, driven by operating improvements and a sharp reduction in foundit's cash burn.
• Workforce Management is a tale of two halves: Revenue grew on general staffing volume, but margin contracted 18 bps YoY to 2.44% as Singapore headwinds and a mix shift toward lower-margin general staffing offset a record quarter in India IT staffing.
• The demerger is on a defined timeline: With NCLT's first motion cleared, shareholder and creditor meetings are set for December 9, and management expects the entire process to conclude by Q1 of the next financial year.
• Foundit is tracking toward breakeven: Revenue grew 11% while cash burn fell; management is confident the platform will exit Q4 in a break-even state.
• What to watch next quarter: Whether the delayed festive hiring season translates into a Q3 headcount rebound, the pace of WFM margin recovery toward the 2.6% medium-term target, and the release of detailed government guidelines for employment-linked incentive schemes.

Workforce Management: Growth vs. Margin

• Revenue engine: General staffing drove top-line growth, with the segment's revenue mix shifting further toward general staffing at 84% of the total, up from 82% a year ago.
• Margin squeeze: EBITDA margin contracted 18 bps YoY to 2.44%, pressured by muted growth in Singapore, wage inflation, and the dilutive effect of the general staffing mix shift.
• Hiring delay: The festive season hiring cycle, which typically begins in August, only picked up in mid-September, resulting in approximately 11,000 net headcount additions versus a typical 15,000. Q1 had added over 30,000.
• IT staffing transformation: Headcount has fallen from ~8,300 pre-COVID to ~6,000, but the share of niche, higher-margin profiles rose from under 3% to over 15% of the base, roughly 900 headcount. India IT staffing hit a record 9%+ EBITDA margin, though this was offset by Singapore's decline from 6.5% to 4.5%.
• GCC shift underway: 74% of new IT staffing mandates now come from GCCs, though the overall GCC revenue contribution dipped from 70% to 68% because the new-business mix takes time to flow through. IT/ITeS services hiring remains subdued with no green shoots.
• Margin cyclicality: Q3 and Q4 are structurally better quarters because high-margin businesses like food and telecom infra in OAM, collections in GTS, and payroll/HRMS in Allsec experience seasonal downturns in H1 and recover in H2.
• Investment drag: WFM margins also absorbed costs from post-demerger back-office build-out, verticalization (hiring experienced recruiters for manufacturing, GCC, and consumer retail), and the lagging international recovery. 50% of WFM EBITDA comes from general staffing, 50% from other segments, with international contributing high margins on 21% of the mix.

Lohit Bhatia: "our WFM long-term margin trajectory north star remains at 3%. We have not moved away from that north star, but that's a long-term target for us. Where do we want to get into the medium term is back to the 2.6%, 2.65%."

Foundit: The Path to Breakeven

• Revenue growth with lower burn: Foundit delivered 11% healthy revenue growth while simultaneously decreasing cash burn levels YoY, with significant traction on the foundit 2.0 platform.
• Soft spots: 60% of revenue comes from the IT sector, where hiring has reduced, and placement agencies, the second-largest subscriber group, are spending less. Singapore market caution and longer sales cycles add to the drag.
• Positive leading indicators: Profile updates rose 61% YoY, job postings increased 141% YoY, and 2.0 application pilots are showing over 90% candidate satisfaction.
• Breakeven commitment: Management expects the cash burn to reduce further in Q3 and for the platform to exit Q4 in a break-even state, a confidence drawn from the order book.

Guruprasad Srinivasan: "as we enter Q3, it should further come down and exit of Q4 is when I think we will definitely be in a break-even state"

Operating Platform: GTS, OAM, and CLM

• GTS growth: Driven by robust growth in voice and platform services businesses, with improvements in non-voice businesses. Non-voice BPO was flat YoY but saw an 8% sequential increase following a seasonal dip in Q1.
• CLM trajectory: Strong performance across domestic and international operations, with the Allsec CXM vertical generating over 70% of business from international markets. Voice services were led by demand from BFSI clients. Investments are being made to strengthen automation, analytics, and GenAI capabilities.
• OAM growth and investment: Revenue growth was attributed to food and telecom infrastructure, with telecom active infrastructure recording its highest-ever quarterly revenue on 4G and 5G network development by operators. Margin declined due to investments in sales and leadership, though it improved 4 bps sequentially.
• H2 outlook: GTS and OAM are expected to deliver stronger Q3 and Q4 performance, contributing to overall Quess growth of 4% to 5% per quarter.

Demerger, Balance Sheet, and Policy

• Demerger clock: Received NOC from the stock exchange; on 22nd October, NCLT disposed first motion applications and directed shareholder and unsecured creditor meetings to be convened on 9th December. Management is hopeful of completing the entire process by Q1 of the next financial year.
• Cash flow and debt: DSO remained flat from March to September; operating cash flow conversion to EBITDA stood at 86%. The company repaid ₹117 crore of debt. Management is confident of bringing DSO days down further.
• Government ELI schemes: Industry consultation is complete and detailed guidelines are expected next month. No portion of current reported numbers includes these incentives. The major impact is expected toward first-time employment and direct benefit transfers for fresh employment; as the largest player in the space, management believes it should benefit the business but awaits the detailed guidelines.
• Accounting change: Interest cost on defined benefit obligations has been reclassified from employee cost to finance cost, applied retrospectively with no impact on profitability.

Kamal Pal Hoda: "the major impact is towards first time employment and it also towards the direct benefit transfers which should happen towards the fresh employment. And being the largest player in the industry in this space, we believe that it should benefit our business. But we await the detailed guidelines."

Investments and Cost Structure

• Core-to-associate ratio: The ratio deteriorated as Q2 is seasonally weaker and the company increased its recruiter base in general staffing by over 100 recruiters incrementally, invested in Job Spots, and pursued a verticalization strategy requiring more investment in the sourcing engine. Management expressed confidence these investments will realize as each pillar builds strength to grow.
• SG&A normalization: SG&A increased due to verticalization investments, festive hiring, additional recruiters, and leadership strengthening. This is expected to normalize and pull back to previous levels in upcoming quarters, particularly by Q4.
• Generative AI: POCs have been conducted over the last six months; the company plans to launch its first set of offerings in the coming quarter and then gradually roll out.

Guruprasad Srinivasan: "we have built this engine almost 10-year plus which is now very aggressive engine across in terms of capability of hiring faster, quicker to our customers and we continue to invest in that phase a lot"

Guidance & Commitments

Key Metrics