Quess Corp Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Headcount engine restarts, NBFC drag fades: General Staffing added 21,283 net associates, the best quarter in six, while the 38,000-associate NBFC ramp-down from Q4 FY25 is now fully lapped in the base.
• Professional Staffing margin hits double digits: EBITDA margin reached 12.2%, driven by GCC-led demand and rationalization of low-margin contracts, even as revenue fell 8% QoQ on a sunsetting MSP program.
• Overseas profitability broadens: Middle East delivered its highest-ever EBITDA margin at 12.8%, while Malaysia and the Philippines compensated for a softer Singapore.
• Sourcing investment is structural, not cyclical: With 67% of demand now coming from Tier 2 to Tier 5 locations, the company will keep spending on deep ground-level sourcing channels; the sourcing share of hiring has risen from 25-30% three years ago to 41% today.
• What to watch next quarter: Whether the 27,000 open mandates in General Staffing convert into sustained net adds through the seasonally softer Q3, and any update from the December 1 ITAT hearing on tax litigation.

Headcount & General Staffing: The Recovery Takes Shape

• Net additions hit a six-quarter high: 21,283 net adds in Q2, driven by seasonal demand across manufacturing, BFSI, consumer, retail, and telecom. The sourcing engine scaled materially: 55,000 associates onboarded via sourcing vs 30,000 in Q1, with gross additions of 115,000 vs 79,000.
• The NBFC overhang is cleared: Headcount still shows a marginal 5% YoY decline only because of the 38,000-associate ramp-down by one NBFC in Q4 FY25. Sequentially, the business has been growing, and management is confident of delivering headcount growth on a yearly basis.
• Mix shift supports margin: Manufacturing-led business, including 77,000 apprentices growing at 30%, carries higher gross margin than the traditional BFSI and consumer flat-fee, Collect & Pay relationships. As manufacturing outgrows the stable book, blended margins improve.
• Open mandates signal continued momentum: 27,000 open mandates at quarter-end, with the business geared to deliver consistent quarter-on-quarter headcount growth. Management is confident of repeating H1 performance into H2, though Q3 starts with Diwali and the year-end holiday season.
• CRT is stable, not shrinking: The CRT vertical's contribution declined from 50% to 48% only because manufacturing is growing faster at 15% QoQ; CRT itself is a mature vertical with steady growth and no decline.

Guruprasad Srinivasan: "So if I take between Tier 2, Tier 4, Tier 5, almost 67% of our demand comes from there. And there has to be a very deep ground activity that has to be done. So we have to create alternate channels, we have to create the depth in terms of sourcing. So from that standpoint, we'll continue to invest."

Professional Staffing: Margin Inflection, Revenue Noise

• Double-digit EBITDA margin achieved: Professional Staffing delivered 12.2% EBITDA margin, up sharply, driven by sustained demand for skilled talent in higher-value areas and the rationalization of low-margin contracts.
• Revenue drop is a one-off MSP sunset: Revenue declined 8% QoQ because one large managed service provider program went for sunset. MSP is a pass-through business where headcount is not on Quess's payroll, so losing the revenue does not reduce headcount, making revenue per associate appear to drop.
• GCC concentration is structural: Approximately 73% of Professional Staffing headcount is tied to GCC-led projects, especially in digital, telecom, and tech roles. Matured GCCs (5-10 years in India) and new GCCs (last 3 years) behave very differently as clients.
• IT services recovery is a tailwind: After 8-9 quarters, IT services companies have seen positive and healthy net headcount additions, which will directly feed demand into Quess's Professional Staffing business.
• Margin outlook is stable, not expanding further: No additional planned investments in IDC; EBITDA margin is expected to remain stable in the low-double-digit range, consistent with the reported quarter.

Kapil Joshi: "On operational efficiency front, we don't have any planned or added investments in IDC. So hopefully our EBITDA margin will be stable, a low-double digit going forward within the same lines what we had reported for last quarter."

Overseas: Broad-Based Strength, Middle East Leads

• Middle East hits record profitability: EBITDA margin reached 12.8%, the highest ever, on broad-based strength across IT and non-IT verticals.
• Malaysia and the Philippines compensate for Singapore: Malaysia delivered growth across IT and non-IT verticals; the Philippines grew headcount 8% in ITeS and technology. Singapore remained stable, offsetting IT softness by building out general staffing.
• Profitability is better than expected: Both Malaysia and the Philippines are delivering better-than-expected profitability, more than compensating for a decline in Singapore.

Financials: OCF Quality, Finance Costs, and the MSP Distortion

• Operating cash flow conversion is strong on an operational basis: H1 OCF appears lower YoY only because last year included a tax refund of ₹129 crores. On an operational basis, OCF/EBITDA conversion was approximately 109%, exceptionally high due to advanced salary collections. Full-year operational conversion is guided at 70-80%.
• Finance costs rose on working capital for high-margin businesses: The increase is driven by Professional Staffing and Overseas, which carry higher credit and DSO days. On a half-yearly basis, finance cost is in a similar range, and management expects rationalization to ₹9-10 crores per quarter going forward.
• Other expenses dropped on MSP rationalization: The decline from ₹169 crores to ₹94 crores reflects lower subcontractor charges as low-margin MSP business was rationalized; this does not convert into employee benefit expenses.
• PAPM is stable, not expanding: PAPM remains in the 670-680 range, and management did not identify structural levers for expansion beyond the mix shift toward higher-margin manufacturing business.
• Top client concentration is declining: Top 10 client contribution declined by 5% as growth increasingly comes from a diversified GCC base.

Strategy & New Businesses: Planting Seeds

• Sourcing investment is permanent: The sourcing share of hiring has risen from 25-30% three years ago to 41% now, and with 67% of demand from Tier 2-5 locations, deep ground-level activity and alternate channels are non-negotiable. Investment will continue.
• Emerging businesses carry higher margins but are small: Two incubated businesses, VAS/technology-backed staffing and construction, have much higher gross and EBITDA margins but contribute less than 8% of the General Staffing book. Management expects a higher mix over the next 1-3 years.
• Taskmo lands first large-scale gig contract: A TCV of ₹5 crores, deploying approximately 1,500 taskers nationwide.
• Hamara Jobs platform scales: Now over 1.26 crore registered candidate profiles, holding a leading position in India's blue-collar recruitment segment.
• Origint activates one GCC, two more in final legal stages: The GCC build-operate-transfer business successfully bagged, executed, and activated one center, with two more at final legal stages.
• AI is still nascent: Technology and platformized AI activities are at a very early stage, and management declined to give guidance on when they will start reflecting in financials.
• Global headcount ambition stated: At 483,000, Quess is the third-largest by headcount globally; the stated aspiration is to become number one.

Lohit Bhatia: "We are still at a very early and nascent stage for technology or the platformized led AI activities to start reflecting -- at some point will start reflecting. I don't want to give a guidance on that as yet."

Guruprasad Srinivasan: "at 483,000 level, Shankar, we'll be -- by headcount will be globally third largest by headcount. Obviously, the aspiration is to drive towards becoming globally number #1."

Guidance & Commitments

Key Metrics