Ladies and gentlemen, good day, and welcome to the TeamLease Services Limited Q3 FY 2022 earnings conference call hosted by ICICI Securities. 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Heenal Gada from ICICI Securities. Thank you, and over to you.
Thank you, Stanford. Good evening, ladies and gentlemen. Thanks for joining us today for the Q3 FY 2022 earnings call of TeamLease. 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 Chemmankotil, Senior Vice President, Specialized Staffing, and Ms. Ramani Dathi, Chief Financial Officer. We will start off with remarks from the management, after which we will open the floor for questions. Thank you once again for joining us today. Over to you, Ashok, sir.
Thank you very much. Good evening. Just wanted to reiterate that we had a strong quarter on headcount growth. We added about 22,000 associates trainees across our three businesses. All three businesses of staffing, Specialized Staffing, and Degree Apprenticeship saw growth in headcount numbers. Quarter-on-quarter, we had a 9% growth in headcount numbers and top-line revenue growth of 16%. Our EBITDA and PBT has also seen a trajectory of growth in absolute and broadly flattish on a percentage basis. But at a PBT level, we've had 18% growth quarter-on-quarter in Q3. I think our industry-focused approach to sales and hiring has been delivering on the growth results.
We believe that we will continue to make investments in talent, technology, and brand over the coming quarters to drive the volume, price, and productivity aspects. While we have been exploring the inorganic investment opportunities, nothing has fructified on that front. Multiple dialogues happening but no closure. In the interim, we will effectively be looking at organic investments that have been enabling the growth. And I think that is something that we will continue to focus on for the various businesses with the results that we are seeing on the sales outcomes and on the hiring outcomes. This will drive absolute growth in revenues and profits, and we believe that that will give us a strong footing as we go forward.
All our businesses, staffing, Specialized Staffing and Degree Apprenticeship have seen growth. Some element of a flattish to a negative trend in the profits of Specialized Staffing on account of the seasonal impact of furloughs that have come in, which Sunil will cover. I think even our HR services businesses have started to deliver on the growth and profits, and will continue to deliver as we go forward. I think overall our element of growth trajectory stays strong with the kind of demand that we are seeing with the customers. Omicron, the wave three, has slowed down the demand a little bit, but we don't see it being a headwind at this point in time.
Also the coming together of our teams in the various businesses and structures are complementing the element of growth and volume. We are also making some investments additionally in the areas of the HR Tech and HireTech where we have hired new leaders and will complement them with teams for future growth as we go forward. I think as we see the market at this point in time, we are positive about the growth outlook, and we are positive about our positioning to draw on that opportunity as we go forward. Lastly, most of our other parameters on funding, on operating cash flows and everything else stays healthy. More details will be covered by Ramani at a later point in time.
I will call on Ritu to give her input on General Staffing, Sunil on Specialized Staffing, and Ramani thereon before we open it to questions.
Thanks, Ashok. Good evening, everyone. Hope you are riding the third wave cautiously. We continue to improve our business in General Staffing. I'm pleased to share with you that we managed to aggressively grow our base in Q3 to add around 15,600 over Q2 base.
Each of the six business cohorts and staffing came together to deliver a strong performance in terms of absolute growth in business and also in terms of the key financial metrics, exhibiting exceptional teamwork. BFSI, e-commerce, telecom, and consumer business is clearly leading the way for us. Growing contextual mastery of the six business is certainly visible in various aspects. However, mostly in hiring, and we've been able to showcase depth, reach, and spread nuance to each business and the job roles which are in demand. The pandemic had limited our options to hire using traditional channels, and we were gainfully compelled to constantly innovate and change our mix, which has improved our overall hiring deliveries as well as efficiency. We witnessed the most aggressive net positive headcount growth in BFSI, telecom, e-commerce and consumer.
We maintained our sales aggression as we signed up 53 new logos during the quarter. Hiring contribution to raw additions continues to improve and was about 33% in Q3, a marginal improvement over Q2. This should be indicative of future trends where more contribution to our growth shall come from both the upsells and hires for our customers. Contribution of hires from non-recruiter channels stayed strong at about 54%. We are improving fulfillment ratio, which is almost over 60%, improving our time to closure as well as reducing our cost per hire. Our FC productivity ratio for staffing alone improved by 12%. With improving operating leverage and associates' growth, we also managed to improve our per associate markup in absolute rupee terms through the quarter.
Undoubtedly, there is optimism in business outlook and the addressable market is wide and hence we shall continue to invest in leadership, digitalization, sales and hiring capabilities to aggressively pursue the opportunities that we see ahead of us. A bit on the Q4 outlook. I think a stable GDP forecast of 8.5% for 2022 has spread considerable optimism across sectors. The hiring intent rises by about 23%. This is based on the TeamLease outlook reports that usually come out every quarter. 23% for Q4 of this fiscal compared to the previous. The formal economy is delivering on increased demand. Although we see an unprecedented churn in the technology sector, the global demand for technology services from India surged.
The continued health of high frequency indicators and positive credit growth of large businesses, rising exports indicate the promising surge in hiring across the country in the upcoming quarter, for rather the current quarter. The recent employment outlook report actually captures the intent of hire for Q4 is at about 50%, an increase of 9% from last quarter. Some of the key takeaways. IT, education services, healthcare and pharma, e-comm, tech startups have been highest in terms of intent to hire. Metro cities and tier one cities are surging ahead. Bangalore, Chennai important hiring markets. Junior and entry-level hiring is outdoing probably all other categories. Sales and IT roles very much in prominence. Of course, there is an Omicron impact, which there is a little bit of an apprehension on.
I think, while we are cautious about it, we are also noticing that most organizations are still surging ahead with their plans to hire and there is no diminished sentiment as of now. Return to office plans might be unpredictable as of now, but their business impact of the virus isn't a big concern. We are not past the pandemic and need to keep a close watch for the warning bells and hence we shall continue to act with prudence but we remain overarchingly optimistic. Thank you so much.
Thanks, Ritu. Good evening, everyone. We had a strong performance in a seasonally weak quarter. We grew year-over-year 28% on headcount, 34% on revenue and 25% on PBT. We witnessed broad-based hiring across the skill sets and industry verticals, helping us to grow our headcount base to 9,152. This growth also helped us to increase the market share substantially. Our sales team has been consistently delivering. We bagged 43 new deals, including few large HC or headcount deployed and turnkey IT projects. The number of existing clients where we are the number one partner with highest wallet share has doubled, reflecting our strong focus on customer centricity.
The investments we made in adjacencies like digital solutions, telecom technology, engineering technology, gaming, healthcare and other service lines has helped us to offer one-stop shop solution to fulfill requirements across the spectrum of our customers. The investments we have been making to improve the capability of our hiring team through various training programs and digital interventions along with the capacity expansion has helped us to capture substantial share of the available business in the market. In terms of headwinds, we had a 60 basis points sequential drop in PBT and a nominal 1% increase in the revenue due to furloughs, unplanned leaves taken by our associates owing to the festival season. We also made some investments towards increasing the hiring capacity.
The impact of furloughs and leaves also led to a one-time impact on our quarterly revenues. However, this will not have an impact in the coming quarters, as the same shall be a recurring revenue. Overall, the demand environment continues to be robust. We are confident to continue delivering better numbers next quarter and close the financial year 2022 on a high. Thank you.
Thanks, Sunil. Good evening all. We have a good quarter with about 9% sequential growth in headcount and 16% growth in revenue. Also, at PBT margin level, we have an improvement from 1.77% in last quarter to 1.81% in Q3. In this quarter, we do not have any major non-recurring items or one-time impact except for the seasonal impact of furloughs in Specialized Staffing. Our core employee headcount in this quarter has gone up by about 5%, roughly translating to about 90 net addition in core employees. This is mainly into sales and hiring teams in line with the business growth and opportunity.
Overall, our operating cash flow conversion to EBITDA stands at 85% on a nine-month basis, and the funding exposure in our largest business staffing stands at 14.5%. We expected some collection in government training business for which provisions have already been made. Those collections to the tune of about INR 2.5 crore got deferred on account of the third wave impact, which we are expecting either by end of Q4 or Q1 of next year. We can move to the questions now.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, please press star then two. Participants are requested to use handsets while asking a question. Anyone who wishes to ask questions, please press star then one. The first question is from the line of Heenal Gada from ICICI Securities. Please go ahead.
Yes. Hi. Thanks. You know, I mean, congrats on the new quarter, and a good quarter. Just first question in terms of, you know, the hiring trends, right? I mean, as mentioned in the last quarter as well, that because of the great resignation, you know, we are seeing a lot of job openings, which are more than actually unemployed people. This is especially obviously in the, you know, developed markets. And you did mention that those trends have not really started in India. Just wanted to get, you know, an updated view on this. You know, are we seeing these trends now play out? And how do we expect this, you know, to impact TeamLease?
Hi, Heenal. This is Ritu. I think the fact that the technology industry today is going through an impact of high attrition is a fact. But that's also on account of the fact that the demand is very much in excess of the available supply and the available skill set. The pandemic definitely has brought forward some of the skill sets which were probably anticipated would be hugely in demand three, four years, maybe five years down the line to being in demand today. The skilling and upgradation programs within the country has not really kept pace. Because of which every certified skilled youth is at the moment carrying five to a job at any point of time. However, that's the case for highly skilled job roles, particularly.
Yes, there could be in certain sections, cities, some amount of impact of the jadedness or the mental anxiety associated with working from home, which could lead to some kind of a temporary lull and a wish or an urge for individuals to quit. I feel that it is a temporary blip and, as we progress, as normalcy is restored, we will see some amount of sanity around this. However, there are other interesting trends we are observing where we feel that a lot of skilled work, which is currently centered around the cities and the bigger metros, could actually move towards remote locations. Organizations might move away from actually attracting talent just in the cities to more smaller cities, where talent currently exists.
These are some of the emerging trends actually which are more relevant to India that we feel we should be watching out for.
Okay. My next question was in case of our PAPM. We've got a further improvement over the last quarter in those numbers. Margins have still, you know, not shown an improvement. Any color on that would be helpful.
Two elements to that, Heenal. One is that while we've had an absolute PAPM increase, the salary levels of the associates have been seeing a consistent growth number. So we are seeing a lot more payouts, whether it's wage inflation or one-time payments, happening to the associates. So just from a percentage perspective, the realization is actually lower when we look at it from an absolute term perspective. The second element that we had called out earlier about our strategy to market playing out, we feel is a continuance that we should take to investing in more talent and people at this point in time to draw on the opportunity that is there.
We do believe the element of leverage will kick in down the line, and I called that out even in last quarter. I think in the coming few quarters, we will look at it as an investment phase in talent and leadership. In absolute profits, we will go up, but as a percentage, you know, given that salary levels outside are increasing, and we are making the investment, we might be flattish from a percentage perspective.
Right. If you could just, you know, kind of give like a rough timeline as to, you know, till when are we expecting such increased investments from iServe, and when you think they'll, you know, the operating leverage should start kicking in.
There are two areas that we are looking to make investments in. One is in terms of talent and people, which will continue to be there for the next two, three quarters. I think with a lag thereafter, the return on that investment should kick in. The other investment that we are looking at is in technology and digitization. The investment itself will be phased out over 18-24 month period, and in a phased manner thereafter we should see a return on that.
Just last question from my side. You know, we had done a INR 75 crore provision in the last quarter. You know, how is the PF return looking right now and are we expecting any further provisioning or you see a reversal in the near-term soon?
Heenal, on the INR 75 crore provision, as of now, we are not anticipating any further provision. As we mentioned in the last quarter, currently the yield shortfall is at 1% on the total portfolio. We are also evaluating the options of migrating to the EPFO, and as and when we have more clarity on the migration aspect, we'll come back and inform.
At this point in time, we do not think that we will need any incremental provision on this front.
Okay, got it. That's it from my side. Thank you.
Thank you. Participants, to ask a question, please press star then one. The next question is from the line of Alok Deshpande from Edelweiss Financial. Please go ahead.
Yeah, hi. Good evening, everyone. One question from my side. We have seen very good addition in headcount, not just this quarter, but even in the previous quarter. Can you clarify if there was any large contract win in this, or was it spread across several clients?
It's been spread across clients, Alok. So it isn't any one, a few mandates. Like I had called out earlier, we have seen growth across the three businesses, the three employment businesses. It has been across sectors and across clients.
Sure. Given the inquiries that you are getting from clients and the momentum that we are seeing for the past two quarters, would you say that, you know, this kind of addition is now 15,000, I mean, you know, a healthy addition anywhere between 5,000-10,000. Is that something which is a steady state now, given the breadth that we have in terms of clients?
Yeah. I think at this point in time, the market sentiment to hiring and demand still seems to be good, Alok. I think, like Ritu had called out, there is the element of the uncertainty of Omicron at this point in time. While thankfully, the element of impact on individuals hasn't been as bad as in wave two, and hence there is still an element of business continuity and business plans that corporates are talking about. No one has actually decided to defer or cancel their business plans and their hiring plans. I think at this point of time, across the three businesses, we still stay quite confident of a healthy growth as we go forward.
Sure. Thanks, Ashok. Just to round up this one, this topic.
This quarter is also giving us the impetus to make the investment in sales account management and hiring teams to leverage the opportunity that continues to play out.
Sure. Ashok, any in this last two quarters, that is the September quarter and the December quarter, any one or two standout sectors that you feel have really come back very sharply in terms of growth and, you know, have stood out for you in terms of the net combination?
Before Ritu answers the specifics of sectors, just answering for Sunil, IT has been consistent all year. So I think, IT didn't have a downturn in Q1 either. Actually, as I mentioned to the earlier question, the demand in IT has been very aggressive and healthy, and we've been delivering consistently across the quarters through IT. That's on the Specialized Staffing side. On the General Staffing side, Ritu.
On the General Staffing side, I think the standout sector in terms of net growth obviously is e-commerce, but I would not call it as a turnaround sector. It's been like this with the entire startup ecosystem buzzing, hyper local business models emerging, there is a constant requirement for hiring. I think the couple of sectors which I can call the bounce back sectors have been BFSI and telecoms. Other cluster where we are seeing obviously a lot of consistent sustained demand will be consumer and healthcare. I mean, it may not be a huge big bang, but more sustained and gradual will be consumer and healthcare. In a nutshell, that's where most of the action is.
Also in Degree Apprenticeship, we have seen an uptick from the manufacturing sector.
Sure. Understood. Thank you. Thank you so much for the responses and, again, well done on a great quarter. Thank you.
Thank you. The next question is from the line of Yogesh Kirve from B&K Securities. Please go ahead.
Yeah. Hi, congratulations on the set of numbers. I had a question related to the metrics. If I look at the realization for associates in the staffing, and it has grown by cumulatively about 20% over the last two years. How should we look at what should we interpret in terms of, I guess, wage levels which are going up, some higher bonus payout, anything related to that during this quarter? And secondly, related to this is our PAPM service growing at a more steady rate. Is there any attempt or previously we had talked about trying to move towards more winning share kind of a deal of a percentage share kind of a deal.
Has there been any movement over the last couple of quarters?
Yogesh, first let me cover the second point. While our default offering or our preference for signing up a client is on variable markup model, there is a pushback. As of date, only 72%, sorry, only 28% of our business is on variable markup model. Over the last one and a half year, we haven't made any progress on improving the variable markup proposition. In terms of PAPM growth, in Q4 of last year and Q1 of this year, the PAPM got impacted with COVID discounts, on which we said it will take at least three or four quarters to get back to the previous levels of 740, 750 kind of PAPM level, on which we are making quarter-on-quarter progress.
However, the wage inflation associate salaries is much higher than the growth that is happening at PAPM level, which is kind of having a pressure on gross margins in staffing. However, with the productivity enhancement that we are doing at our backend in terms of our core employee and other costs, so that is helping us at PBT level, at EBITDA and PBT level to improve the margins in staffing. Also at the overall portfolio level, the margin expansion will continue.
I think just from I mean intent is obviously to try and increase realizations of the PAPM at the PAPM level. Multiple approaches in terms of negotiations, new contracts, in terms of the aspects of partly the person contribution, all of these are being tried out, Yogesh. No one driver. Like as Ramani pointed out and as we had called out earlier, we are seeing the wage inflation happening, which is effectively also from a percentage perspective dampening that element. We are compensating that by the productivity enhancements that are happening.
Just going back to the point where I started in terms of realization for associates. Yes, kind of increase that you have seen over two years, is it really only the function of the inflation which has happened or has there been any sort of a change in profile or are we or more skill set which are getting involved? I understand our earnings are really related to PAPM, but just want to understand this metric from this sense a bit.
Not a huge change of any sort in the composition of our associate base, Yogesh. While we are continuing to deliver to the volume requirements across the various industry sectors, and obviously there's some element of sectoral composition mix that changes depending upon the outlook or employment that the sectors are doing. At a broader level, there has not been a functional composition mix change that has happened. I think it's just an element of wage inflation that we are seeing coming through on the aspect of the talent that is being onboarded.
My second question is slightly related to wage. As each wage inflation keeps playing out, if you look at our income tax benefits under Section 80JJAA, and it's sort of linked to certain salary thresholds. Based on this inflation trend, are we confident that over the next four, five years, we would be sort of close to zero tax rates in terms of the effective tax rates?
Yogesh, while the average salaries are going up consistently, and currently standing at INR 23,000, our median salary is still at about INR 18,500. It takes a while to get to the 25,000 limit. At least for the next four to five year timeframe, we don't see any major change in the quantum of tax benefit that we are availing.
Right. Thanks a lot for the responses and we wish you all the best.
Thanks.
The next question is from the line of Nilesh Jethani from Bank of India Mutual Fund. Please go ahead.
Hi. Thanks for the opportunity. The first question I wanted to understand was, across our whole business model, our revenue model would be the or.
Sorry, Nilesh, your voice dropped.
Am I audible now?
Yes.
Yeah. My first question was, across business model, I wanted to understand, what is our share? Do we take as a percentage cut or it is fixed in general? The reason I'm asking this is I just wanted to understand, say, if salary growth continues for next two, three years, we would be in a position to enjoy double benefit of headcount, increase plus the salary increase, or it is generally fixed in nature.
In General Staffing, 72% of the business is on fixed markup model, where we really don't get benefit of inflation, naturally. However, every year when we go back to clients on renewing the contract, we ask for increasing the PAPM, but largely 72% is on fixed markup model. In Specialized Staffing, it is on a rate card model. Wherein I mean, our share of matching is baked into the overall charge that we charge to the clients.
Got it. Second question, I don't know if it is related or relevant at this point of time, but what is our strategy on the online side? So I read about a few articles in newspapers about an app called Apna, which conducts more than 18 million job interviews on a monthly basis. So where are we on this online platform or online investment, and what is our thought process in next two to three years? Because largely a lot of the blue-collar job, et cetera, can be easily transitioned to online. That's my belief is at this point of time. We wanted to understand management's thought process on this.
I think we welcome innovations of the sort that apna.co has brought into the ecosystem because it improves the entire engagement and the quality of the ecosystem. We view them as allies in our own journey. There are common synergies that we are already seeing. Like, we work very closely with, for example, apna.co, and there are many various such other aggregating models that we are also seeing. It gives us an opportunity to learn, engage as well as innovate at our end in terms of our own journey towards creating better matching techniques, given that clearly blue collar or less skilled remote hiring, rural hiring is one of our future current as well as future priorities.
Honestly, these are models which we are absolutely welcome. They are actually improving the entire staffing ecosystem today. This learning process was absolutely essential to kind of address one of the perennial challenge that the entire employment ecosystem in this country has been struggling with, which is how do we get the non-Naukri, non-Monster and the like kind of profiles into a digital environment. I think we are very optimistic and hopeful that this is going to overall improve the quality of matching in the country.
Just to add to that, Nilesh, the criticality for us from a hiring perspective is that we have to achieve the trinity of scale, which is volume, the reach, which is multiple locations, and cost, it being at the lowest cost, for it to be viable in the long run. I think one of the investments that we made in an earlier business, Freshersworld, was with the belief that technology is going to play a key role in the aspect of hiring. While we will use the learnings and experiences of others, at our end, we also need to innovate and kind of drive on the platforms.
I think the past two, three years, a lot has been done internally around hiring ops being technology driven, and the framework of that is kind of working for us to drive productivity and volume delivery. I think one of the investment that we are looking to make as we go forward in HireTech is also to improve HireTech as a variable that complements hiring operations to enable the trinity of scale, reach, and cost. Like Ritu said, we'll obviously leverage on innovation that's happening in the space outside, but we will complement that with our own platforms also.
Got it. Just follow-up questions around this. Today, if you want to say today would be working or associated with many sectors. Just wanted to understand any low-hanging fruits which are there, that if we transition some of the businesses or some of the recruitment towards online, any savings which we can do at this. First and second one clarification. Technology hiring at TeamLease or technology or using technology for hiring for the clients. What did you mean? I did not get it.
This is hiring at TeamLease for client requirements. Hiring our own requirements is not that large volume growth. Typically, you know, at this point in time, we have nearly 18,000+ open positions with us, across sectors, across profiles and across different locations. We cannot throw people at the job. It becomes a very expensive proposition. Leveraging technology as an intervention for hiring ops and hiring tech is really what will drive down the cost of hiring and improve the fulfillment ratio. It is leveraging technology for the open positions that customers give us that becomes our growth engine as we go forward.
Just to add to that, in our opening remarks, I was mentioning something called the contribution of non-recruiter channels to our overall hiring. Now, it's just from using teamlease.com that is almost 20% of our overall hiring. as we continue to hire more, and given our optimism in terms of growth that will come or addition that will come to our own hiring, large part of which we intend to do and increasingly and progressively we'd like to do it using online channels like teamlease.com. if we can make penetrate into being able to do so across a much more diverse set of profiles through online platforms, it obviously brings in a huge leverage for us.
Not only does it improve the things or the three things that Ashok mentioned, it helps us reduce our cost to hire, it helps us be able to hire faster and even in remotest part of the country. It's already in motion.
Just sorry, to add to that, Nilesh, and your first question about any specific low-hanging sector that plays to this. As of now, no, we are using it across the board.
Got it, sir. Got it. One last clarification. Because you said we have 1% shortfall in our PF book. Largely if my math is correct, if the book size is INR 1,300 crore, broadly INR 13 crore could be additional provision if we move to the EPFO that could be coming in from the operating revenues in future. Is the expectation right? If this is the current number.
Nilesh, when we created the INR 75 crore provision, we also factored for this yield shortfall of INR 15 crore for the next two years. If we move to EPFO, we don't have to create any additional provision in future.
Okay. Got it. That was all my questions, and thank you so much for patiently replying to each one of them. Thank you so much.
Thank you.
Thank you. The next question is from the line of Vidit Shah from IIFL. Please go ahead.
Hi, thank you for taking my question. The first question was on the Specialized Staffing business. We've seen a healthy headcount growth, but hardly any growth in revenue. You said it's largely due to the seasonality, but could you shed some light on the seasonality? Like, is a large part of this headcount addition towards the end of the quarter, or is there just a discount that we give during the third quarter?
During this quarter when there is in December you have a huge 15-day furlough given to employees, that hits our cost and revenue as well. Similarly, there were some unplanned leaves which they normally take during the festive season. That's the reason, in spite of the headcount addition, the additional revenue got offset, you know, adjusted against the loss in the revenues towards the furloughs and the leaves. On an ongoing basis, this will come back.
Okay.
I think the 400 headcount addition that we've had has been kind of spread across the month. The IT staffing, which has the largest wage brackets, taking the hit on the unplanned leaves and the furloughs is the only reason for the aspect of a flattish quarter. This would correct itself in Q4 where there will not be this impact.
Got it. You've previously stated that, you know, steady-state EBITDA margins of this segment are around 10%-11%. Like we've basically done 9.1% in the first two quarters and roughly 8.5%. Like what sort of expense or cost cutting, you know, will be done to take these margins up? Or when can we see these margins sort of, you know, start increasing from?
In Specialized Staffing, now that we have telecom and IT verticals added, which are relatively lower margin businesses with it compared to IT Staffing. We said that we are currently at optimal levels of margins in Specialized Staffing. Our focus is more in terms of improving the absolute margins, absolute profits. Because at margin front, 8.5% is an optimal level for this vertical.
For the vertical, including the infra and the telecom stuff.
Yes, that's right. On a blended.
Understood. Fine. Thanks. That's helpful. Just a couple more questions. One was regarding the shift from hiring from metro cities to small cities that Ritu kind of talked about earlier. I just wanna understand, like, is there enough presence of these large companies across these small cities? Or will this sort of need more investment to be made across the country to hire from smaller cities?
Obviously, this is an emerging trend. Here is how it's looking like. Organizations obviously are still conflicted on whether work from home is better, back to office is better, the impact on engagement, impact on things like mental health, so on and so forth. A large number of employees, and this is obviously not a trend across any and every sector, largely centered around the knowledge workers, I guess, where a lot of people come to the metros from different parts of the country. With this pandemic phenomena, many of these people, because of work from home, remote working, have chosen to go back to their hometowns and are pressuring that ecosystem.
There is an emerging trend where organizations are seeing that rather than having large office spaces in bigger cities, why not have smaller cohorts in smaller towns and cities which are essentially places from where large number of people are actually migrating to the cities. Whether that is a more viable model to ensure that there is some kind of a physical connect with these employees. So it's like an in-between kind of distribution, which might blow up into a bigger trend, but honestly, we'll have to see how the next three, four quarters go. As of now, we are seeing that as a trend around for knowledge workers, for technology, and some similar kind of roles.
Sure. Like let's say if it does blow up, do organizations have the sort of capabilities and the database to start hiring from these places? Or.
No.
Does that need to be built up?
Even today, Ritu, talent for companies is coming from all places. What we have been doing historically is migrating talent from home locations to the metros. I think what we are now talking about is that there will be a dispersion of employment base to probably the Cat B kind of location. Historically also, the talent was not purely constrained only to the big cities. It was coming, and it was a migratory population that was there. I think what the opportunity this provides is the element of being able to halt that element of a migration. Our belief is that as you are able to take jobs to the people, your quantum of talent pool would actually increase.
Understood. Just one last question on the couple of leadership hiring positions that you filled in the HR Tech space. If you could shed some light on the broad strategy in this space. You know, how quickly will it grow, and are you looking to monetize it, or it's largely, you know, for cost efficiency?
Two elements. Both, we made leadership hires in HireTech and HR Tech. HireTech we had discussed slightly earlier around how we view it as adjacency to our employment cluster and our hiring capabilities to deliver to open positions as a function of scale, reach, and cost. They will make investments to enable scale and productivity. To some extent, they will have an external independent market focus, but will happily have our business as their largest customer to drive volume. In HR Tech, historically we've been talking about the element of the DWS solutions that we have been doing to give value to the customers in different areas of people management, which actually we have a minimum viable product in certain areas which are being used across customers and across associates.
The clear idea is to monetize it to some external clients and non-associate employees who are outside, while we would also parallelly make investments in innovation around our future product pipeline. There will be a future roadmap of investment that we would do on product and innovation, but they will be called out as P&L.
Understood. That's it from my side. Thank you so much.
Thank you. The next question is from the line of Utsav Mehta from Edelweiss Asset Management. Please go ahead.
Hi. Thank you so much for your time. I just noticed that your spend per employee has been going up quite steadily in the last few quarters. It's almost up to, like, INR 1,000 per month. It's almost up 20% year on year. Do you think this number is sustainable, or it's just a function of, you know, staffing mix, or has there been an improvement in pricing?
Utsav, when you mean employee spread, are you referring to the salary or the volume growth?
I'm just netting out the realization per employee from the cost per employee.
Okay. Can you please repeat your question?
Basically, I mean, we've called out that we have about 700-odd rupee realization in General Staffing, which has incrementally been improving. Specialized Staffing has higher margins, so I don't know if you're combining or combination of both, but I'm not clear how you're coming at the INR 1,000.
No, I'm just using the overall numbers, right? I'm just taking your revenue number and dividing it by average employees and your costs. Your total employee cost divided by the total number of employees. Just a rough math to see where your spreads are heading.
Utsav, I'm not able to understand the question and rough math at the back end, but we could take this offline and Ramani could answer that.
Yes, Utsav, I'll take it offline with you.
All right. Perfect. Thank you so much.
Thank you. Participants, to ask a question, please press star then one. The next question is from the line of Sumit Jain from Goldman Sachs. Please go ahead.
Yeah, hi. Thanks for the opportunity. Firstly, I wanted to just check on your Specialized Staffing headcount. You mentioned that in IT staffing you had a very strong growth, but when I look at your disclosure, the Specialized Staffing has gone up by 4.9% quarter-on-quarter. Shall we assume there was a decline in telecom staffing or IT infra? How should we look at it?
The telecom staffing and the IT infra, compared to IT staffing, there has been a little less number additions. Predominantly we have been adding more numbers on the IT side.
Can you quantify? I think you stopped giving that disclosure. Any reasons for that? Because I think IT staffing headcount growth used to be a pretty decent number for you.
We've just now combined the three businesses and are working under a single leadership, and not specifically vertical focused, as a linear line thereafter. That's really why they have been combined together now.
Got it. That's helpful. My second question was around your margin profile in terms of EBITDA margins. If I look at the HR services has gone now into profit, whereas General Staffing and Specialized Staffing both have seen a bit of a decline for last three to four quarters. I guess despite a very strong QoQ growth trend and improvement in realizations as well, we haven't seen the margin benefits coming to General Staffing and Specialized Staffing. Is it because of the investments what you are doing or any other competitive factors out there in the market?
Firstly, in General Staffing, I mean, before we even go to the investment level on PAPM itself, there is a continuing pressure quarter-over-quarter. In fact, we gave substantial COVID discounts in the last 12 months timeframe, and that has impacted the gross margin while we are enhancing the productivity and contributing to higher profitability at the bottom line. There is a slight impact on the PBT margin, which is essentially percolating down from the COVID discounts on PAPM. Specialized Staffing, in this quarter, there is a drop in the EBITDA margins because of the furlough, and this is one-off.
Otherwise, they'll continue to maintain these margins of EBITDA margins of 8.5% in coming quarters. HR services, the long-term aspiration or the long-term margin target for HR services is upwards of 10%. Again, this is subject to the new investments that we are planning to make in higher tech and HR Tech business lines. However, under EdTech and RegTech and compliance businesses all put together, we should be able to maintain a steady state of upwards of 10% net margin.
Got it. That's helpful. I guess, Ashok, in the past you have mentioned your aspiration to take EBITDA margins to north of 3.5%-4%. We are still operating at 2.1% kind of levels. Can you just help us understand what will be the key levers for profitability to go up to maybe 3.5%-4% in the longer- term? I'm not asking the duration by when it will go, but at least the levers which will take you to that path.
Yeah. North of 3% is what I have always been saying, Sumit, and I think that is the trajectory that would happen with the portfolio mix of the various P&Ls and scale that comes about. I think a combination of those two is really what would be the driver. HR Services has now come into profitability. Now we are focusing on scale for them. Since it will be a higher margin business, it will, and it won't really be a large mover on the top line, it will lead to margin improvement. Specialized Staffing has reached that steady state, but now we need to drive on growth.
I think the immediate quarters where we are making the investments in talent and team and other areas don't give operational leverage, but those will also start playing out down the line. I think a combination of these is really what would move towards the company delivering on the 3%+ kind of margin.
Got it. That's helpful. Can you also talk about the consolidation in the market happening? Because we generally don't get any industry level data as to how the overall staffing industry has performed. Given that you had 9%-10% quarter-over-quarter growth, I'm assuming you must be consolidating the market at a broad level. Maybe, Ashok, if you can comment something as to how consolidation is happening at the ground level.
I wouldn't say consolidation is happening at this point, Sumit. This demand has come back into the market. I think the weakness that was there at the start of the year on account of wave two is behind us. Clients have resurfaced their plans for growth and volume leading to hiring. I think hiring is happening across the spectrums of on-roles, outsourced, formal, informal, all areas. I think it's for us a function of having strong sales and account management teams on the ground that can leverage the aspect of the positive outlook in the market, giving us or getting us more clients, getting us more open positions, and our ability to deliver better on the open positions, that's giving us the growth at this point in time.
I don't think I'm still at a point in time to be able to say that there is a strong element of a consolidation from informal to formal or from smaller players to bigger players that's happening at this point in time.
Got it. That's helpful, Ashok. I think in terms of FY 2023, I mean, clearly we saw a V-shaped recovery in FY 2022, and of course the headcount growth has been pretty strong in that perspective. What is the sense you are getting from your top key customers in terms of their growth addition for next financial year? Would it again be a strong year, or you think the pent-up demand related phenomena has already played out in FY 2022?
Well, I think the outlook from industry is quite positive. Leaving aside any uncertainties that, you know, could crop up down the line, with the aspects of, the given facts on the table, the outlook overall on India seems to be strong. Translating that down, at industry levels and company levels, the outlook is quite strong. We don't see it tapering off at this point in time, unless some external variable comes to play on that.
Got it. Got it. That's very helpful. Thanks for taking my question, and all the best.
Thank you. Participants who ask a question, please press star then one. Anyone who would like to ask questions, please press star then one.
If there are no questions, we could conclude.
Sure, sir. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you. So as I think, it's been called out, we've had a strong quarter on growth, in line, and it's continuation of the earlier quarter. There are no exceptional item call-outs in this quarter. All parameters of P&L and balance sheet are healthy. With the current outlook on industry and company aspect, we do believe, there's opportunity for sustaining the element of healthy growth as we go forward into Q4. We obviously are working on improving the absolute profits at this point in time. The margin percentage aspects as the levers of the current investments that we are looking at start to play out in future will lead to that operational leverage and margin improvement happening.
We believe that just given the market, the market opportunity, it's the right time to make organic investments in technology, in digitization, in team that we will continue to drive on. We look to the aspect of no surprises in the future around the pandemic or anything else. With the sustained positive outlook, we stay positive to the future. Thank you very much.
Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.