Ladies and gentlemen, good day and welcome to TeamLease Services Q4 FY 2022 earnings conference call hosted by ICICI Securities. As a reminder, all participants' 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 four on your touchtone phone. Please note that the conference is being recorded. I now hand the conference call over to Mr. Aniket Pande, Lead Analyst from ICICI Securities. Thank you, and over to you, sir.
Thank you, Ranjeet. Good evening, ladies and gentlemen. Thanks for joining us today for Q4 FY 2022 earnings call of TeamLease Services. I would like to start off with thanking the management of TeamLease for giving us the opportunity to host this call. On the call, we are pleased to have Mr. Ashok Reddy, Managing Director and CEO, Ms. Rituparna Chakraborty, Executive Vice President, Staffing, Mr. Sunil, Senior VP, Specialized Staffing, and Ms. Ramani Dathi, CFO. We will start off with the remarks from the management, after which we will open the floor for the Q&A session. Thank you once again for joining us today.
Thank you.
Over to you, Ashok, sir. Yeah.
Thank you, very much, Aniket, and, good evening to you all. Just in continuation of the published results, we've had a strong quarter on growth and have overall continued the growth trajectory that we had over the last prior two quarters. We've had a headcount addition of about 11,000, nearly 12,000 headcount. Overall for the year, we've added about 57,000 associates trainees this year. This is across the portfolio of staffing, specialized staffing, NETAP, and I think all businesses have been showing the recovery in the markets, in the verticals and leveraging to the investments that we had made for growth. This is also followed by a quarter-on-quarter improvement in EBIT and PBT in absolute terms and in percentage terms.
I think this is also aided by the fact that our EdTech business has scaled and has also become profitable this year, which is the call-out that we had earlier. I think A large number of the other metrics on funding percentages, cash flow generation, cash position, and all of those kind of stay consistent. We have maintained the discipline around invoicing, DSO collections, and all of those parameters. We've added some core headcount in Q4 across businesses in anticipation and in line with the business forecast expected and indicated by client demand, and also to factor that we will have some element of attrition that will come in in Q1, so to be prepared on that front.
We had provisioned, and we were in the process of transitioning, the PF trust closure. That has been completed, and we have migrated all of the PF trust money to the RPFC and are in the process of transitioning the records, so that going forward, all liabilities, all transaction processing on Provident Fund would happen with the authorities, and Ramani would cover a little more detail on that front. I think overall, our continued focus for growth, for profit, bottom-line margin improvement is something that continues to play out. We continue to make investments in headcount and in digitization that will aid the future element of the business.
I think we, at least as indications are from the clients at this point in time, seem to have a strong demand in the current year, which we will work towards. Just one other update. We are also inducting Rituparna as an Executive Director going forward onto the board, and she will complement the element of the board along with us as an Executive Director. That's it from my side. Ritu will give a commentary, followed by Sunil and Ramani.
Thank you very much, Ashok. Hope all of you are in good health and even better spirits as the tides clearly seem to be changing. Under the looming shadow of a pandemic-ridden world, General Staffing delivered a stellar performance for the year gone by registering a near 35,000 addition to our associate base, which is incidentally also our highest-ever yearly net addition. For the quarter alone, we added about 5,000 associates. Our revenues also went up by over 32% for the year and 3% on a quarter-on-quarter basis. In terms of absolute growth and associate base, our top four segments would be financial services, e-commerce, telecom and tech, and consumer durables. E-commerce has registered incidentally over 300% growth over last year.
Our sales aggression continued, with us closing the year with over 220 new logo sign-ups and 45 being in Q4 alone, which standalone usually is a slow-moving quarter if we go by historical reference. The accomplishment of the six businesses that I'm particularly proud of would be the brilliance we exhibited in our sales hiring temps, while for the quarter our hiring contribution to gross additions remained consistent, as compared to the previous quarter at over 30% +. However, for the whole year, we've delivered about 52,000 joinees who were hired by us. 53% of them hired through our non-recruiter channels. On our FTE front, of course our FTE did drop, which Ashok gave some reference.
Our FTE ratio did drop in spite of the headcount growth on account of the preemptive hiring we have done, anticipating attrition during the first quarter as the economy as well as new opportunities have started opening up in general. We are also looking at shifting some of our central processing to smaller locations to bring in greater efficiency in our cost of servicing. Some of the additional hiring for this quarter was also on account of getting the backfill against anticipated attrition onboarded earlier, and then moving them during the quarter to the smaller locations. Coupled with the anticipated growth, we shall be on track towards a significant improvement in FTE during Q1 of this financial year. I'm sure some of you are probably already aware about the different insights we keep coming out with.
Just to share with you some of the insights from the employment market, I think based on our recent employment outlook, IT, education services, e-commerce, healthcare, pharma, telecom are showing extremely positive signs around hiring. Tier 1 cities going to be having a much higher intent to hire. Bangalore, Chennai, Bombay are probably going to be the top cities with maximum demands coming in. Entry-level hirings are expected to increase quarter-on-quarter by about 10%. Sales and IT are clearly leading the pack in terms of the kind of jobs that are likely to come in. Also, our jobs and salary primer, which was released last week, reveals an 8.16% median increment across 17 sectors. Needless to say, IT, education services, healthcare, pharma, oil and energy, and BFSI being the most generous with their increments.
Now looking ahead, the business is well poised for a robust growth in H1, and there is a clear visibility of a healthy pipeline and emerging demand across most of our customers. The interest of our prospects also seem encouraging. Few forward-looking sectoral change which will drive the future of the business includes rapid interest in formalization of workforce in FMCG and F&B sectors. A lot of staff with going through dealers, off-role. I think employers are looking for a legitimate yet flexible solution. Massive capacity increase is expected in manufacturing, especially in electronics, which shall create a large number of employment opportunities, including those of temp workforce. There is a growing shift towards higher diversity hiring, be it in manufacturing or e-commerce. The innovation in our non-recruiter recruitment hiring mix shall help us be on top of the emerging demand from organizations.
Geopolitical headwinds could lead to some tepid hiring outlook in the emerging businesses. However, from H2 that should get corrected. E-commerce is looking at a twofold increase in workforce. This is a unique opportunity. However, the strategy fight between the new age, freshly funded, delivery-driven organizations and the more established organization has made talent acquisition challenging. However, the investment made in our ability to move labor from smaller towns to where demand is shall continue to yield good results. Existing logos and financial services are expected to face aggressive expansion. Overall, the business with its deep leadership bandwidth complementing teamwork, established contextual mastery, specifically in business around sales and hiring, and the emerging benefits of digitalization and process improvement, is well poised to witness an impactful year ahead. Thank you.
Thanks, Ritu. Good evening, everyone. We are pleased to report highest ever growth in headcount, revenue and PBT in FY 2022 for Specialized Staffing. We have made significant improvement in our market share in this ever-expanding addressable market, aided by super cycle of digitization. Our ability to deliver consistent business results despite external challenges validates our vision, strategy and capabilities. We have worked closely with our customers as a strategic partner to solve the talent supply challenge and have successfully offered multiple solutions which has helped us to increase wallet share with the customers. Our strong brand recall has helped us to successfully incubate new business lines which shall help us to continue the broad-based growth of our business. Our revenue crossed INR 500 crores mark, reaching INR 531 crores in FY 2022. Year-on-year, we grew 33% on revenue and headcount.
We also grew PBT by 30% with a return of 8.4%. The slight dip in PBT percentage compared to last year is primarily driven by investment in talent and technology to aid our future growth plans. Our sales continue to fire on all cylinders, bagging 95 new logos in FY 2022. With focused client centricity, we grew our strategic client count by 32% year on year. We shall continue to improve the product portfolio mix with a focus on expanding the overall margins, as that's the most efficient path to deliver ambitious growth while building a profitable and differentiated business. Now coming to Q4 FY 2022 performance. Revenue grew by 50%. Associate headcount grew by 33%, and PBT grew by 29% when compared with Q4 FY 2021.
The growth is primarily driven by our IT business in line with hiring activity in the IT sector. On a sequential basis, which is comparing Q4 FY 2022 to Q3 FY 2022, we grew our revenue by 8% and associate headcount by 4%, and we improved our PBT by 50 basis points. Overall, the demand environment continues to be robust and we are confident to continue delivering similar or better results in FY 2023. Thank you.
Thank you, Sunil. Good evening all. Hope you and your dear ones are doing well and safe. For the financial year FY 2022, we have had a revenue growth of 32% and EBITDA growth of 46%. We closed the year with an EBITDA margin of 2.19%. Our PBT for this year is reported at INR 117 crores with 1.81% net margin, excluding an exceptional item, which I'll cover later. HR services as a segment has turned positive and it will continue to contribute to the bottom line next year. A large part of HR services contribution is led by TeamLease EdTech business. The overall DSO and cash flow conversion are at optimal levels. Funding exposure in staffing business is maintained at 14%.
The exceptional item in this quarter is towards the PF trust migration. We have created an INR 75 crores provision in Q2 of this financial year towards planning towards the PF trust migration to EPFO. Our PF trust manages overall INR 9 lakh account holders with a total portfolio size of INR 1,545 crores. As of 31st March , we have fully liquidated all the assets under the PF trust and transferred the proceeds to EPFO. Effective 1st April , TeamLease does not carry any liability on account of the administration or any portfolio management of the trust. We had initially estimated that this process might take a little longer, but we have opted for the fast track migration, which has helped us to conclude this entire process within a short span of time.
Those are the comments, and we can get started with the Q&A now.
Aniket, we'll give it to you.
Yeah, sure.
Thank you. Thank you very much. We will now begin the Q&A 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 handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aniket Pande from ICICI Securities. Please go ahead.
Hi. Thank you for the opportunity. I have two questions on margins and one on outlook. Ramani, we saw very strong addition in core employees in this quarter and also very strong improvement in your margins. Just wanted to get a sense from where the margin improvement has come. Secondly, what is the outlook on specialized staffing given the higher attrition in IT sector? And can margin improve further from here also?
Sure, Aniket. Firstly, in terms of overall margin expansion, all of our businesses have operating leverage with huge economies of scale. That has led to margin expansion at EBITDA level. This is also coupled with our investments in terms of digitization, technology and process automation. That also helps us to improve productivity. However, by last quarter we have increased our investment in expanding the teams, especially in hiring sales and other departments, which is in line with the business outlook that we have for next year. Yeah. In Q1, there can be a marginal impact on the overall EBITDA and PBT margins because of the hiring that we have done in Q4. The full impact of cost will reflect in Q1 of FY 2023.
Having said that, from Q3 onwards, we'll have a consistent margin expansion quarter-on-quarter. Specifically, the margin expansion over the last two quarters is also contributed by HR services, which used to be marginally loss-making in the past and has turned profitable and will continue to remain so. Also Specialized Staffing growing at 32% year-on-year. That's also contributing to the overall margin expansion. To your second question on Specialized Staffing, I'll request Sunil to answer.
Yeah. Regarding the question on, you asked about attrition. The higher attrition actually, in a way it helps us to, from the contract staffing point of view, it gives us an opportunity to, you know, put in more, you know, bodies into the system, since, it's the fastest way to, fill the gap, you know. On one side you have a high attrition, which is in, mid-20s%, and the other side you also have, a new requirements coming in because of the super cycle of digitization. In both, on both sides, I think, we will, stand to benefit. We are, fully prepared to, meet the, higher, demand of, requirements.
That's where we have invested in our talent and technology. We will be able to provide you know quick recruitment solutions. We already have multiple solutions apart from the plain vanilla you know contract staffing. We also do hire, train, deploy, and we also do you know contract to hire kind of solution we offer. All these solutions will help to fill this gap. Yeah. Thank you.
I think just an extension of that. There is no huge scope for margin improvement, per se, in Specialized Staffing. We are already at optimal margin with the current portfolio. We are experimenting with additional verticals and additional opportunities that we could drive for growth. I think sustaining the growth momentum for the Specialized Staffing is really what is going to be a key focus while we maintain the margins that are there currently.
Thank you for the detailed answer. You know, just wanted to get a sense of what was the PAPM in this quarter and how do you see the PAPM trending going forward? One last question, Ashok, sir. Any qualitative guidance on revenue and margins segment-wise for FY 2023? Thank you.
I think on a PAPM front, we were at about INR 708 as broadly staying above the INR 700 level. I think that's something that we will continue to focus on. Obviously there are market pressures on that depending on the mandate that we are pitching in for. No specific call-out on the FY 2023 numbers per se, but like as was called out earlier by Ritu and Sunil, and if I were to stretch it to other businesses, we are entering the year with a very positive outlook from the customer's end around demand, around growth, around the need for manpower. I think looking at that and hopefully, you know, last two, three years for us have been a quarter one impact of COVID.
We don't have that, at least at this point in time. Corporate clients are still bullish about playing forward for demand and playing forward for growth. With that in mind, I think we should sustain a healthy growth trajectory on associate numbers, on revenues, and also on the bottom line.
Thank you and best of luck.
Thank you.
Thank you. Our next question is from Vidit Shah with IIFL. Please go ahead, sir.
Hi, thank you for taking my question. I had two questions. The first one was around the note fall to the P&L about where you speak about the income tax authorities not allowing 80JJAA deduction in assessment year 2020 and also reassessment for assessment year 2019. Can you shed some light on what has really happened there? And, you know, are they not allowing any of the deductions or is there a mismatch in the deduction allowed?
Sure, Vidit. We received a reassessment notice from the income tax department specific to 80JJAA. There is no difference. There is no claim by the department in terms of the interpretation that we have taken or the calculation or the way that we have availed the benefit. The entire challenge is on whether there is an employer-employee relationship between TeamLease and its associate employee, which we are challenging at a requisition level, trying to understand the grounds. Because clearly, for all practical purposes, we are the employer, we are responsible for paying salaries on time, making sure all compliances and statutory liabilities are being met. Also there are previous court cases in similar interpretations, which are in our favor.
We have obtained sufficient legal opinions, kind of, supporting our understanding on this element. Considering all of this, we haven't quantified this as a liability, as a contingent liability. Also, with the view that the auditors have taken, it's not. It's been identified as a natural benefit.
I think.
Sorry. Vidit. Yeah. I think that primarily, you know, the only interpretation aspect that the authorities are taking is that the employees are not located in your office and working for mandates of clients. There's no double count of these associates with clients also taking them into their count and seeking a tax benefit or anything of that sort. That's really where we are responsible for all salary payments, statutory deductions, statutory compliances, and everything else, and that's the stand we are taking with the authorities.
That's fine. I mean, given that you've received refunds in the previous year and assessments up to assessment year 2017, 2018 have been completed. I mean, isn't that a precedent or precursor to them agreeing to the fact that 80JJAA benefits should be allowed to TeamLease and the others?
Yeah, I agree with you. That's the other aspect that we are trying to reiterate that, you know, we have in the past got refunds, acknowledgment of the benefit being applicable. We statutorily, technically, are the employer on account of everything being driven by us. This nuanced element of a pick of choice that, you know, since they're deputed to work for other client requirements, they cannot be treated as employees is very ad hoc, and that is really where we are taking the fight back to them from.
Okay.
There is a strong precedent on this element with this. The fact that refunds have been released for the earlier years, and also there are other companies not exactly on 80JJAA model, but in this kind of outsourced employment model, where there are cases in favor of the kind of claims that we are making.
Got it. Understood. Also, my second question was on, you know, this transfer to the EPF. You mentioned that everything other than the IL&FS investment has been transferred. What happens to the IL&FS investment if, you know, anything is settled at all? Does that come as a benefit to TeamLease at a later date, or is that just zero?
It could be a benefit. It's a little uncertain in view of the RPFC interpretation of closing the trust as is when we transition the money and the records. To that extent, as and when an IL&FS settlement happens and the money comes in, it could go two ways with it, uncertain at this point in time. The RPFC might ask us to transfer that money to them in excess of what we have already transferred, which is in line with the liabilities, or we could at TeamLease get that money back. At this point in time, there is a grayness and openness to how that would play out. We will take it as we go forward and update accordingly.
We have fully provided for the IL&FS investment with it. As Ashok mentioned, since there is uncertainty around whether TeamLease can recover this IL&FS investment after full settlement of PF trust, there is a question around that. As of now, full provision is made. In case any recovery comes, that will be considered as an exceptional write back.
I mean, it'll be a positive, below-the-line item for TeamLease. There won't be any additional liability for TeamLease.
No, but it'll be a positive and also be hard cash coming into the company, right?
Yes. Yes.
Yes.
Yes.
Got it. Just as a follow-up to the trust, is there any additional expense? Like is EPF more expensive for the company than the TeamLease trust or, like, you know, do they charge, can we expect other expenses or employee benefits to increase in FY 2023 on account of this?
The administration charges by the Provident Fund department are higher than the inspection charges that are effectively charged. That is an additional expense. You know, we are hoping to cover that over the next one to two years in terms of the realization margins as we go forward. At an immediate basis, there is an added cost that comes in.
How much would that cost be per employee?
It will be about INR 70 at 0.9%. We can get back to you with the exact working on that.
All right. Thanks. That's absolutely good luck. Bye
INR 4 per employee. Okay. We'll get back with the exact number.
Thank you. Ladies and gentlemen, in the interest of time, please restrict questions to two per participant. Our next question comes from the line of Mr. Manish Gupta with Solidarity. Please go ahead.
Thank you for the opportunity. In the event the income tax case was to go against you, would you be able to price this higher to keep your margins at a PAT level, at the same level?
No. We will not be able to, Manish. I don't think the clients give us a leeway on pricing given the tax benefit that we have. If we were to have a rejection of the benefit of 80JJAA, our PAT margin will be lower than PBT, and we will not be able to price it into our markups with immediate effect.
Okay. Thank you.
Thank you. Our next question is from the line of Sandesh Shetty with PhillipCapital. Please go ahead, sir.
Hello, am I audible?
Yes, Sandesh.
Yeah. Good evening, and thank you for the opportunity. My first question is, since you were transitioning in your other HR services from government contracts to corporate clients, has this transition been complete? Is there any further provision write back, like, is there any provision write back in this quarter? What is the outstanding provisions that we can expect from additional payments?
Yeah. Sandesh, the government training business is on sunset mode. However, over the last two years, because of COVID, the process got delayed. We are still working with few state governments, and we are expecting a full exit by end of FY 2023. In this quarter, there are more reversals. However, between Q1 and Q2, we are expecting some collections and there can be some write backs on that account.
As of now, I mean, the government has still been quite keen that most of the training delivery happen in a physical manner, and hence there have been delays in program implementation. The government has extended accordingly the tenure of the mandate. In a phased manner, we have not taken any new mandate. We are delivering to the existing mandates and looking to exit them as the delivery closes. No new provisions have been made. Earlier provision collections have not yet come in, but as and when they do, there'll be some expectation of the results.
Okay. There has been no write back from the current quarter, right?
Majority of the business growth for EdTech has actually been driven from the corporate, student and university revenues in the current year, and that is really where the focus is.
Okay. My second question was with respect to how the PAPMs are trending, because we are seeing an unprecedented cost inflation on your client side with respect to raw materials or the other kind of inflation that has been taking place. Are you seeing pressure on your margins or you are able to pass it through the wage inflation, et cetera, to your clients?
For us, wage inflation is effectively not directly linked to the aspect of our margin because our margin is fixed in a large percentage of cases. We have a PAPM kind of a model. In a few cases we have the percentage model. It is all very case specific and industry specific and volume specific, Sandesh, that we have to negotiate the realization and factor that as sustainable going forward. In the case of Specialized Staffing where we work on a rate card model, there have been revisions in the rate cards to factor for the inflation in wages that has been happening and, you know, sustaining the margin levels thereafter.
I think it is very case specific, industry specific, and kind of volume specific that we are negotiating and broadly sustaining our realization.
Okay. One related question with respect to that. That since there is wage inflation and the rise in salaries and et cetera. Is there a case that you have to give away on the 80JJAA exemption because the salary limit crosses the government set limit?
No. We still have a large number of associates who still fall below the INR 25,000 level. I don't think we are reaching that level where we run out of that runway in headroom. Ramani can cover more detail.
Sandesh, while the average salary is currently at INR 22,000-INR 23,000, the median salary is still at INR 18,000. We still have a lot of headroom for us to hit the INR 25,000 eligibility criteria for 80JJAA.
Okay. Thank you. Thank you so much. That's all from my side. Thank you.
Thank you. Our next question is from Ashish Chopra with Goldman Sachs. Please go ahead, sir.
Yeah. Thanks. Thanks for the opportunity. Just one question. If this 80JJAA interpretation holds, and like you mentioned, it will not be possible for you to probably pass it on because that's not how the clients price their contracts. Considering that were the clients to hire these associates on a temp basis on their own payrolls directly, there is obviously no such maybe a difference of opinion in which case it's a pretty clean benefit of 80JJAA that the clients can have, right? Does that not create an arbitrage in terms of motivation for the clients to maybe go about it themselves?
Actually, Ashish, even today, the clients have that opportunity to onboard resources at their end and kind of take the 80JJAA benefit at their side. I mean, leave aside the interpretational aspect. Even if we do this, they don't get it in the current scheme of things. I think the quantum of outsourcing that corporates do is still a small percentage of the overall workforce. It is for other benefits that they do that element of outsourcing and independent of the 80JJAA benefits and the likes that could play out for them. I don't think it, I mean, subject to that going against us or for us, it would drive the behavior of the customers to effectively look at employment purely on their roles, because that opportunity exists even today.
Fair enough. Any idea on the timelines by when we could have a resolution or some clarity on the final opinion that maybe the authorities take on this matter, or that remains to be open-ended?
I mean, it's kind of little open-ended since we are dealing with the authorities and we are going to fight it at all levels. Don't have an answer to that, Ashish.
Okay. That's it from my end. Thanks.
Thank you. Next question is from Manjeet Buaria with Solidarity Investment Managers. Please go ahead, sir.
Thanks for giving the opportunity. I have one question on this 80JJAA aspect. It says it's kind of ruled in favor of the income tax authority on the litigation. What's the cumulative cash out between FY 2018 to FY 2022?
Yes, Manjeet. Assuming the refunds that have been released for the prior years also have to be taken into this. The total impact could be to the tune of INR 150 crores so far, till FY 2022.
Ramani, is there any penalties and interest which get compounded in it especially if the case drags on top of this INR 150 crores?
I mean, ideally not, Manjeet, because frankly, I mean, we don't know how they will behave or act. It's not like we have broken any. They are reverting to disallow provision on which they have released refunds. Ideally, you can't, first of all, make it retrospective, and two, retrospective with penalty.
Okay. That answers my question. Thank you.
Thank you. Next question is from Aasim Bharde with DAM Capital Advisors Limited. Please go ahead, sir.
Yeah. Thanks for the opportunity. Firstly, I had a question on the PAPM level that we talked about. The 708 level is a drop sequentially, and there was also a drop in the productivity ratio that you have reported. The EBITDA margins appear stable QOQ. Basically, I wanted to know what has driven the PAPM drop in Q4, and B, if the margins have actually improved, so are the leadership hiring investments that you were talking about in the past, are they, are those all behind now?
Aasim, on PAPM level Q3, on an average salary of INR 24,000, our PAPM was INR 726, translating to about 2.98%. This quarter, even in absolute terms, it may appear it's lower, but in percentage terms it has slightly improved, on average salary of INR 23,500 for Q4. PAPM as a percentage is 3.01%, it has marginally improved. It also depends on the mix of associates, in which locations we are hiring, which industry we are hiring, that kind of contributes to that.
The overall EBITDA margin expansion, as I mentioned, it's also contributed by HR services, which is largely EdTech business, a higher margin business, and also specialized staffing, having higher revenue growth and contribution to the overall profit of TeamLease.
No, actually, I was just talking about the General Staffing EBITDA margin. There also I see a sequential improvement. Although it's marginal, but there is an improvement.
Yeah. Some of the headcount has actually come in towards the end of Q4, and will get fully costed into Q1 of the coming year. Like, Ritu had called out, the hiring has been made in advance of some expected demand growth and also to factor for attrition. I think there'll be some element of an impact from these costs in Q1, but thereafter, it should get fully absorbed and kind of also we'll have a wage revision increment that happens in Q1 for the core employee. That absorption will take between Q1 and Q2, and then we should see again a margin improvement taking place, playing out.
Okay. On the gross margin front at the General Staffing level, things are broadly stable or things are improved over there?
At gross margin level, it's broadly stable as of now. We haven't seen any substantial improvement on account of inflation. Having said that, we are aggressively pushing for a slightly better inflation in the gross margins as well.
Okay. Okay. The second and last question, just wanted a clarification on the IL&FS commentary they had with an earlier participant. I presume the entire thing has been settled with the PF trust. Theoretically, they should not have any claim on the amount, right, in case it comes in your favor?
Yeah.
Why is there a doubt?
The settlement, I mean, the investment is owned by the PF trust. The settlement, if and when it happens, will happen to the credit of the PF trust. Though today we have made a transfer of money from TeamLease into the trust to make good the asset equal to liability transition to the RPFC view that the authorities take is that any money that is there in the trust or comes into the trust thereafter belongs to us. Like I said, there's no precedent to this, because there hasn't been a transition of a trust while it has some credit that could happen into the future, which is why we are not taking any credit in TeamLease at this point, keeping it open-ended.
We'll, you know, argue to get that credit back into TeamLease as a refund of the advance given and so on. You know, we don't know what we don't know at this point.
It sounds like they've already covered their bases by having that condition in the agreement, I suppose. It looks like you may not have a legal recourse in case things go in your favor.
No, I would not really call that out. There's no explicit call-out, nor is there an explicit application of their ownership. It is a little gray.
Okay. Sure. Thanks a lot.
Thank you. Ladies and gentlemen, once again, in the interest of time, please restrict questions to two per participants. Next question is from Mr. Hiten Jain with Invesco. Please go ahead, sir.
Yeah. Hi. I just have one question. Isn't the sequential growth of 3% for the General Staffing headcount and similar sequential growth for your staffing business low, especially given the momentum that you have been seeing last couple of quarters and the environment in which we are in today?
Q4, even historically, the headcount growth used to be either flattish or negative, Hiten, because the attrition levels typically by end of March would be higher, both voluntary and involuntary. Despite the historical trends, we have managed to grow 3% overall at the headcount level and the pipeline and outlook for the next two quarters is very strong.
Great. Thank you.
Thank you. Next question is from Soumitra Chatterjee with Spark Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I have two questions. If I understand it clearly on the income tax reassessment thing, the IT department is not contesting the way you are calculating the 80JJAA benefit, but they are contesting that the associate employees are not employees of TeamLease. Is that a right conclusion, Ramani?
Exactly, Soumitra. They are not contesting the computation that we have taken. It's all about whether staffing company should avail this benefit or not.
Just a follow-up on that. At the end of the financial year for these associates, who is issuing the Form 16? Is it TeamLease or the client which is issuing?
TeamLease is issuing.
Everything relating to their compliances, their statutory payments, their TDS. Everything is taken care of by us, Soumitra. The client only has them working in his site, for the required activity.
Ashok, it is well settled in the court of law that the entity which is issuing Form 16, the employee belongs to that entity.
I mean, I couldn't agree more with you, Soumitra.
Okay. Just one more thing. I mean, if I have to take a more practical approach, a substance over form approach, while on form basis, you are issuing the Form 16. Let's say, who is doing the appraisal for these associate employees? Is it the client who does the appraisal or is it the TeamLease also has a say in the process? If the client is not happy with the employee, they just ask TeamLease to, you know, replace that employee or TeamLease also says that, you know, "We ourselves are not happy with particular employee, so we will replace it for you." How does that appraisal process go?
On paper and on record, it is all done by TeamLease.
By TeamLease?
By TeamLease. All revisions, termination letters or involuntary attrition, everything is handled by us. Obviously, because the associate is working at a client location for a customer requirement, all inputs about their behavior, soft, hard, outcomes and everything else comes to us from the clients. Documentation, paper flow, everything is directed and driven by us.
Oh, okay. Okay. This is helpful. This answers my question. Thanks so much, Ashok.
Thank you.
Thank you. The next question is from the line of Ashish Chopra with Goldman Sachs. Please go ahead, sir.
Yeah. Hi. Thanks for the follow-up. Just one quick one pertaining to my earlier question. While I understand you may in principle have a fairly strong case in the 80JJAA scenario, but in the event that we are awaiting the final verdict over here, how should we think about the provision for taxes or the tax rates that we should anticipate going forward?
So-
Ashish, we have taken sufficient legal opinion consultations with multiple Big Four and other experts on this matter. We are fairly confident that we would be fully eligible to claim this 80JJAA benefit. I mean, till the time there is a conclusive claim and settlement on this matter, as of now, the view is that we should continue to claim this benefit.
Okay. Nothing changes from the financial reporting standpoint over there as well? Got it. Yeah, that was all from my end. Thanks.
Thank you. The next question is from Manjeet Buaria with Solidarity Investment Managers. Please go ahead, sir.
Ramani, one follow-up here. Do you deposit INR 50 crores or any amount under protest while the litigation is ongoing?
No, they have not asked us.
Yeah. In their claim, they haven't quantified any number, Manjeet. This 150 crores number that I have given is for the last five years, the total value of tax benefit that we have availed under this 80JJAA section. This also includes the refunds that we have received in the past. In case if they revoke the refunds as well, the total exposure is potentially INR 150 crores.
We still have a lot of TDS money with the authorities that has not been refunded.
Note taken. Thank you. Thanks.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Ashok Reddy, Managing Director and CEO, for closing comments.
Thank you. As has been called out, I think we've had a strong year in growth in associates and top line and improvement in the bottom line. We have made conscious choices to invest in our team, in our leadership bench and in our businesses. I think that will play out into the coming year with the positive outlook that we are hearing from our clients about their business outlook. I think that is something that we will continue to focus on to drive our growth across verticals, across businesses, and continue to try and play for productivity and digitization for the margin improvement at a portfolio level.
I think the element of the play out that we've had this year, given the investments that we made, give us more confidence to make further investments. That is really where part of that headcount increase in Q4 is coming from, as a proactive approach to address the market demand. I think that is the continued area of focus. Obviously, in the last year or two, we have not been able to do any element of an inorganic growth for various reasons, M&A has fallen off. I think the continued focus on exploring inorganic opportunities to complement us for client acquisitions for growth, for product, will continue to be a focus area, given our strong balance sheet and cash flow position.
We still stay debt-free, cash flow positive and net cash in the bank. I think we will have the continued focus for organic growth complemented by the right inorganic opportunities that come up. Look forward to your continued support and growth as we go forward. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.