Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quess Corp Ltd (BOM:539978, Financial) achieved its highest-ever quarterly and annual EBITDA, with a 28% year-on-year growth in Q4.
- The company recorded a revenue growth of 11% year-on-year, reaching INR 19,100 crores for FY24.
- EBITDA margins expanded by 80 basis points since Q2 FY23, closing the quarter at 4%.
- The company added 149 new contracts in Q4, with an Annual Contract Value (ACV) of INR 232 crores.
- Quess Corp Ltd declared a final dividend of INR 6 per share, totaling INR 10 per share for the full year.
Negative Points
- The IT staffing segment faced softness, with a decline in aggregate headcount of top 5 IT companies by 11,200 in Q4 and 69,000 in FY24.
- Despite growth in revenue, the EBITDA margin for the Workforce Management platform remained flat at 2.6% throughout the year.
- The Product-led business segment saw a revenue decline of 8% quarter-on-quarter, despite foundit achieving operational breakeven.
- The company faces competitive pricing pressure in the Workforce Management segment, impacting profitability.
- The effective tax rate for FY25 is expected to increase to 10-11%, up from 5% in FY24.
Q & A Highlights
Q: Congrats on a great quarter. You mentioned drivers behind margin expansion in OAM and GTS segments. How should one look at the margin profiles going forward, especially the balance between revenue growth and margins? Also, what drove the four-day reduction in DSO, and is this the new normal?
A: For margin expansion in GTS, the drivers are structural: geography mix, business mix, and cost structure optimization. International business in GTS has better margins, and the shift towards higher-value services supports this. For OAM, internal efficiency and customer contract optimization have been key. Regarding DSO, disciplined working capital management, business mix, and divestment of high-DSO businesses like Qdigi contributed to the reduction. We believe these levels are sustainable and can improve further.
Q: There has been significant improvement in the manufacturing front. Is there scope for better unit economics given the massive demand? How do you see this segment growing in the next two to three years?
A: India is in an investment phase, particularly in infrastructure and manufacturing, which are labor-intensive. We have a strong presence in manufacturing clusters and anticipate continued growth. Manufacturing headcount has grown significantly, and we expect this trend to continue. The unit economics in manufacturing can improve over time as the business scales and sourcing capabilities are optimized.
Q: On foundit, congrats on near breakeven. How should we look ahead given the difficult recruitment market? Will you run at breakeven or accept some losses for growth?
A: Despite market headwinds, we expect to grow our share of wallet with existing customers and acquire new ones. We aim to reduce losses to zero in FY25, driven by growth. Most costs are stabilized, and we don't expect significant variations. We plan to maintain operational breakeven and grow healthily over the next one to two years.
Q: On the WFM side, margins have been stable at 2.6%. How should one look at margins going forward, especially with IT side and North American operations?
A: Despite challenges in the IT industry, our core staffing businesses have offset some losses. We expect WFM margins to inch upwards by 20 basis points to around 2.8% and aim for 3% in the medium to long term. No further burn is anticipated in US operations.
Q: What is the expected tax rate for FY25?
A: The effective tax rate for FY24 was around 5% due to mergers and benefits. For FY25, we expect the tax rate to be in the range of 10% to 11% due to the business mix.
Q: To achieve a 5% consolidated EBITDA margin, what are the key factors?
A: Key factors include foundit reaching breakeven and contributing positively, GTS maintaining its margin trajectory, and OAM businesses like food and telecom performing well. Operational levers and tech investments will also support margin expansion.
Q: What is the revenue guidance for GTS and OAM businesses for the next two years?
A: While we don't provide specific revenue guidance, GTS aims for a consistent 20%+ growth, driven by international business and high-value services. OAM expects growth beyond the current 7%, supported by a strong order book and operational improvements.
Q: On the product-led business, with Qdigi excluded, what will be the revenue run rate for foundit?
A: Qdigi's annualized revenue was around INR370 crores. Going forward, foundit's revenue run rate will be around INR50 crores per quarter, plus any growth achieved.
Q: How does the subscription-based model of foundit work, and how does hiring activity impact growth?
A: In a subscription model, recruiters pay for profile views. Reduced hiring activity can lead to lower inventory purchases. However, we expect to grow our market share and revenues from non-IT sectors. Revenues also come from candidates, balancing the impact of hiring activity fluctuations.
Q: With healthy FCF generation and reduced gross debt, how should we see payouts going forward?
A: Our capital allocation policy prioritizes debt reduction, dividend payments, and returning excess cash to shareholders. We have consistently increased dividends and will continue to optimize cash flows and return value to shareholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
