Ladies and gentlemen, good day and welcome to Quess Corp Q2 FY 2027 earnings conference call hosted by IIFL Capital. 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 zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Zabak from IIFL Capital. Thank you, and over to you, Mr. Zabak.
Thank you. Ladies and gentlemen, good morning and thank you for joining us on the post-Q2 and H1 FY 2027 results conference call for Quess Corp Limited. It is my pleasure to introduce the senior management team at Quess Corp who are here with us today to discuss the results. We have Mr. Lohit Bhatia, Executive Director and Group CEO, Mr. Neeraj Jain, CFO, Mr. Kushal Maheshwari, Head of Investor Relations, Mr. Nitin Dave, CEO of Quess Staffing Solutions, and Mr. Kapil Joshi, CEO of Quess IT Staffing. We will begin the call with opening remarks by the management team, and thereafter, we will open the call for the Q&A session. I would like to now hand over the call to Mr. Kushal Maheshwari to take the proceedings forward. Thank you, and over to you, Kushal.
Thank you, Siddharth. Good morning, everyone, and thank you for joining us for our Q2 and H1 FY 2027 earnings call. The information, data, and outlook shared by the management during the call are forward-looking and subject to prevailing business conditions and government policies. All forward-looking statements are subject to economic growth or other risks faced by the company. Please refer to slide number two of the investor presentation for the safe harbor clause. With that safe harbor clause, I will now hand over the call to our ED and Group CEO, Mr. Lohit Bhatia, for his opening statements. Over to you, Lohit.
Thank you, Kushal. Good morning, everyone, and thank you for joining us for Quess Corp's Q2 FY 2027 earnings call. We are pleased to report a quarter of double-digit growth in revenue and profit. For Q2 FY 2027, the consolidated revenue was INR 4,396 crores, up 15% year-on-year, 5% quarter-on-quarter. Adjusted EBITDA, which excludes the non-cash ESOP expense, was INR 92 crores, up 20% yyear-on-year, with a margin of 2.1%. PAT stood at INR 75 crores, up 44% year-on-year, with an EPS of INR 5. For the first half, the revenue was INR 8,578 crores, up 15%. The adjusted EBITDA was INR 178 crores, up 22%, and PAT was INR 157 crores, up 53%, with an EPS of INR 10.4 for first half of the year. Our return on equity has expanded to 25% on a trailing 12-month basis as on end of 30th September, from 20% in FY 2026.
Revenue in the first half includes a one-time increase of INR 298 crore from the new Labour Code, of which INR 120 crore was in Q2. Our balance sheet continues to remain strong, with a net cash position of INR 471 crore after paying the final dividend for the FY 2026 in the month of August. Our cash collection in this quarter was the highest ever, crossing INR 5,000 crore. The board has approved an interim dividend of INR 5 per share.
Progress on our three priorities. When we started FY 2027, we set out three priorities for ourselves. First, strengthen and grow our core businesses, Quess 1.0. Second, invest in technology for the future. Third, build a solid base for Quess 2.0. In H1 FY 2027, we have made clear progress on all three tracks, and we will update you on each of them every half yearly. Priority one, strengthening and growing the core.
All three core segments grew revenue year-on-year. General staffing up 15%, professional staffing up 13%, and overseas up 10%. We ended the quarter with around 504,000 associates, up 4% year-on-year, with a net addition in this quarter at 21,000 livelihoods that we provide. General staffing delivered double-digit growth in revenue and operating profit, with a stable margin profile. The revenue came in at INR 3,823 crore, up 15% YoY, and EBITDA was INR 57 crore, which is up 23% year-on-year. We added 20,857 associates on a net basis, backed by our highest ever sourcing of 56,576 associates, which is up 30% in Q1 and 14% for the same quarter last year. We added 116 new contracts, and collections were the highest at INR 4,285, DSO improving to 24 days. Our manufacturing vertical, in particular, was the fastest growing this time, adding 7,800 associates during the quarter.
This is up 11% quarter-on-quarter. We continue to build higher margin verticals such as construction, where EBITDA grew 71% year-on-year, along with value-added services and manufacturing, while growing our core volume segments of consumer, retail, telecom, and banking. Professional staffing revenue grew 13% year-on-year to INR 254 crore. We continue to invest ahead of the curve in technology, sales, delivery, and new practices, and we expect these investments to start paying over the next coming quarters. The EBITDA came in at INR 27 crore, a margin of nearly 11%, after absorbing these investments itself. GCC has contributed 71% by headcount and revenue. We have signed a record 62 new contracts in H1, more than what we had signed in the entire fiscal year 2026. The quality of our mix keeps improving in IT staffing.
New clients added since FY 2025, earning us nearly 1.8 x our average gross margin per associate, and about a quarter of our IT associates are now deployed in niche skills, earning significantly higher GM pack-ons. Q2 also saw the highest gross margin in any quarter, with gross margin growing 12% year-on-year, 3% quarter-on-quarter. The gross margin in our PS business now stands at 20.5%, against 17.5% two years ago. Overseas revenue was INR 318 crore, up 10% year-on-year, and EBITDA grew 23% YoY to INR 22 crore, with the margin improving to 6.9% from 6.2% in the previous quarter. Malaysian revenue grew 50%, Philippines grew 15%, and together, overseas added 33 new contracts. Priority two, investing in technology for future growth. Technology is now at the center of how we run Quess.
We have 40 technology initiatives all underway, and three of them are now worth tracking and reporting. The Brain Project, our AI-led sourcing engine. Since launch, the Brain has generated over 1.4 lakh candidate leads and about 24,700 offers. The Brain channel already accounts for about 13% of our general staffing hiring at a much lower cost and faster time to service. We expect 35,000-40,000 offers from this channel in H2. QMS, our AI-led associate query management system. We rolled out QMS in Q2 and formally launched it for all the associates on October the 2nd. In the first four weeks itself, it has handled over 18,000 queries using AI robotics and bot, with more than one in five fully resolved by AI in a matter of minutes, which would earlier take 24 hours.
Our aim is for AI to answer half of all queries by December and up to 80% by March 2027, with a much faster resolution for our associates. Project Confluence. We are moving for the full journey of a client sale to an associate offer letter and offer an onboarding to collections and cash onto one standard platform. Phase one will go live in January. Further phases coming up in 2027. Priority three, building a solid base for Quess 2.0. Quess 2.0 is our strategy to build higher-margin, dollar-linked growth alongside our volume engine. In H1, we laid the foundation on several fronts. Global corridors. We are building three tracks across GCC, international mobility, and digital-led mobility. Quess is a founding member of GSMAI, has signed an MOU with IOM, UN Migration's Division, and has mobilized 135 workers to the UAE so far in the first half of the year.
Digital platforms. BCPL has turned EBITDA positive in Q2 after a burn of nearly INR 6 crores in the last financial year. Paying clients have grown from 14 in March to 54 in September across enterprises, MSMEs, and government. We are building an AI-enabled, SaaS-based payroll module as we speak. Fractional workforce. We have signed our first fractional workforce deal with a large FMCD brand for about 350 associates to be deployed through the platform, while the work on the digital platform will continue till January 2027, when it goes completely live. Quess IT Solutions. Our IT staffing business is now Quess IT Solutions, with senior practice leaders in cybersecurity, data and AI, and program management. We aim to land our first solutions project in second half of this year. People and ESG.
Quess was ranked 40th among best workplaces and 32nd among best workplaces for women in the Great Place to Work Middle East 2026 ranking and won the National POSH Excellence Award 2026. Quess also holds a strong ESG rating of 66 out of 100 and CRISIL credit rating and ICRA AA stable and A1+. To summarize, in Q2 FY 2027, revenue grew 15% year-on-year, adjusted EBITDA 20%, and PAT 44%. With growth in all three core segments, a net cash balance of INR 471 crores, and a ROE of 25%, the clear progress on all three of our priorities is visible. In H2, we will focus on driving volume growth in general staffing, seeing return from our investments in Quess IT Solutions. Scaling our technology initiatives, delivering on Quess 2.0 milestones, and expanding margins across segments with disciplined capital allocation.
With that, I will hand over to Neeraj, our Group CFO, to walk you through the financials in more detail.
Thank you, Lohit. Good morning, everyone, and thank you for joining us for Quess Corp quarter two and H1 FY 2027 earnings call. I will begin with our headline financial performance for the quarter and the first half, followed by a brief segment-wise review. Starting with the quarterly financial highlights. Q2 FY 2027 has been a quarter of broad-based revenue growth, with adjusted EBITDA and PAT growing faster than revenue, and a strong net cash balance sheet. Growth was visible across all three of our core segments, as Lohit highlighted. Consolidated revenue for the quarter stood at INR 4,396 crore, up 15% year-on-year and 5% quarter-on-quarter, led by general staffing, which grew 15% YoY, including a one-time revenue impact of INR 120 crore relating to the new Labour Code implementation. Professional staffing and overseas business grew 13% and 10% YoY respectively.
The total headcount rose to approximately 504,000, up 4% year-on-year and 5% quarter-on-quarter, a net addition of about 21,000 in the quarter. The operating margin of the business segments for the quarter was INR 106 crore, which is up by 18% year-on-year and 8% quarter-on-quarter. Adjusted EBITDA, which excludes the non-cash ESOP expense of INR 6 crore, was INR 92 crore, up 20% YoY and 7% quarter-on-quarter, with an adjusted margin of 2.1%, an expansion of 10 basis points year-on-year and 4 basis points quarter-on-quarter. As I mentioned, the Labour Code revenue is a pass-through with no impact on profitability. It actually dilutes our margin percentage to that extent. The reported EBITDA was INR 86 crore, up 12% YoY and 1% quarter-on-quarter, at an overall margin of 2%, excluding the Labour Code revenue.
Reported PAT stood at INR 75 crore, up 44% year-on-year, with PAT margin of 1.7%, up 35 basis points year-on-year. Diluted earning per share was INR 5, up 45% year-on-year. The sequential decline in PAT reflects the one-time other income of INR 24 crore from the tax refunds that we got in quarter one. Return on equity was 25% on trailing 12-month basis, expanding from 20% that we reported at the end of financial year FY 2026. I will move to the H1 FY 2027 numbers. For H1 FY 2027, revenue was INR 8,578 crore, up 15% year-on-year compared to INR 7,483 crore in H1 FY 2026. Adjusted EBITDA, excluding non-cash ESOP expense of INR 8 crore, was INR 178 crore, up 22% at a margin of 2.1%. Reported EBITDA was INR 170 crore, up 16%.
PBT was INR 151 crore, up 37%, and PAT was INR 157 crore, up 53% year-on-year at a margin of 1.83%, with earning per share of INR 10.4 at a H1 level. The overall one-time Labour Code revenue impact for the first half was INR 298 crore. I will move to balance sheet and capital allocation. We ended the quarter with a net cash position of INR 471 crore after paying the final dividend for FY 2026 of about INR 45 crore during the quarter.
The board has also approved an interim dividend of INR 5 per share. Cash collection exceeded INR 5,000 crore during the quarter, and net operating cash flow for H1 was INR 348 crore, including the income tax refunds. Segment-wise financial performance. General Staffing continues to be the scale engine of the business, providing stability, cash generation, and a broad operating base. Revenues of INR 3,823 crore, up 15% YoY and 6% quarter-on-quarter.
H1 revenue was INR 7,419 crore, which is up 15%. EBITDA of INR 57 crore, up 23% YoY and 11% quarter-on-quarter. The H1 EBITDA was INR 108 crore, up 18%. The construction vertical grew its EBITDA by 71% with a double-digit margin. Net headcount addition of 20,857 associates, with 116 new contracts added during the quarter. Highest ever sourcing of 57,000 and highest ever cash collection of INR 4,285 crore in the quarter for our segment. DSO improved to 24 days from 26 days, with AR stable at now 15 days, reflecting continued collection discipline. Professional Staffing remains a higher-margin segment for us, anchored in GCC and high-value technology roles. Revenue of INR 254 crore, up 13% YoY and 1% quarter-on-quarter. H1 revenue was INR 506 crore, up 8%. EBITDA of INR 27 crore, down 2% YoY and 4% quarter-on-quarter, with margins at 10.5% against 12.2% a year ago.
H1 EBITDA was INR 55 crore, up 4%. However, our gross margin engine remains intact in the business. In fact, the gross margin has grown 12% YoY and 3% quarter-on-quarter, with gross margin percentage currently at 20.5% as against 17.5% two years ago. 27 new contracts added in the quarter, 62 overall in H1, with GCC at 71% of headcount and revenue, and quarter-end headcount of 7,566 after a net addition of 437. The EBITDA movement reflects our investment in technology, sales, delivery, and new practices. These investments are front-loaded, and the returns typically take three to six-month window to start delivering. Overseas business delivered double-digit year-on-year growth in revenue and EBITDA, with EBITDA margins improving sequentially. Revenue of INR 318 crore, up 10% YoY and down 4% quarter-on-quarter. The H1 revenue was INR 651 crore, which is up by 13%.
EBITDA of INR 22 crore, up 23% YoY and 7% quarter-on-quarter, at a overall margin of 6.9%, which is up from 6.2% in Q1. The H1 EBITDA was INR 43 crore, up 20%. We have added 33 new contracts during the quarter. The Middle East delivered a margin of 14.2% with flat revenues due to the geopolitical situation. Philippines grew revenue 15% YoY at a net margin of 10.5%, and Malaysia grew revenue 50% YoY. Our digital platforms business, BCPL, has now break-even at the EBITDA level in quarter two. Our deliberate investment in the platform over the last six quarters in building the technology is now beginning to show results.
To summarize, quarter two FY 2027 reflects double-digit revenue growth across all three core segments, adjusted EBITDA growth of 20%, PAT and EPS growth of 44%, and a strong net cash balance sheet of INR 471 crore, supported by a disciplined capital allocation policy. We will continue to make focused investments in technology to build digital assets across our business segments to generate higher margins. We remain confident that a growing general staffing base, a margin-accretive professional staffing, an overseas portfolio, and a continued balance sheet discipline positions us well to deliver sustainable, high-quality earnings growth throughout FY 2027. With that, I extend my warm greetings to you and your family for a very happy Diwali and a prosperous new year ahead. I will now hand it back to the moderator for Q&A.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question, may press star and one on your 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. The first question comes from the line of Siddharth Zabak, IIFL Capital. Please go ahead.
Thank you for taking my question, and congratulations on a great set of numbers. I have just one question. In general staffing, we saw 20,000 headcount adds during the quarter, while revenue grew only 12% YoY, excluding the one-time revenue benefit from the implementation of the new Labour Codes. Given the strong headcount addition, what is driving the relatively moderate revenue growth? Is it attributable to the timing of the deployment of new associates or change in client or industry mix, or any moderation in realizations per associate?
Siddharth, thank you for that question. First and foremost, I think we would like to say that this 20,000 addition in headcount has happened after nearly three quarters. You would remember, in each of the previous quarter, there were too many moving parts in the economy and in the labor market, which was impacting our growth as well. We had then also guided for the fact that as a management team, we would be opportunistic of all opportunities that exist in different segments. Also, use of technology, which will give us the growth, and we built ourselves for a steady state, 10,000- 15,000 headcount quarter-on-quarter basis. We must give it to the management team at the general staffing unit, which have used every lever to encash the growth in CRT vertical, as well as in manufacturing vertical, along with higher-margin verticals like construction.
To your specific question on why there is a divergence between 20,000 headcount growth versus the revenue growth, headcount comes across. The 20,000 is the net add for the entire quarter. In July, August, and September, if you really look at it, less than 33% came in July and August, and around 65% of this headcount came in the September quarter. This also shows that the seasonality of the Indian economy and the labor market, as far as season is concerned, is working out. Our own team has signed close to 116 new contracts.
If you add three data points, 116 new contracts signed by the general staffing team, B, the use of Brain Project technology, which has started to become mature from the exit of Q2, and C, obviously the maturing of the labor market after the various things which have happened in the economy, all of which have given us this advantage in September. Yes, there is generally a lag of revenue, and you will see that flowing into Q3.
Thank you.
Does that answer your question?
Yeah, yeah. Thank you.
Thank you very much.
Thank you. Next question comes on the line of Amit Chandra with HDFC Securities. Please go ahead.
Yeah, sir, thanks for the opportunity. The first question is on the general staffing. Obviously, you mentioned that there is strong growth, there is strong recovery in terms of net additions. But the bulk of the recovery is coming from CRT and manufacturing. Obviously, you mentioned that the focus is there. But in terms of the sustainability of this kind of volume growth in the second half, what is the outlook there? Also, as the overall in terms of mix is changing towards CRT and manufacturing and BFSI just now 18%, so what impact this is having on the margins and the collections? Because traditionally, these segments, as you said, are higher margin. So, is it going to reflect more in terms of the general staffing margins as well as the mix changes more towards manufacturing?
And also, in terms of collect and pay, YoY also it is coming down. Are these sectors focusing more on funding contracts?
Thank you, Amit, for your question. I would ask Nitin to give you some inputs on CRT and manufacturing, followed by Lohit on how it is going to impact the margins and the collect and pay business model.
Yeah, Amit, thank you for your question. You asked about growth and especially CRT and manufacturing. First of all, we have to start from the base of quarter two itself, where we have added about 116 customers, and we will be in a position to grow all these 116 customers over a period of time. Our sourcing engine at the same time, both the sales and the sourcing engines are very, very well-oiled, and in the coming quarters as well, we will be able to produce growth. If you look at our manufacturing, in particular, we are focusing very heavily on the automotive sector. About 10 car manufacturers are our customers, and on top of that, we are also going to the components, manufacturing components, who supply to these original, to the automotive companies. So, manufacturing is going to grow.
Same as with CRT, where we are going to see growth in both retail, logistics, and these segments in the coming quarters as well. We have a guidance of about 10,000-15,000 numbers in the coming quarter as well, as far as the growth of general staffing business is concerned.
Lohit?
Yeah, Amit, just to add to what Nitin has well explained, if you look at our business, the traditional business used to be CRT, banking, e-commerce, logistics, FMCG, and FMCD. The new age businesses which we have added in the last two to three years is predominantly value-added services, VAS, manufacturing, as well as the most recent is construction. The traditional business is more a flat fee kind of a business and traditionally lower on margin, whereas the newer businesses that we have entered and expanded in the last three to four years, and construction two years, value-added services about one and a half to two years. These are much on the higher margin trajectory play. Today, the contribution from the second half of this segment of the higher margin businesses is nearly 18%-20%, but the traditional businesses still continue to contribute around 80%-82%.
With the rate of growth in higher margin businesses, the margin trajectory should go on the higher side on a PAPM level, is what I would say. As far as how do we look at H2 is concerned, I mean, for the scale and size of Quess today and our general staffing business, obviously, we are very hedged to the economy itself and all the moving parts of the economy. But as a management team, as mentioned, we would look at every opportunity which is available to us. We will aid it with our technology that we have already implemented, and we will try and see every such opportunity where we can even do more than 10,000-15,000 net addition to employment. As we speak to you at the end of October, things look fairly decent.
On your question on collect and pay for the general staffing business, which has come at tad 1% lower over the last quarter, I think these are moving parts. The base is very large. It totally depends on which quality of customer and which capability of customer moves faster. Construction, manufacturing, and value-added services typically, which are higher margin businesses, have a tendency to be 15- 30 days credit, whereas the traditional businesses continue to be collect and pay. So, it is just a moving part, but I wouldn't draw too much into this 1% movement.
What I would much rather draw attention towards is a very stable DSO days, and I would draw attention to the fact that this is the highest ever collection that our general staffing unit has done in spite of these new age businesses and new clients at INR 4,300 crores, what our team has delivered in the last quarter as cash collection, which enabled Quess to collect more than INR 5,000 crores in a single quarter.
Okay, sir. My second question is on the professional staffing. Obviously, you mentioned that you are in the investment phase there, but if I see there are some changes in terms of the customer mix, the top 10 is what is driving the growth. The next 40 or the non-top 10 is seeing some kind of moderation. So, what is happening there? Also, in terms of the IT services segments, MSP has declined 10% in this quarter. Any specific reason for this to happen? Also, on the margins front, we were operating at 11%-12%. Now we have been down to around 10%-11% range. So, what would be the steady state kind of a margin that we can assume for the professional staffing?
Sure. Amit, let me take that one by one and then hand over to Kapil, our leader for professional staffing. First, let me set this at rest. In Quess IT Solutions, this quarter we wanted to make a strategic and a planned investment. This investment to this magnitude was last done in 2021-2022 when we were seeing the growth and the expansion coming out of COVID. You might remember at that stage we used to deliver roughly about INR 31 crore EBITDA for a full financial year, which at this current run rate we are at nearly INR 110 crore. Back then, the EBITDA margin used to be in the range of 6%- 6.5%. Today, we are in the range of about 11%. This strategic investment has gone towards leadership, towards building sales capacity, delivery capacity, account management, and the new practices.
An investment of this magnitude is not for the current financial year only. It is for the next three to four financial years, which is how we saw the growth after the investment made in FY 2021-2022 aided us to go from INR 31 crore to INR 110 crore over the last three to four years. Secondly, to your question on MSPs and margins, yes, the two things contribute to each other. First, MSP, there was one particular MSP where there was a slight decline, and thus that's visible in the numbers that you see. As far as the margins is concerned, if these investments in the first quarter and the second quarter would not have been done, our margin for the PS business would have been at 11.7%.
Our exit still continues, and our guidance for the year continues to be between 11%- 12%, with an exit near 12% is where we want to be in PS, and we are working towards that. Briefly, I'll touch upon top 10. The larger customers are expanding their operations and GCCs in India, which is giving one benefit to us. But from the early stage of the investment itself, you would notice 62 new MSAs have been added in the first six months of the year. So, when we add 62, the tail becomes very long, but the activation of the tail takes one to two quarters more for it to start reflecting in headcount numbers, revenue numbers, and EBITDA numbers. Hence, the portfolio and the mix changes then. I'll hand over to Kapil to add to that.
Thank you, Lohit. Just to add on these two points. One is definitely, yes, the top 10 customer contributing from 40% to 46%. This is majorly because of diversity and the growth across all 10 accounts. Earlier, I would say the major revenue was coming from top four or five clients, but now the relationship is also, 5- 10 number relationship has also become a strategic as we build the practice and solution. The biggest benefit and the first benefit actually come from the strategic relationship and from the top customer, where we have very strong relationship, and that is the reflection of our investment made right now. Second thing, Lohit has already clarified what should be our gross margin and EBITDA margin if we would have not done the investment.
On investment part, in the first six months alone, we have signed 62 agreements, which is higher than what we have done in last whole year. Our pace of new client acquisition has been doubled now, and that should reflect in revenue growth and headcount growth also in the coming future. Second thing, we have added 437 net additions. This kind of net addition in a quarter we have last seen in FY 2022 when the talent war was going on post-COVID. We are almost there, which was our best time. Net addition is also, the quarter net addition alone itself is higher than the last whole year net addition. That is the pace we are going, and that is the speed our investment is giving us the return.
On gross margin front, let me assure you, while our revenue has grown by 13%, our gross margin has also grown by 12% in a year. It is only that investment part which has affected the EBITDA margin, and there we see a speedy recovery and ROI is quite visible in terms of the sales and net headcount.
Okay, sir. Thank you and all the best.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Dipesh Mehta with Emkay Global. Please go ahead.
Yeah. Thanks for the opportunity. Few questions. Starting with first on the Labour Code impact, which we quantified around INR 120 crore in quarter two and INR 298 crore in H1. Do you expect any residual impact in second half from that? Second question is about the PF wage ceiling increase from INR 15,000 to INR 25,000. Do you expect any implication of that into our numbers and how to understand that implication? So that is maybe category one kind of question. The second question is about the unallocated corporate expenses. If I look at it from INR 13- odd crore, now it is around INR 21- odd crore, INR 8 crore kind of increase we have observed. Can you help us understand how to look this number going forward basis and what led to this increase?
Third question is about the— Can you give some, what is the open mandate in GS business and what is the PAPM, let's say, we have seen in GS? Thank you.
Sorry, last question was?
GS open mandate and PAPM trend.
Okay.
Right.
I will ask the first question about the one-time revenue. I will ask Neeraj to answer your question, followed by Lohit on the PF ceiling of INR 15,000 to INR 25,000. Last but not the least, the unallocated cost, Neeraj will explain.
Yes, so at H1 level, we are almost 95%-96% compliant. To answer your first question from a Labour Code one-time impact, I do not see any material impact now flowing into H2.
Unallocated cost has increased from INR 13 crore—
Yeah, so as per the accounting standard, we will see basically almost. It is like a front-loaded cost as per the standard. So for the full year this year, we expect almost INR 20 crore of the overall allocation to come in the first year, and then this cost will start tapering down from year two to year three.
Lohit, if you can answer the question on PF ceiling increase from INR 15,000 to INR 25,000. Also, the open mandates in general staffing and the PAPM.
Yeah. So as far as the EPF or wage ceiling is concerned, as you know, INR 15,000 has gone to INR 25,000, which means that for all associates, employees who would be on a contribution of INR 1,800 at 12% will have to be taken to about INR 3,000 per employee per month as a contribution. This would increase our revenue line by a tad bit for all such people who were on a ceiling value. Again, as Neeraj just mentioned, between the September payroll and the October payroll, we have been able to effectively complete 96.5% of all such payrolls and pay sheets and complied with customers and done the necessary. For the balance 3.5%, there is no challenge whatsoever. It is just a timing difference because some global accounts and global customers may have a PO which requires slightly longer time to fructify.
But obviously, it is both our customers and ourselves, we will ensure that we are in compliance with all laws. To the point what this could do to the labor market, any time when contribution of either minimum wage or social security or other embedded values increase or enhance, the tendency for more people to come out of informal labor market and come for formal jobs increases. Everything which is being done from last year will eventually become a tailwind for Quess Corp because formality will increase. The youth would look at jobs related with social security, other benefits, because that also gives them pension, that gives them maternity, that gives them minimum wage, skilling on the job, and growth. So it is net-net, over a medium to long term, it will be positive from that standpoint.
As far as quickly your point on PAPM and open mandate, I will just quickly give this thing and then give it to Nitin. As far as PAPM is concerned, we continue to be in the range of similar in the past INR 650-INR 700 range, different moving parts. The higher value tracks are obviously the ones which contribute us more, which is VAS, which is construction and manufacturing. Construction and VAS are still, by the size and scale of our business, small, but when you put all three together, they are about 20%. As the growth increases there, the PAPM in the medium to long term will tend to move upwards, and the margin profile for Quess will move upwards. I will give it over to Nitin to add more color to this and to the open mandate position.
Yes, so our open mandates have stayed stable between 30,000-35,000 numbers. Our sales team is consistently going out to our existing and new customers to gain more and more mandates, and that is being done. We also have 116 new accounts, to whom we will be going back and asking for more mandates and growing their business as well. And needless to say, as it has been mentioned, our sourcing team is there working with technology to close as many mandates as possible, and that is the engine of growth based on which we are predicting our growth in the coming quarters.
Dipesh, hope all your questions are answered or missed out anything?
No, so just one clarification. One is unallocated expenses. You indicated about front-loading of the expenses. So let us say this new quarter two run rate seems to be now sustainable run rate, right? That is how one should interpret?
Yeah. The INR 6 crore charge that you have seen in quarter two, you should see a similar charge for Q3 and Q4, if that was the question you were asking.
Understand. And year two onwards, so that's the next year, Q2 onwards, it should taper off. That is what broadly you want to indicate.
Yes, it will start declining. Yeah. So INR 20 crore in year one will look like INR 15 crore in year two.
And this INR 20 crore is the additional amount you are referring to, right?
Yeah, this is as per the approved ESOP plan approved by the shareholders. As we know, the accounting standard kind of front loads the non-cash ESOP charge in the first year, and then it starts tapering down to the second year, and third and fourth year is going to be a little bit of a tail cost for us.
Okay. So this is largely because of ESOP-related thing, an allocated increase?
Correct. Yes.
Okay. And last question, if I can squeeze the last one. On the digital platform, I think there is a sharp increase in profitability and material decline in operating costs of that segment. It is fairly small, but numbers are showing kind of different behavior. So any one-off or do you expect now digital platform to have such profitability?
No. As I said in my initial commentary, last year was a burn for us because we were building the tech platform and the capability. But in parallel, we were also looking at the commercial aspects of the platform. in quarter two, we have reported a first-ever breakeven quarter, in fact, positive quarter for the digital platform. While we will continue to invest in adding new capabilities to the platform, to answer your question, from here on, we should start seeing the numbers improving. at the end of the year, we expect this year to break even for the digital platform, consuming and absorbing all the investment that we will make. From next year onward, the platform should start growing and delivering positive numbers.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Simran Thakkar with Beas Capital. Please go ahead.
Thank you for taking my question. First question goes like this. In the annual report, the unbilled revenue was close to half of the receivables, and also the receivables over three years were about INR 114 crores. So, when should the invoicing catch up, and how do you expect the receivables going forward and the recoveries of the older amount? That is my first question.
To answer the first question, Simran , from a DSO standpoint, as I covered in my initial commentary, we have done record collection, and overall DSO we have improved by 1.4 days. I think the health of DSO build is improving. From an unbilled standpoint, the breakup is, and the buildup is on account of two parts. Almost INR 300 crore of unbilled is because of the Labour Code provisions that we have made. These will remain unbilled, and obviously, as and when employees will get paid and they will get recovered from the customer. Half of the buildup is because of the Labour Code implementation and the accounting around that. The remaining is on account of the 15% revenue growth that we have done in the quarter, and there is no material change in our unbilled.
We are keeping a very tight control in terms of how we bill timely to our customers and collect. I hope that answers your question.
Right. Also, the receivables over three years, please?
Sorry, receivables over?
Three years old, which were about INR 114 crores.
Three years old?
Yeah.
Please go ahead.
Yeah, that was the ECL on UBR, which has basically moved in this quarter.
Okay.
We will share with you more details maybe over the.
Simran, what you can do is you can send me a mail on this thing. We will give you the details about the ECL and the movement and the UBRs on this thing. Okay?
Sure, that works. Okay. My second question goes like this. Could you share any update on the EPFO matter after the August hearing, and what is the position on 80JJAA?
I will ask Lohit to answer this question on EPFO as well as the movement on 80JJAA.
Okay. On the 80JJAA, we have got now four favorable judgments, two in Bombay and two in Delhi ITAT, in the manpower case. Clearly, we see the decisions ruled in favor of the assessee, all the four judgments. These are very positive precedents for us as a company. Our hearing, which was supposed to be in October, has basically been deferred to January. From an 80JJAA standpoint, I think we continue to feel positive about the strength of our case. As I mentioned, there is a positive, almost four positive enactments and precedents which are now going to favor us as we move into our hearing. We believe soon we should be able to get a favorable judgment in our own matter. From a compliance standpoint, we basically remain compliant from a documentation standpoint for 80JJAA.
Simran, what is the question on EPFO, if you can repeat?
Right, sir. Yeah, on the EPFO, there was this August hearing, if I'm not wrong. In the annual report, we had some contingent liability.
Related to EPFO?
Yeah. EPFO demand.
I think you are referring to the INR 72 crore matter. That hearing is—
Yeah, INR 72 crore—
We do not have the next date of hearing, and we again continue to remain positive about our stand. We have the legal advisory and legal opinion in our favor. I think the moment will reflect only once we get a hearing in this matter, and then we can update you.
I understand, sir. Right. Last one bucketing question that I had. Our other income was about INR 2 crores against the net cash of INR 471 crores. Could you just give some color on this and some run rate that we should assume on the other income, please?
Yeah, I think if you are comparing the other income with quarter one, that was because of the one-time tax refund interest that we got. Otherwise, our other income should remain what we have reported in Q2.
Understand.
It is largely in that range—
Okay. Sure, sir. Thank you so much for taking my question.
Thank you. Thank you, Simran.
Thank you. A reminder to all the participants, dial star and one to ask a question. Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question- and- answer session. I now hand the conference over to the management for closing comments.
I will ask Lohit t o give the closing comments.
Thank you. We would like to again thank all of you for joining us today and giving us your questions, your feedback. This has always been valuable to us, to the management team, and to everyone at Quess. We also appreciate your continued interest and support. On behalf of everyone at Quess, we wish you and your families a very happy Diwali, season's greeting, and a very happy New Year 2027. We look forward to speaking to all of you again in January 2027. Thank you.
Thank you. On behalf of IIFL Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.