Ladies and gentlemen, good day and welcome to the Allsec Technologies Q4 FY '23 Earnings Conference Call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aasim Bharde from DAM Capital. Thank you, and over to you, sir.
Thank you, Tanvi. On behalf of DAM Capital Advisors, it's my pleasure to have you all on the Allsec Technologies Q4 FY '23 Earnings Call. From the management side, we have with us Mr. Naozer Dalal, CEO, and Mr. Gaurav Mehra, CFO. I would now hand over the call to Mr. Dalal for his initial comments. Thank you, over to you, sir.
Thank you, Aasim. Good evening, everyone, and thank you for joining our earnings call today. Having been appointed as the CEO effective, 16th of February this year, this is my first interaction with all of you, and to that effect would start by briefly introducing myself. I've been a part of the banking and the process outsourcing industries, with a cumulative experience of excess of 33 years, leading names like Standard Chartered Bank, the Prudential Back Office in India, the Tata Group, with my immediate prior role being with our group company, Conneqt Business Solutions, as its Deputy CEO. It is a privilege for me to now lead a respected name like Allsec, and I'm excited about the journey ahead for the company. I'm also excited about interacting with all of you today.
The results and the presentation have already been updated on our website. Just by way of standard disclaimers, anything we say which refers to our outlook for the future is a forward-looking statement and must be read in conjunction with the risks that the company may face. I have with me Mr. Gaurav Mehra, Chief Financial Officer, who has joined the company in early January 2023, and who will twin with me in interacting with yourselves. Will hand over to Gaurav for a brief minute to introduce himself. Gaurav, please.
Thank you so much, Naozer. Hi, good afternoon, everyone. As Naozer said, I joined the company about a quarter before. I'm very glad and happy to connect with all of you as my first earnings call. Just a bit of background about myself. I came from the technology background, and I remain associated with the companies like the Expleo, if you have heard. That's a Thinksoft Global technology company. It's a public listed company with close to INR 800 crore turnover. I remain associated for larger part with the technology companies names like the HCL, CSC, and very glad to become the part of Allsec. It's been a fantastic journey for the first quarter and look forward for more upcoming interaction and sharing more information with the group and investor. Thank you.
Thank you. We'll start with a brief business overview and updates covering both our lines of businesses. The Digital Business Services, what we call as DBS, and the Human Resources Outsourcing, which we call HRO, and then follow it up with detailed financial performance. Post that, we are happy to take your questions. To start with some banner headlines, yeah, we are pleased to share with you yet another set of robust results. For full year 2022 revenue from operations is at INR 391 crore, up 23% year-on-year, driven by growth in both verticals. DBS by 26% and HRO by 18%. Our PAT at INR 49 crore is up 37% compared to financial year 2022. Both our businesses, as mentioned, continue to perform exceedingly well, with the HRO business clearly emerging as a market leader this year.
Our business process reached a high of 1.2 million per month, this number being 20%-30% higher than competition. We have added new clients in three digits across the business compared to March 2022, with our total clientele being serviced being now just under 600. We clocked 100% occupancy in our Manila center this year, with additional seats being taken in April 2023. We were named amongst the 10 Most Promising HR Technology Service Providers for 2022, 10 Best Contact Center Companies to Watch in 2023 by a leading industry publication. Our staff attrition at 8% was held at the same levels as last year, being near best in class in the domestic outsourcing industry. Our cash position and collections continue to be strong.
Our collections for March at INR 42 crores were the highest ever monthly collections ever achieved. I will now provide a progress update on the two tech projects. SmartPay version 4 and the new HR Management System which we are building. These being key strategic initiatives. We have used the time since the last earnings call over the last half year to enhance the scope based on informal market feedback from our customers. Therefore, the timelines which my predecessor had mentioned in the last call have slipped marginally, at best by a quarter. That said, we are already running two customers in a parallel mode for SmartPay version 4, and the initial results have been encouraging. We will also commence a parallel run for one of our largest customers in June. The outcome of the same will determine the detailed migration plan for all our customers.
The new HRMS tool, too, is in the final stages of user acceptance testing, with client migrations and parallel runs to follow from later in quarter two. We will now move to our new sales achievements for the last financial year. We have signed sales with annual contract values of approximately INR 45 crores in FY 2023, which is about 1/3 higher compared to FY 2022. This is across HRO and DBS. We have added marquee logos, including targeted conversion of MAP competitor logos. With these acquisitions, we have been able to enter hitherto untapped vertical segments. For example, pharma for the domestic HRO business and healthcare for the international DBS business.
As part of our sales efforts for the current year, we will continue to look at new domestic geographies, Western India particularly, cross-sell between our payroll, compliance and domestic DBS customers, and enhance efforts on inside sales and digital marketing for international DBS. We now move on and share two key trends which we saw in FY 2023, and I would like to share that, which has had a reasonable impact on the cost of running our HRO business and in turn led to margin compression, which you will hear in the latter part of the session too. The first being FY 2022 new sales saw significant lowering of the average ATB, which in turn led to some diseconomies when they were transitioned into BAU in FY 2023.
The second trend, you would also recollect, my predecessor mentioned this in the last earnings call, which had highlighted that while hiring was done in advance of the timing of revenue realization, the transition timelines themselves got elongated at times up to 3-6 months. We have reversed both these trends, have already seen higher ATBs in the new sales completed in FY 2023. We have also made some operational and systemic improvements to considerably shorten the transition timelines and have seen some good progress made in that starting March and including into April. I now move to our operations performance. Our meeting of the operational KPIs remains strong for both DBS and HRO, including improvements over what we did in FY 2022.
In many cases, we have been named best partner in many of our customers' league tables, in terms of the outsourcing which they do. We continue to provide value-added and digital services to our customers, including but not limited to form automations, bundling RPA in our solutions, et cetera. We continue to receive high and increasing feedback on social media, Glassdoor, MissionBox, et cetera. A direct outcome of our continued focus on employee engagement, this being a key asset for us. With this, I hand you over to Gaurav, who will take us through the detailed financial performance.
Thank you.
Thank you, and I'll be back for the question and discussion. Over to you, Gaurav. Thank you.
Thank you so much, Naozer. I will read out the financial results first. Then we will go for the query thereafter. I will be reading out the quarterly results first. Then we will see the year-over-year result. As Naozer mentioned, that our this year goes as the year of the robust growth, both in the terms of the headcount growth as well as in terms of the revenue. We have a headcount growth of 17% year-over-year, which is translating into the revenue growth of 23%. Revenue for the quarter clocked at INR 108 crore versus INR 100 crore of the last quarter, a growth of 7.9%. On year-over-year basis, we have a growth of 23% for the full year.
Our EBITDA margin stand at INR 23.7 crore as an EBITDA percentage of 22% against the last quarter of INR 21 crore and 21%. PBT for the quarter stand at INR 15.2 crore with a PBT margin of 14.1%. PAT for the quarter is at the INR 12 crore with a PAT margin of 11.2%. In terms of the revenue, the growth for the quarter-to-quarter, current quarter to the last quarter, the growth for the operational revenue stand at 7.9%. The growth for the EBITDA stands at 13.1% in terms of value. In terms of the EBITDA margin, the growth for the quarter stands 100 bps. In terms of the PBT, the growth for quarter-to-quarter, 8.3%.
We have a growth in both the sector DBS as well as into the HRO, as Naozer touched upon. We have a growth of 18.2% for the DBS business, Digital Business Services. We have a growth of 23.6% for the HRO business for operations from the revenue. On year-on-year basis, revenue from the operation stands at INR 390.5 crores against the INR 317.2 crores for last financial year, 2021-2022, a growth of 23.1%. On financial year-over-year basis, the EBITDA for financial year 2022-2023 stand at INR 88.4 crores versus the last financial year EBITDA of INR 80.2 crores, a growth of 10.2%.
In terms of the EBITDA margin %, the EBITDA margins seem some pressure on year-over-year as Naozer touched upon, that when we compare year-over-year, there is some cost increase happening into the C2R ratios into the employee cost, which has lead to the some dip into the margin when we compare year-to-year basis. PBT for the financial year stand at INR 64.5 crores versus INR 61.2 crores for the last financial year, a growth of 5.5%. In terms of the PAT stand at INR 48.9 crores versus INR 35.6 crores for the last financial year, a growth of 37.1%. In terms of the PAT margin for the current financial year stand at 12.5% versus 11.2% for the last financial year, a growth of 128 bps.
That covers all the financial results for the period.
Over to you, sir.
We are happy to now commence the question and answer session. Thank you.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, if you wish to ask any questions, please enter star and one. First question is from the line of Swecha from A&S Wealth. Please go ahead.
Hi, sir. Thank you for giving this opportunity. Sir, am I audible?
Yes, yes, please go ahead.
Okay. My first question was, our HRO business is a higher margin business as compared to DBS. Wanted to understand what is our strategy for this vertical for next two to three years because I think currently it accounts for 36% of our revenue. Do we expect this to increase going forward, sir?
I completely agree with you. HRO business is, you know, the higher of the two businesses in terms of margins. We continue to make relevant investments in people and technology to ensure that, you know, we could, you know, maintain and improve the growth % which we have seen in the recent past. A key, you know, key metric, you know, which sort of I already clearly mentioned is that this year, you know, with a targeted approach of going after customer accounts, you know, and just the sort of sheer presence in our market, we are now clearly number one in the HRO business and we in the managed services space.
Right.
With, you know, being ahead of competition by 20% to 30%.
Mm-hmm.
The two tech upgrades, you know, which we have been, we've been working on, finally see significant traction over the last six months. We are ready to go to the market with them over the next quarter or 2.
Mm-hmm.
Our customers are excited that we are making those investments. You know, we have, our customers, currently, as I said, on parallel runs on user acceptance testing for the HRMS platform. Once that comes in, you know, what I can confirm is that that will definitely see, for us our ability to sort of, you know, grow the revenues of the HRO business.
Mm-hmm.
As far as margins of that business are concerned, the jury is still out because there are a number of moving parts.
Mm-hmm.
While we are trying to improve operational efficiencies, you know, there are the costs which are sort of, you know, coming for the new platform. We'll wait and evaluate in terms of how that comes about. Yes, I would also look at and see, definitely, I mean, see some margin uptake over the medium term, but difficult to quantify that number at this point in time.
Okay. Would this mean that today it is 36% of our revenue? Do we see it becoming close to 50% or something like, or a major portion of our revenue over next two or three years?
No, unfortunately, you know, as I just mentioned, you know, we don't give quarter three statements and, you know, there are too many moving parts at this stage to even attempt that. Sorry for that.
Understood. Okay. I also wanted to understand, you know, what type of service agreements we have with our clients. Like, are these are annual contracts? You know, how is the billing done? Is it a fixed rate billing or an hourly basis? You know, if you bill them on an hourly basis, if you could share us the billing rates for each vertical, sir.
No. Okay. Actually, I'll give you an overall view in terms of how it works. Typically, on an average or, you know, predominant number of contracts are anywhere between two to three years, you know. To that extent, you know, we don't have to spend effort in sort of, you know, I mean, trying to, you know, renew those contracts every year. It gives us an annual debate. As far as the billing is concerned, the billing is again distinct in both our businesses. I'll take the HRO business first, and within the HRO business, again, there are two segments. For the payroll processing and the HRMS business, it is a per FT per month rate, you know, which we sort of charge our customers.
For the second part of the HRO business, which is the compliance business, we have largely a fixed fee per month, you know, an outcome based in terms of linked to the number of locations we handle. That takes care of the HRO business. On the BPO business, largely these are FT-based contracts where we have a fixed rate per FT per month. We have a small percentage of contracts which are outcome based in terms of either hourly billing or in terms of some outcome which we might try for our customers. To answer your question, both businesses are very distinct kinds of billing and, you know, in terms of how we operate at.
Okay. I wasn't clear. In DBS, how the billing is done? Sorry, I. Your voice was just little.
In DBS, there are predominantly our billing is on a per FT sort of fixed rate per resource deployed per month.
Okay.
For a small portion of that business, it could be on a hourly or a time and motion basis.
Okay. Okay. Okay. Sir, I'll just ask one last question, and then I'll rejoin the queue. Wanted to understand, have we lost any key accounts in FY 2023?
No, none at all.
Okay. Okay. Thank you, sir. I'll just join back the queue.
Sure. Thank you so much for your question. Thank you.
The next question is from the line of Arjun Shah from KC Enterprises. Please go ahead.
Thank you for the opportunity. Congratulations on good set of results, and also good to interact with you. My question is, being number one in the HRO business, what are a few, you know, digital initiatives that you're planning to take to stay ahead of all competition?
Yes. I would answer it in two ways. I mean, I already mentioned about, you know, the significant tech upgrade, you know, which we have, which we are sort of have earmarked a couple of quarters ago, you know, and which we'll see the light of day in the next six months. These tech upgrades will ensure, you know, that, you know, these platforms are written on new age technologies, gives us multi-country, multi-currency capabilities, gives us the ability to integrate, you know, the HRMS, you know, with the payroll engine which we run. That'll happen all of that. Those are all the... You know, and reduce costs over a period of time in terms of running those engines.
Even while that is happening, we continue to sort of ensure that, you know, we collect our customers' feedback. We remain best in class. The previous engine, you know, which was SP3, I mean, to give you an example, you know, we were, I think, one of the early ones in the industry who made it mobile enabled. I think we had mobile enabled it as early as maybe FY 2018, FY 2019, to give you one example. We continue to look at automation, you know, and either point automations in terms of how we collect information from customers, how we process it, and how we distribute that information back to the customers, including reporting and analytics.
I would like to summarize to say that, yes, you know, the sales team, our operations teams remain very close to the customers, continue to get market feedback, and we ensure that we remain ahead of the curve.
Sure. This is helpful. I had one more question. I just wanted to, you know, check how would the capital allocation policy for the next year look like, if you can just give us some colors on that?
Sorry. Can you repeat it? What do you mean by that?
I mean the capital allocation policy for the company for the coming year, if at all there are some colors on that?
No. The company is adequately capitalized. We continue to, you know, explore and see how do we sort of ensure, you know, that the sort of cash which we have in the balance sheet, you know, we sort of continue to ensure we make the best of it. We continue to look at potential acquisition opportunities. None, you know, very significantly advanced at this point in time.
Okay. Thank you so much, and all the best.
Yeah. Of course, we would look at acquisitions, you know, which provide a strategic fit to our businesses. Either give us access to new verticals, horizontals, margin every day, all the good stuff. Yeah.
Right, sir. Thank you so much.
Uh-huh.
All the best.
Thank you.
Thanks.
The next question is from the line of Sugandhi Sud from InCred Asset Management. Please go ahead.
Hi, good evening.
Yes. Hi. Congratulations on the strong momentum. Thanks for taking my question. I wanted to understand on margins a little bit. You know, if I look at the headcount addition, it is largely in line with your headline growth. You know, 1 or 2 percentage points, give or take. However, you know, the margins for both HRO and DBS in, you know, compared to last year and even, you know, historical numbers are different. What are the one-off number factors there that. I'm sorry, I could not hear you clearly, you know, when you were explaining this point earlier.
I will pick up this question. This is Gaurav. You see, we have some pressure into the margin when we compare year-over-year, which is primarily because of the reason that we, in this particular year, we have some one-timers to be called out. Like as we mentioned in our investor presentation and those documents, so like we have some demand coming from the
electricity department.
Linked to where? Linked to very old period.
Which is-
Linked.
Which is linked to very old period and not any recent one. That's what it is impacting the margin on the year-over-year basis. Yeah.
These are not very one time.
Yeah.
As I also mentioned in my earlier introduction, you know, there were two trends in the HRO business, you know, which has sort of clearly impacted margins this year.
Sorry, could you repeat, you know, what those trends were?
Yeah. The two trends were that, you know that in FY 2023 we seem to have, you know, I mean, hired people, you know, on the basis of the contracts which we had won, but some of the transition timelines to onboard them got elongated between, you know, three to six months. both. The second one was that in FY 2022 we had one new contract with a significantly lower average contract value, annual average contract value compared to earlier years. Therefore that happens, you know, when you actually start delivering the operations, there are certain diseconomies of scale, you know, which come in, you know, and therefore, you know, we have to carry a slightly higher cost.
Sure. You expect these factors to reverse, you know, going forward, as you said in the past.
I mean, some of them we have already started seeing those factors coming up. Yes.
ul. In terms of that, you know, demand from the, you know, power department, where have you classified this? Is this in other expenses?
Yes, it's part of the other expenses.
Sure. Also, you know, could you give a flavor of how much of the ACV booked in the last two quarters has been recognized and, you know, how much is expected to be recognized over the coming two quarters?
We don't have that data readily, but, you know, as I mentioned earlier, we have sort of taken, we have booked ACVs, in excess of about INR 45 crores. You know, most of it will start getting realized, you know, in the next two quarters.
Sure. If I can just ask one more question. You know, traditionally the HRO business has had a significant contribution from the IT services vertical, you know, on the client side. You mentioned that, you know, you are diversifying into new verticals on, in both businesses. What are the trends that you're seeing? Because, you know, as we know that, you know, headcount addition has not been very strong last year for the IT industry at large. You know, how is that impacting you and how much is your exposure there, and what are you doing to diversify?
Sure. I mean, I can give you a bit of sense, of course, you know, being an industry leader and also based on some of the data which we see. As far as the industry specialization is concerned in the domestic space, we put, you know, set a very large customer, a leading name in the pharma space, yeah. The healthcare comment which I made was an international customer, a U.S.-based customer, which we got for our BPO businesses. As far as the other payroll trends which I see, we definitely saw a bit of pressure in the e-commerce industry. In the e-commerce, you know, and the tech industry, whether it's, whether it's food tech, whether it's any kind of other, you know, D2, you know, B2C, retail tech.
We definitely saw some pressure, you know, and then some headcount coming down.
Sure. Okay. How is it going with the Quess Corp group in terms of being able to cross-sell our services to, you know, let's say the insurance vertical or, you know, industries represented by the Quess Corp group?
That's been our agenda item for the last couple of years. We constantly review that, both internally and, you know, with the relevant individuals in Quess. As I again mentioned in briefly, I mean, the first thing we are trying to do is also we have very, very marquee names. As I mentioned, you know, we have, you know, just over 600 names. The idea is also to see how we can cross-sell within our existing customer base, you know, between BPO and HRO and some bit of vice versa. Yes, definitely, I mean, the intention of working with Quess, you know, can only be strengthened, you know, and we review that on a regular basis.
Some of that easy business coming is actually coming from there. I'll take that example, you know. As I mentioned, the pharma name which we got was actually a cross-sell reference from, you know, another Quess cohort company.
Sure. That's helpful. I'll hop back in again. Thank you.
Thank you so much. Thanks for the question.
Thank you. The next question is from the line of Shrey Loonkar from Quantum State. Please go ahead.
Hello. Hi, good afternoon, everyone. Mr. Dalal, it's nice to talk to you. Just if you can just maybe give us your outside-in view as you came into this role. How do you see the HRO space? How do you see the competitive landscape changing given the winter that's going on in the PEVC world? Are you seeing some competitive pressures receding on the ground? The other part was that how should one think about it from payslip growth perspective? How do you see the next year panning out? Maybe after that, I'll follow up with a few other few questions.
Sure. Shrey, yeah, likewise, you know, likewise good to talk to you. I know that we, I think, exchanged, I think mails when just after I joined. I'll put it this way, Shrey, you know, my outside-in view is that, you know, that the organized, you know, employment opportunity, you know, still remains significant headroom as far as India is concerned, yeah. I think if I remember some statistics right, you know, I mean, the total employment or people who are in some form of employment is about 50 crores in India. A significant number of that are in the unorganized sector, yeah. The organized sector employment, you know, is a fraction of that.
Within that, you know, I mean, within that in terms of within that organized employment, you know, sector, there are three trends which happen. One is there are a fair number of companies who keep their payroll processes in-house, you know, so insourced. There are, you know, there is almost 40%-50% of the sort of outsourced market is with very, very small players in terms of, you know, chartered accountants or, you know, other smaller HRO players. You have the third set of, you know, the third set of constituents, you know, are the large ERP companies who, you know, I mean, who provide services, you know, on a platform basis.
If I look at the potential opportunity and the fact, you know, that, you know, a certain amount of heft come as being the largest player in the market, I think there is enough market opportunity for us to continue to capitalize over the next couple of years. Both a move from insource to sort of outsource. We have seen examples in our new sales where companies who run it insource, you know, are happy for us to do it on a managed services basis, you know, and otherwise, you know. Of course, you know, moving accounts away from competition, that's another important piece. I mean, I don't believe or I don't see any serious concern in terms of, you know, what the market opportunity represents.
If you could just, you know, help us think forward, what all this means from our perspective. Assuming the tech interventions that we are doing, with SmartPay and the HRMS product, excluding the impact from that, the base business growth, how should one think about it? This year I believe the pay stubs have grown at 11%, but we understand is the environment is not as conducive as it was in the prior years. If you could just give us some on-the-ground sense.
Yeah, Shrey, you know, as I said, regret my inability to, you know, give a specific forward-looking number. I would like to say that, you know, we would continue to be amongst the top quadrant in terms of companies in the HRO space and in terms of the growth numbers they experience.
That's clear.
That I'm reasonably confident about that, you know, we would continue to be in the top quadrant of organizations in the space, you know, and the growth rates emanating therefrom.
Sure.
Maybe if I can add just one-
Yeah, sure.
point in there. As Naozer touched upon, in the year we have about 121 new logos added for us into the HRO domain, and we added ACV value of close to INR 27 crore, which is about 25% of the total revenue for the HRO segment. We are getting good growth adding of the new logo apart from the existing customer, which grow on their regular increase of their own employees. That's what we see the interaction coming in there and the growth opportunity for us in that particular domain.
That's true, Gaurav. Gaurav, this ACV of INR 25 crore, one should reasonably think this is itself a revenue growth outlook for next year. Is that the way one should understand this number?
To a large extent, yes, Shrey, because definitely, I mean, I would like to break this up into two parts. On the HRO business, you know, I mean, the actual revenue realization, you know, for a year, you know, comes pretty reasonably close, you know. I would say maybe, you know, 75%-80% of, you know, what ACV we may report. There is, of course, a timing difference, you know. When I report an ACV for FY 2023, depending on when I can take the customer live, you know, there will be some, you know, some impact there.
Once the customer goes live, of course, you know, I mean, because it's linked to the number of employees, you know, we sign up with the ACV, so I think that comes close. On the EPS side, you know, sometimes we see the ACV, you know, not necessarily translating into revenue for the year. Some of the factors which come in there could be, you know, for example, if we sign up a sales process, you know, where we help our customers as they cross that upsell. Now that, you know, there could be an intent of the customer while signing the ACV, but there are many factors which change in a year, for example, in terms of, you know, the marketing budget, the sales budget, the number of cross-sell leads, you know, they themselves may have.
Therefore, the conversion rates for, you know, in terms of revenue versus ACV are lower in the BPO business, but higher in the HRO business.
No, that's, that gives good clarity. Thank you. Apart from that, just to think about it further, is that on the competitive landscape, if there's any comment for you to offer, what are you sensing on the competitive pressure, pricing pressure, what do you see on the ground?
No, I mean, nothing unusual or unreasonable here in I think what we have survived and thrived over the last 20 years. I mean, I have no significant risk to call out on that. Yes, I mean, I mean, that said, definitely, you know. I think it's a balance sheet, you know. You know, when we go down the value chain in terms of, you know, the customers who have smaller number of headcount and therefore a smaller ACV which comes in, the ability to charge a slight premium there is higher than, you know, when you go after big names, you know, who may have, you know, 30,000 FTEs, 40,000 FTEs to outsource.
I think as, us as a management team continue to sort of balance this out depending on, you know, the marketness of the logo, you know, the industry which we may want to actually sort of, you know, put our, put ourselves in. Because as, you know, because as I said earlier, you know, the smaller the logo, the operational intensity of delivering that service continues to remain high. It's that balance we need to strike, you know, between getting that extra revenue by getting 10 smaller logos versus keeping our overall, you know, margins in perspective, you know, in terms of how that smaller logos will impact us. We'll continue to take a call. I mean, that's. You know, I mean, that's more a tactical cum strategic call, which we'll continue to take as we've been doing for the last so many years.
I mean, I don't see any significant concern in terms of, which is any different from what we have seen in the past.
Great. Gaurav, one question to you. You know, YoY, we've seen a 10% drop in HRO margins. One, I could understand that it could be adverse Revenue Mix towards, given that Compliance outgrew pure HRO. The other argument that you've called out on the presentation is advanced hiring and travel cost. I would appreciate if you can give us some breakup as to how much is the real one-off as we should understand it, because I believe travel cost is gonna be par for the course. If you can just help us comprehend the breakup of the margin fall, and as a result, how much of the margin can actually claw back just by virtue of one-off that exists this year.
Certainly. Maybe just to give you the flavor, like that, one-off we called, that represent about 20% to 30% of the gap, reflected in there. More than that, than particularly for the travel and the convince, it's more of the sort where we are expanding our Manila facility. There have been some kind of, it might not be the regularly to that much level, but with the expansion of the facility, there happens to be some kind of the travel where the people were traveling from here to there, and with the new expansion happening into that, which has led to some kind of the incremental travel for this quarter, particularly.
Otherwise, we expect the travel to be normally to be remain into the range of as a percentage of the revenue within the range, in our regular trend. We don't foresee anything going beyond that.
No, Shrey, I think the biggest lever, as I mentioned, is that we are trying to see in terms of how do we sort of, you know, crunch the onboarding timelines, you know. While I cannot estimate in terms of how that would, you know, how much that would contribute, but I think, out of all the factors which have depressed margin this year, that is something, you know, which, you know, which is highest priority for us to address.
Sure. Great. I have more questions. I'll hop back in. Thank you.
Thank you.
Sure. Thanks, Shrey.
The next question is from the line of Harsh Kundani from Aionios Alpha. Please go ahead.
Hi. Thanks for the opportunity. I have just couple of small accounting related questions. First thing is that you mentioned in your PPT that there is a one-off revenue related to tax vouching and S&E licenses. Could you just quantify how much that would be? The second question is that there's a sharp increase in depreciation on a PoQ basis. Any kind of reason that you would like to call out?
To take up your first question, like the one-off that we have. I don't have that number fully handy, like, to call out the exact percentage, but as we mentioned in our presentation, just one second. Particularly that the one-off we have, and that's particularly from the, in the tax vouching and one of kind of the active one. One of the activities relating to the license renewal. That's for one of the customer, which is kind of once in a five-year activity. It's not a kind of a regular activity which was falling into this particular quarter. There the relatively the margin for that particular transactions are relatively thinner than the regular business.
That the one part of the one-off which is impacting the margin when we compare year-over-year basis. Apart from that, the regular the other one we call out that which is from the department. I think that we have factored fully into the P&L. We don't foresee more impact coming off from that in the year-over-year in the future. Particularly when we say that the depreciation and amortizations which has increased, we do have investment which has gone into the non-current assets where there are regular purchases happen, which is more of the machines when we increase the headcount. Which is increasing kind of the depreciation in there.
Yeah. We also have an annual refresh, in terms of, you know, I mean, the older assets.
Yeah.
There is some bit of the annual refresh also sitting there.
Yes, exactly.
All right. Just on the first point, you said that that has, the tax vouching bit has thin margins. That I understand. Any impact on the top line that you would like to, you know, call out, which would help us understand what's the adjusted revenue growth?
I mean, the tax vouching is, you know, is an annual feature, you know. I mean, just to sort of put the sense of what do we mean by that. There is additional effort, you know, in terms of, you know, completing the tax computations for the year, you know, leading up to issue of Form 16, you know, at the end of the year. That is it comes in every Q4 of every year. That explains, you know, the difference between Q3 of this year.
Again, that is pretty much par for the course, you know, and nothing out of the ordinary in that sense. The other one-off, as we said, is a demand which has been made by the Tamil Nadu Electricity Board relating to, you know, a certain electricity dispute, you know, in the 2005, 2008 range. You know, so significantly older dispute, where we are, based on legal opinion, you know, exploring all options. You know, whilst we have, you know, paid over, you know, some principals under protest.
Maybe to add one more point as Naozer mentioned. The renewal is at the shop and establishment renewal, which is part of our compliance business. Tax vouching is a regular activity which falls into the fourth quarter of the financial year. What I mean, the one-off was more of the license renewal, which happens kind of depending upon the license renewal period, which is for one of our largest customer, which was falling into this particular quarter.
Okay, sir. Thank you so much.
Thank you.
Sure.
The next question is from Swecha from A&S wealth. Please go ahead.
Hi, sir. I wanted to understand, you know, if you could give a sense of the industry size for both our DBS and the HRO verticals, and some sense around who are our key competitors and, you know, how big is our competition in terms of revenue and margins as compared to us?
Many of the data is, you know, is not publicly available, and I can only give you a sense, you know, being in the industry for many, many years. If you look at a nasscom website, you know, I mean, they would quantify the IT/ITeS space, you know, at $300 billion. The size at which Allsec is, I don't think that, you know, we can come to any meaningful conclusions in terms of, you know, when we're seeing the overall industry size. Our competition in the international business is concerned, there are names like Firstsource, Teleperformance, you know, the typical usual suspects, you know, of the outsourcing industry.
There are smaller names or midsize names like Fusion BPO, for example, who does work in the U.S. That's a part of the competition landscape, you know, as far as, you know, some of the U.S. customers are concerned. As far as HRO is concerned, I'll go back again to sort of what I mentioned that the size, you know, I mean, the ability to grow that business, I think is inherent in the way, you know, the employment is structured within the country. You know, I mean, so you continue to shift movement from the informal sector to the formal sector. Within the formal sector, which we address, hopefully we'll see movement from, you know, the smaller time players, you know, to the more organized players.
I think it's a mix. It'll be difficult for me to put a number in terms of what that market size is. What I can definitely say is, you know, that at the stage of growth which we are in Allsec, I think there is tremendous market opportunity, and I don't think we should worry about, you know, whether we'll be constrained by the availability of a market to sort of deal with for both our businesses.
Mm-hmm. Mm-hmm. Okay. Okay. Another thing I was, you know, if I look at our quarterly run rate, you know, we've been continuously growing quarter-on-quarter our revenues. You know, from June 2020, we were somewhere around INR 60-64 crore of revenue. And to that, we have scaled up to INR 108 crore kind of a revenue in this quarter. Just wanted to understand, you know, what is the base that we can assume? Would INR 108 crore per quarter is the base run rate quarterly that we should assume or do you think it's going to go up every quarter sequentially? I want to understand, you know, how should we look at it, because we've been growing every quarter sequentially.
Yeah. Again, as I said, giving any number would be a forward-looking statement. What I would like to highlight is that in this audited rate, as Gaurav mentioned, I don't have that number readily available, there is a set of one-off there. Yes, I think I can make an overall statement, you know, that, you know, the management team will definitely endeavor to ensure, you know, that, you know, the growth momentum continues. We have made investments in people technology in the recent past, and we'll try to capitalize in terms of how do we ensure, you know, that those investments start paying off, you know, in the near to medium term.
Difficult for me to put a number, but, yes, I think, definitely the intent is to sort of continue to sort of ensure, you know, that, you know, we sort of, we grow, we do revenues, you know, and we don't, disappoint our, you know, our stakeholders, in terms of the revenues we generate.
Okay. Okay. sir, can I ask one more question?
Sure. Please go ahead.
Okay. I wanted to also understand, you know, if you could help us know what kind of industry verticals do we cater to in DBS and HRO both, and which industry actually takes the biggest pie for us in each of these verticals?
Yeah. I think in DBS, BFSI, that is banking, financial services, insurance-
Mm-hmm.
-and adjunct industries like fintech, you know, I mean, is our-
Right.
biggest industry vertical.
Mm-hmm.
As far as DBS is concerned, sorry, as far as the HRO business is concerned, it's a mix. We have a good, you know, mix of IT/ITeS, you know, which is one of our, you know, largest verticals.
Yeah.
We do a lot of work for retail. We do, you know, some work for manufacturing. As I said, we have entered pharma. You know, the industry verticalization is a lot more, you know, wider spread and balanced in the HRO business.
Okay. Okay. Okay. Okay, sir. I have few more questions. I'll rejoin the queue. Thank you.
Thank you. The next question is from the line of Sugandhi Sud from InCred Asset Management. Please go ahead.
Yes. Hi. Thank you for the follow-up. Just sheltering to your, you know, historic margins in the payroll business, that was before the acquistion of Kochi . You know, it used to range in the 40%-43% range. If I just do a imputed number for the compliance business, you know, and if I just, try to, you know, reconcile, the kind of margins we are reporting, have we seen a significant, you know, like 2%-4% dip in our HR, HRM margins or it's just a quarterly blip, both in terms of the quality of, nature of business done in compliance itself and the, you know, percentage of compliance is in the HR?
Again, I would again go back to what I've been saying almost through the call, you know, that yes, I mean, in FY 2023 we have seen, you know, a blip in the HRO business margins. We are looking at it, we are seized of it, we'll see in terms of how we can get some of that back. As far as the split between, you know, HRO and compliance margin are concerned, I don't have that readily available.
Sure. Oh, sure.
Yeah.
But is that, you know, apart from the, you know, apart from the logic about the size of deals and operating leverage, is that something that you've experienced this year and is it a significant difference from, you know, how, you know, the size of our customer base was in the past and in, you know, was it more fragmented this year and not so fragmented in the past?
No, definitely what we acquired in FY 2022 is more fragmented than in the past. I don't have the past data readily available. As I also mentioned that we have seen some of that again consolidating in FY 2023. You know, I mean, the FY 2023 average ADVs, you know, are more than what we booked in FY 2022. We consider to explore in terms of how quickly we can onboard these customers, you know, over a period of time this year.
Sure. Thank you.
Thank you.
Thank you. That was the last question for today. I now hand the conference over to management for closing comments.
Sure. Thank you once again for the opportunity and for the sort of, the time given to us and some of the very stimulating questions, you know, that were given to us. What I want to reassure, you know, I mean, everybody on this call is that these are obviously very, very exciting times for Allsec, yeah. Your company is well poised to capitalize on the market opportunities, which I sort of briefly described, and also some of the investments which you have made in, you know, people, process and technology over the past few years. We continue to make the right investments, yeah. We'll continue to assess, we'll continue to ensure that we don't lose out on any emerging market opportunity, whether domestically or internationally for the BPO business.
We continue to make the right investments, you know, to ensure that we further accelerate our growth strategy in the near future. With this, we would like to close the call and look forward to interacting with all of you again in H2. Have a nice remainder of the day and week. Thank you so much. Thank you.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you. Thank you.
Thank you.