Quess Corp Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Quess Corp Ltd (QUESS) Q3 FY23 Earnings Concall

Management Update:

• [00:02:07] QUESS said the business environment for 3Q23 was muted across all sectors with exception in BFSI, Manufacturing and FMCG and FMCD where QUESS saw some traction.

• [00:02:22] In 3Q23, QUESS added over 80,000 headcount on YonY basis, a 20% increase.

• [00:16:43] QUESS’ focus for the next two quarters is to reduce its SG&A cost, enhance collections, bring down DSO days, and reduce debt levels.

Q&A Highlights:

• [00:17:59] Vidit Shah at IIFL Securities enquired about the growth in general staffing headcount. Guruprasad Srinivasan CEO replied that YonY general staffing increased by 25% YonY and stands at 379,000 as of Dec. 31.

• [00:23:51] Vidit Shah from IIFL Securities asked about Monster, if QUESS is close to raising more capital. Sekhar Garisa CEO foundit said that QUESS has enough capital in the bank to cover its expenses and operational plan for at least the next 18 months. QUESS is on track to breakeven by Q4 of next year.

• [00:25:12] Vidit Shah of IIFL Securities queried about the breakdown of the INR68 crore tax claim into two parts, related to the 80JJAA disallowance and related to the depreciation on goodwill. Kamalpal Hoda CFO replied that the contingent liabilities for the FY17-18 are INR27 crores, inclusive of a previously disclosed liability of INR17 crores. The total contingent liability disclosed in the financial statements is INR74 crores, which includes liabilities from both the financial year 2017-18 and 2018-19.

• [00:29:52] Darren from Firth Investment asked about the key drivers that led to the improvement in GTS EBITDA margin in 3Q. Guruprasad Srinivasan CEO answered that the three platforms that make up GTS have an avg. EBITDA margin of 16%, which is made up of domestic customer lifecycle management of 14-15%, non-voice BPO collections of 29% YonY growth, and HRO payroll processing of 16.5% YonY growth.

• [00:37:42] Amit Khetan with Laburnum Capital asked if it is possible to share the EBITDA split for the nine-month period between different staffing categories. Guruprasad Srinivasan CEO replied that the General Staffing India business currently contributes 50% to the overall EBITDA of WFM, while balance 50% is coming from Professional Staffing India, Professional Staffing International and others. The goal is for General Staffing to come down to 40%, with 60% coming from Professional Staffing and International Staffing.

• [00:40:11] Amit Khetan at Laburnum queried why QUESS’ pending assessments from ’17 and ’18 have been disallowed while Teamlease’s pending income tax for FY22 has gone through. Kamalpal Hoda CFO said that comparing two assessment years from an IT point of view can be difficult because they are treated separately and there is no way to compare them.

• [00:42:47] Mukul Garg from Motilal Oswal asked about general staffing demand outlook in the next 3-6 months. Guruprasad Srinivasan CEO answered that the peak season for staffing starts in June and ends at Diwali. Last year, 35,000 job openings were created but filled in sectors like BFSI, Manufacturing, FMCG, and FMCD. This year, Manufacturing, BFSI, Logistics, Supply Chain, and Telecom are expected to be more active due to budget reorientations and 5G deployments.

• [00:48:44] Mukul Garg of Motilal Oswal asked how to interpret the metrics for the current quarter and if there will be a moderation in sales over the next few quarters, which could affect revenues. Sekhar Garisa CEO foundit replied that QUESS had a very good quarter in terms of sales, growing by more than 40% YonY and 30% QonQ. The slowdown has not impacted QUESS much yet, but expects the sales momentum to continue.

• [00:48:58] Mukul Garg of Motilal Oswal also asked whether the weakening in queries or visits in 3Q23 was a one-off occurrence. Sekhar Garisa CEO foundit replied that its candidate active base, which is a metric that recruiters use to measure success, continues to grow. QUESS have just reached its highest ever 6 month active base of 18 million, despite the impact of rebranding taking a few months for the traffic metrics to bounce back.

• [00:51:19] Mukul Garg from Motilal Oswal asked about the company’s cash burn expectations and how much of the initial fund raised will last until Q4 of FY24. Guruprasad Srinivasan CEO replied that QUESS has raised close to $20 million in the last round and have more than INR100 crores left in the bank. QUESS’ cash position will remain healthy as its sales numbers continue to go up QonQ for the past three quarters.

• [00:51:38] Mukul Garg from Motilal Oswal also queried if investors are asking about any commitments made to them during the fundraise, which may be included in their agreements. Guruprasad Srinivasan CEO answered that QUESS has more than INR100 crores in the bank, which is sufficient for the next 18 months of operations and beyond. This amount of cash is enough to cover QUESS’ business operations and does not require it to raise additional capital at this time.

• [00:53:24] Alok Deshpande from Nuvama asked about the current state of the IT staffing environment and how it may develop over the next few quarters. Lohit Bhatia President replied that the IT services business is down by about 60%, but the other contract management and Quess IT Staffing Solutions businesses are well hedged and relatively stable.

• [00:53:46] Alok Deshpande from Nuvama also enquired on the potential revenue or EBITDA growth of the US business in the next 2-3 years. Lohit Bhatia President said that over the next three years, it is difficult to predict where EBITDA might be, but India is likely to continue to grow while the US market adds one new company each year.