TeamLease Services Ltd (NSE: TEAMLEASE) Q3 2026 Earnings Call dated Feb. 04, 2026
Corporate Participants:
Unidentified Speaker
Ashok Reddy — Managing Director and Chief Executive Officer
Nipun Sharma — CEO PEO Degree Apprenticeship
Ramani Dathi — Chief Financial Officer & Financial Controller
Analysts:
Unidentified Participant
Amit Chandra — Analyst
Bhargav Buddhadev — Analyst
Deep Shah — Analyst
Dipesh Mehta — Analyst
Madhur Rathi — Analyst
Presentation:
operator
Sa. Ladies and gentlemen, you are connected for Team Lease quarter three call. Please stay connected. The call will begin shortly. Foreign. Ladies and gentlemen, good day and welcome to the TeamBees Q3FY26 conference call hosted by HDFC 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 bypassing star, press 0 on your touch tone phone. I now hand the conference over to Mr. Amit Chandra from HDFC Securities. Thank you. And over to you sir.
Amit Chandra — Analyst
Yeah, thank you operator. Good evening everyone. On behalf of HDFC securities, we welcome you all to the Teamly squatted 3 FY26 earnings call. Today we have with the Today we have with us the management team of Team leads represented by Mr. Ashok Reddy, Executive Vice Chairman Ramni Dhati, CFO and COO Niti Sharma, CEO Specialized Staffing and Nipun Sharma, CEO CU Degree Apprenticeship. I will now hand over the call to Mr. Ashok Reddy for the opening remarks post which we can open the floor for the question answer session. Thank you. And over to you Ashok.
Ashok Reddy — Managing Director and Chief Executive Officer
Thank you Amit. And also just to herein we also have Suparna who has joined us now as the CEO and MD of Team Lease. She will take charge on the conversation from the next quarter, but she’s come on board and is effectively getting inducted. Also just to represent the staffing dialogue, we have Bala joining us from the team on that side. With that. Thank you all and good evening for joining the call. We had a flat quarter in terms of revenue in Q3, but effectively on an EBITDA basis we had about 11% growth quarter on quarter and 22% growth year on year.
PVT grew by 69% on a sequential basis primarily driven by some element of an interest credit on tax refunds. We lost as we had indicated that there was a regulatory headwind in the BFSI sector with a certain client. We lost about 27,000 headcount during the quarter across general staffing and the degree apprenticeship side. However, in line with that we have started to reduce some of our core headcount to bring in optimization of costs. Our initiatives on digitization and cost optimization have been consistently contributing to operating leverage and we do see that continuing to play out as we go forward.
We did have a second consecutive quarter of net growth on the specialized staffing business and both for staffing and da, we do see a healthy pipeline of demand for the coming quarter. So while we’ve had an element of negative for Q3 in both these businesses. We believe that will get corrected for growth in the Q4 basis, the pipeline of demand that we have. With that I will also just get in the perspective from the businesses and finance before we kind of open up for questions. So I’ll have Bala cover the specifics on staffing, moving to Niti on the specialized staffing, Nipun on the DA side and Ramani on the finance side.
Bala for you.
Unidentified Speaker
Thank you Ashok Good evening everyone. In Q3FY26 we continue to see a gradual structural recovery in the staffing ecosystem overall, although the pace remains uneven across sectors and geographies, fiscal and monetary actions over the past few quarters have begun to support consumption and business sentiment. At the same time, customers remain selective with hiring decisions increasingly being linked to productivity compliance and near term visibility rather than just pure volume growth. Against this backdrop, our general staffing business closed the quarter with a headcount of approximately 2.82 lakh associates representing a net change of minus 21,350 associates sequentially.
This reflects a regulatory driven transition with one large NBFC client wherein they absorbed over 20,000 associates onto their own payroll. This was a client specific and role specific transition executed in an orderly and compliant manner. From a growth standpoint, revenue momentum in general staffing is lower than the past trend mainly because of higher hiring in non metros where average salaries are 30 to 40% lower than those in urban areas. During the quarter we added about 22 new client logos with 55% coming under variable markup or outcome linked pricing structures. On the hiring side we delivered about 16,700 gross joinees during the quarter, reflecting that over 25% of hiring was fulfilled entirely through our own efforts.
This reflects sourcing resilience despite off season downtrends and tepid growth. 19% of this overall gross joiners were first time employees, continuing our role in workforce formalization. Sectorally, BFSI remains in transition, but we are seeing early signs of stabilization particularly in frontline sales, collections and service roles, with demand emerging more strongly in tier 2 and tier 3 markets. As called out earlier, greater regulatory clarity and improving rural liquidity are expected to support a more normalized recovery over the coming quarters. In the consumer segment, demand remains mixed, urban consumption continues to be subdued while semi urban and rural markets showed relative resilience.
E commerce and logistics saw seasonal staffing upticks linked to festive demand. Though growth remains measured, clients continue to expect benefits from GSC led efficiencies to play out more meaningfully over time. In telecom and industrial segments, hiring remains selective and productivity driven while operators are increasingly focused on technology led leverage. We continue to see targeted manpower expansion in areas such as frontline sales and network operations, which aligns very well with our operating model. Operationally, our focus on technology leverage and margin expansion remain central enabling us to support a larger associate base without proportionate increases in overhead.
Continued investments across digital hiring, payrolling compliance and associate engagement are driving lower cost to serve and improve client experience as well. Alongside this, we are strengthening pricing and margins through disciplined commercial actions and the rollout of new direct to associate offerings including on wage access, loans, learning and assessment services and curated rewards and benefits. These initiatives enhance associate retention and productivity and while creating nonlinear revenue streams and we expect their contribution to increase progressively over the coming quarters. Finally, looking ahead over the next three to nine months we expect demand to broaden gradually with BFSI as a sector stabilizing further steady momentum in consumer linked growth and continued benefits from technology led productivity initiatives.
We currently have over 16,000 open positions and our sales pipeline remains healthy while near term sectoral volatility persists. Our focus on execution, diversification and margin accretive growth gives us confidence in delivering sustainable performance through the remainder of FY26. Thank you and with that I would like to hand it over to Niti.
Unidentified Speaker
Thank you Bala Good evening everyone. For the specialized staffing business, we’ve continued to make steady progress in headcount revenue as well as margin growth. The hiring demand continues to be measured focusing on specific niche skills as against volume hiring. During the quarter our associate base grew by 115 headcount reflecting calibrated hiring aligned to the industry’s demand. We have had a quarter on quarter sequential headcount growth of 2% and a year on year 7% growth. During the past quarter we’ve added 28 new customers across GCC’s IT services and non tech companies. New client additions were well diversified across industry segments reinforcing the strength of our market positioning and execution capabilities.
Overall, our revenue performance during the quarter was influenced by seasonal operational factors. Gross revenue growth was moderated due to a higher proportion of non billable days during the festive period and year end furloughs. The impact is temporary and seasonal in nature and does not reflect any reduction in demand, client engagement or deployment pipeline which has remained stable throughout the quarter. The DCC segment continued to be a core growth engine in Q3 as well for us contributing approximately 65% of our net revenue. We today partner with over 100 GCCs across life sciences, BFSI, engineering consulting, consumer, telecom and technology sectors supported by scalable engagement models such as bot and staffing at any point of time.
Today we have over 500 open positions from these GCC customers. Expansion within existing and new GCC continues to support our revenue and margin growth while the broader IT hiring market continues to be flattish. We have seen demand increase in areas related to AI, data, cloud and cybersecurity. Conventional hiring in tech stacks such as SAP, full stack, automation, testing, ServiceNow etc. Continue to grow in single digits. However, hiring for people, managers, manual testers, Java and NET software development kind of roles have substantially come down. Technology hiring within the non tech industries and specialized skills hiring is also picking up pace.
About 30% of our hires are with specialized skill sets such as FNA and engineering skills and we will expand this going forward. Our global business continues to show steady sequential progress. We are now over 100 headcount across sector technology stacks. Our global growth continues to be margin aggressive supported by close integration with India delivery teams and a consulting led staffing approach, thereby stabilizing the business further. Operational execution remained strong during the quarter. Hiring and deployments were closely aligned to industry demands while delivery efficiency and recruiter productivity continues to improve. This has been supported by better planning, utilization discipline and automation led enablement.
We managed the seasonal operational impacts effectively in the last quarter while adding new customers, strengthening GCC relationships and improving productivity resulting in consistent margin led earning growth. With festive related non billable impact behind us and recent client additions, we are expected to scale better and provide a strong foundation for predictable performance, margin resilience and sustained growth in the coming quarters. Thank you and with that I would like to hand it over to Neetam.
Nipun Sharma — CEO PEO Degree Apprenticeship
Thank you. NITI Team Lee’s degree apprenticeship remains focused on the fundamentals of skill development making vocational education aspirational, accessible and affordable through apprenticeship embedded programs aligned with the National Education Policy led by industry, supported by clear qualification pathway and delivered in collaboration with Academy and employers. These programs leverage NAPS and NATS as the core framework strengthened by our technical, functional and productivity led learning solutions to help industry build a future ready workforce. During Q3, TLDA recorded a net drop of approximately 5,600 apprentices across NAPS, NATS and WILD. This was primarily driven by two regulatory led transitions, one at a large NBFC client and another at a large agricultural client where apprentices were absorbed onto the client’s own payrolls.
These exits are being addressed through new client acquisitions and incremental demand from existing clients with recovery expected in Q4. Operationally, we have maintained the PAPM in spite of a drop in apprentices count. During the quarter we added 17 new client logos. 20% of our total client base and 30% of our apprentices have adopted our learning solutions. This reflects the impact of learning on productivity improvement, attrition reduction and higher apprentice engagement. We also observed strong momentum in the Global Capability center segment with increasing traction from clients seeking support in Apprentices act compliance as well as in building steady long term talent pipelines.
A key focus during the quarter was the monetization of apprenticeship linked product lines, particularly managed training services. Market response has been encouraging and is reflected in a strengthening of sales pipeline from a market development perspective. We remain focused on evangelizing apprenticeships across the GCC segment and key industry sectors, helping employers better leverage apprenticeship programs for structured talent development going forward. The recent union budget provides strong policy tailwinds for the accelerated adoption of apprenticeships and education integrated apprenticeships across industries. There is an increase of 6% in budget allocation over 2526 for subsidy under netl which now stands at 1250 crores.
With electronics and semiconductor industries identified as quick growth engines alongside focused support for biopharma, healthcare, hospitality, tourism, textile and capital goods coupled with tax incentives for GCCs and data center ecosystems, demand for a skilled job ready workforce is expected to rise meaningfully. Additionally, the proposed establishment of five education hubs across industrial corridors is expected to deepen industry academia collaboration enabling scalable apprenticeship led and work integrated education models to support sustained economic growth and future talent creation. Thank you and with that I would like to hand it over to Ramu.
Ramani Dathi — Chief Financial Officer & Financial Controller
Thank you. Nipun Good evening everyone. Revenue growth in specialized staffing and HR service businesses has been upwards of 30% year on year on YTD basis because of lower gross billing rate in staffing. Overall group revenue grew by 8% year on year. Sequential revenue growth is muted because of insourcing of about 27,000 headcount of a large NBFC client in staffing and TA businesses. With digitization and cost optimization measures, EBITDA grew by 11% on a QoQ basis and 22% year on year. EdTech catch up billing also has contributed to sequential EBITDA improvement in this quarter staffing. EBITDA margins have improved by about six basis points sequentially.
There is dilution of year on year margins in specialized staffing vertical which is in line with the planned MSP business group. EBITDA margins have been consistently improving on nine month period. YoY we have received about 100 crore of income tax refunds during the quarter along with 12 crore of interest credit contributing to an increase in other income excluding the interest income and edtech seasonality. Q3 PBT growth is 10% QoQ and 16% YoY. Nine month PBT growth without one off interest income would be 22% YoY. A major event during the quarter is notification of new labor codes by virtue of our contracts with clients any incremental liability or cost on account of regulatory changes which be passed on to the client and hence there is no P and L hit on the gratuity or leave encashment liability of associate employees for core employees 5.7 crore of provision has been made towards labour code implication and has been disclosed as an exceptional item in P and L DSO in staffing business stands at 7 days and the overall group at 15 days.
Funding exposure in the staffing business is maintained at 14%. Free cash balance stands at 430 crore and outstanding income tax receivable is 250 crore. All balance sheet metrics are stable and steady. We can now move to specific questions. Thank you.
Ashok Reddy — Managing Director and Chief Executive Officer
Amit. We can move to the questions now.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press N1 on their touchtone telephone. If you wish to remove yourself from the question queue you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Chandra from HDFC Security. Please go ahead.
Amit Chandra
Yeah, thanks for the opportunity. So my question is on the general staffing. Obviously we have seen a steep decline in terms of associate headcount because of insourcing in a specific client. So have you seen the full impact of the insourcing or still we have the impact left which is going to come in the next quarter. That is the first question and also the corresponding to that is the margin improvement that we have seen in the general staffing slight margin improvement? Is it because of the change in the mix wherein the NBFC client was at a lower PAPM and hence was at a lower margin.
So is it because of the change in mix or we are seeing some fundamental changes in the business model and also if you can also comment on the recent labor code implementation and how this is going to impact our business in terms of shift from unorganized to organized and the over longer term impact on the staffing business.
Ashok Reddy
Thanks Amit. So on the element of the transition of numbers, we’ve taken the full item in Q3, so we don’t expect any more number loss on account of that. And just given the outlook on the demand side with other clients and some element of the delivery that is moving forward, we expect a positive growth in Q4. On the headcount side, I think even on the margin improvement perspective, it is cost optimization and the productivity playing out for the businesses. As I called out earlier, I think a lot of the digitization initiatives and cost optimization aspects have played out in the staffing business and I think that will continue to take it forward.
On the labor code side, I think it’s early call out on how it will impact formalization. I think corporates are first kind of factoring for the cost impact and the implications at their end in terms of restructuring salaries and all of that. I think the element of IT playing out to administrative ease and so on into the future from a compliance perspective will really come to play on an element of formalization that could kick in. So I think the labor code consolidation of the labor laws and rollout is in the broad trajectory of the right thing to do, but I don’t think in the immediate cycle it will have an impact on driving up the demand or the numbers substantially.
Amit Chandra
Okay. And on the specialized staffing, obviously we have strong demand from the, from the GCC side, but you mentioned that we have only 100 clients there and the time there is pretty big. So how we are targeting the GCC market and if you can give some color in terms of what kind of growth can we expect in the specialized staffing and from the GCC side and also from the IT services because of what’s happening on the IT services in terms of hiring, how is CQ demand? There are. And in terms of margins, is it we can see some margin expansion there or is it the range that you want to operate into?
Ashok Reddy
Thomas, on the GCC growth front, you know, we have signed up about 20 or 25 new GCCs in the past few quarters. So this is primarily because of a focus on working with newer GCCs that are coming into the country. The existing GCC. So the TAM, which is about 1800, 1900 GCCs, many of them have set in processes. They have, you know, identified their resources and are not hiring in a big way. Wherever they are, they’re obviously very aggressively going out, reaching out and ensuring that we get them on board as well. So yes, we have a lot of work to do on that front and expand our presence across many more GCCs in the five or six segments that I called out.
So BFSI, life sciences, healthcare Technology, you know, retail, I think there are, we’ve identified about five or six segments and we are actively going out and ensuring that we sign up many more GCCs as we go along. The bot model that we operate with in the gccs helps us give better margins and that’s to your next point saying how do we, you know, how do we show improvement in margins? If you work on both models, wherever possible we will ensure that we have better growth on both revenues and margins through that model. On the IT services front, while I think we still in the lower single digit hiring is happening, but we’re seeing demand increase massively in the newer tech space which is related to the AI ML coding, data security, data engineering, cloud, cybersecurity roles where while the volumes will not be as high as what it used to be on conventional tech, but the rate cuts are obviously much higher because customers are paying better salaries for these niche roles.
So that’s how we are able to balance the revenue and margin but not the headcount growth from IT services yet because the volume hiring is still not kicked in on the services side.
Amit Chandra
And on the HR services obviously we had a good recovery there, but bulk of the EBITDA comes in the fourth quarter. So is it the change in terms of the capturing of EBITDA wherein it is now split between quarter three and quarter four or still we will have quarter four as the ebitda heavy kind of a thing for HR services And also at the console level, are we still maintaining the 20% yoy kind of target for the full year?
Ashok Reddy
Yeah. So I think the seasonality element in EdTech will continue to play out and Q4 will be higher than Q3. And while we’ve been trying to work the element of spread across quarters, I think just the admissions cycles and the revenue cycles with the universities drives a majority of the revenue bottom line into Q3 and Q4 with Q4 being higher than Q3 and I think on a broader trend with the open positions, demand and growth that we are expecting for Q4 along with the optimization in cost, we do see the margin improvement rate being sustained.
Amit Chandra
Okay sir, thank you and all the best.
Ashok Reddy
Thank you.
operator
Thank you. The next question is from the line of DHARGAV from Ambit Asset Management. Please go ahead.
Bhargav Buddhadev
Yeah, good evening and congratulations on a good performance. My first question is on Capria location. So the cash on the balance sheet is now closer to 430 crores, which is roughly 15% of the balance sheet size and about 50% of the net worth. Now that the buyback has become more tax efficient in this year’s budget, are we looking at returning the excess cash on the balance sheet? That is my first question. Second question is on the restoring of the headcount loss in general staffing in 3Q. So if you look at the net headcount, it’s now about 2,82 versus 3,3000 in 2Q.
When do we expect to restore back to 3,3000? Is it by the fourth quarter or maybe by first quarter next year? And the last question is that the insourcing which happened with your BFSI client, can that be replicated with the other clients or this seems to be more like transient and not structured. These are the three questions. Thank you.
Ramani Dathi
Yeah, thank you. Bhagav. On the capital allocation front, yes, the budget has made the element of buyback more tax efficient relative to what was before. And we do have money in the bank on account of the tax refund and cash flow conversion from profits. I think the view of keeping that money was primarily to look at opportunities on the inorganic side. Some discussions happening on that front. We did small three earlier in the year and we will continue to look at opportunities. Having said that, I think in the Q4 board meeting the board will discuss on the capital allocation front and take a decision.
So at that point we will be able to communicate on that front. It is on the agenda for a board discussion on that front. On the headcount growth, as I called out, I think we are optimistic of net headcount growth in all the three employment cluster businesses that we have as a function of the demand and the pipeline that is there with customers at this point in time. I think between Q4 and Q1 we will be able to bridge the gap and come back on the numbers that we have lost. Also the specific regulatory element, you know, it is an ad hoc directive from RBI to the nbsc.
We haven’t seen the same kind of play out elsewhere, so we would have to kind of take it as it comes kind of a thing because we do provide resources in the BFSI space and any specific action from an RBI and as a directive is really where this plays out. It did play out once last year in Q4 and then this is the second time a directive has been passed which has impacted the numbers. But there’s no specific call out at this point in additional view.
Ashok Reddy
So just to highlight a data point that if you’re looking at a decision in your fourth quarter. I think a 200 crore cash return back to shareholders boost your ROEs by 3 to 4% next year. So I mean do keep that in mind because it’s hurting your roe. So thank you for your answers. Thank you and all. Factor that bhagav and put it as a consideration to the board. Thank you.
operator
Thank you. The next question is from the line of Deepsha from BNK Security. Please go ahead.
Deep Shah
Yeah, hi. Thanks for the opportunity. The first question is for in this quarters what would be the contribution on the profit side which has come from inorganic route say on a 1y basis that is one and, and second on, on the two year scheme that, that potentially allows us a PF reimbursement for first time employees. Now as I understand this would start from July, so next July maybe 1/4 we may not be. But would that be a fair assumption to make that from 3Q onwards our net headcount will be higher on a ymy basis so that we can take benefit of that scheme.
So These are my two questions. Thank you.
Ashok Reddy
Hi. On the first part, inorganic contribution in the quarterly profit is about 11 and a half crore roughly about 1 and a half crore. And this will be, I mean will be maintained. It has been maintained at the same level and on top of this we have started billing especially on TLD Global. We have added about 70 headcount since acquisition and that has been profitably contributing to the bottom line in specialized staffing segment. On the second question of Eli schemes and PF reimbursements as you rightly mentioned, this is going to be effective July 2020 and we have to see how this is going to be implemented by the epfo.
As of now we are not able to give any kind of indication on how this is going to contribute to our bottom line. Maybe only by end of Q1 we. Would have better visibility on this.
Deep Shah
No fair. Similar. I understand that if I can follow up. So I understand on the, on the implementation and regulatory part there isn’t too much clarity. But I’m saying on that first condition which, which necessitates that our headcount road or, or our headcount needs to be higher every month. So do we have that comfort that by the time the steam starts because it’s just a two year stream, right. And four years of manufacturing but two years for everything else, our headcount on a ymy basis actually higher, do we have that comfort?
Ramani Dathi
Yeah, definitely. On a full year basis our headcount is going to be higher. And also it’s not month on month. It has to be positive. It’s from beginning of the year to the end of that period. So on that front we are quite positive that on overall basis there will be a net increase in associated count.
Deep Shah
Okay, so. So just to clarify, when you see on a year on year basis, it means the headcount needs to be higher on 30 June 2026 or 30 June 2027 over 30 June 2026. What would be that first period 30 June 26 versus 30 June 25 or how would it be?
Ramani Dathi
Yeah, so it would be from June 25th to 1st, July 2026.
Ashok Reddy
Thank you so much. Thank you so much.
operator
Thank you. The next question is from the line of Dipesh Mehta from MK Global. Please go ahead.
Dipesh Mehta
Thanks for the opportunity. A couple of questions. First about on general staffing. Even after adjusting for NBFC of roughly around 20,000 associate headcount addition seems to be muted. Can you help us understand reason for those you know, even other outside of the nbfc it seems to be soft this quarter. Second question is about the headcount mix across vertical. Now because of the sizable hit which we have taken in last few quarters in NBFC account. Can you help us understand what with the mix across vertical of 282k what we have and whether any implication of it on the margin considering each vertical might have a different margin trajectory.
So that is first question on general staffing and that and if I add one more in papm, how it is changed quarter on quarter? Maybe if you can answer it then I have a to follow. Thank you.
Ashok Reddy
Sorry Dipesh, if you could ask the last part once more.
Dipesh Mehta
PAPM per SSA per month. What is the number? Yeah.
Ashok Reddy
So Ramni.
Ramani Dathi
Yeah. On the general staffing. So overall there has been a general slowness during this year. We have seen headwinds in DFSI starting Q4 of last year. So most of the hiring in DFSI has been much lower than the trend that has been historical in the last two, three years. And also there is a seasonality impact specifically in this quarter because all the festive hiring that has been onboarded during Q2 and early Q3. So that headcount typically gets rolled out by end of December. So that impact also has taken into the Q3 closing number. However, with the pipeline of new onboardings that we have for Q4, we are confident that we would be closing the year with a net positive or just about positive number on general staffing front overall in terms of composition, BFSI currently would be at about 19 to 20% after considering the Bajaj headcount loss and consumer verticals both SNCG SMCG put together would be about 25%.
Retail, E commerce, Quick commerce, that segment would be contributing to about 10% and manufacturing to about 12%. Manufacturing, engineering, allied services would be about 12% and all other segments would be about 4 to 5% contribution.
Dipesh Mehta
And just from a PFPM perspective we are at about 680 up from about 669 last quarter. Whether the mix change in terms of vertical, whether it could have some bearing on margin trajectory considering BFSI has reduced now as a percentage.
Ramani Dathi
I mean marginally they will be because typically as we have always called out, the large clients do tend to pay us a little less than other customers. However, some element of the cost associated with the clients is direct and will get adjusted in terms of headcount and direct cost adjustment in the organization. But some element of the allocated cost will still continue to play out across a broader spectrum. But as we’ve always called out the large client PAPM is normally lower than other clients. Also one of the reason for steady improvement in PAPM is also the contribution of hiring. Revenue has been improving. So compared to last quarter we are now chatting at 49% of hiring on overall offer letters rolled out last quarter this number like to like was 36%.
Dipesh Mehta
Okay, okay. Second question is on the other HR services how we expect let’s say last last year EBITDA for the year was around 8.5 crore. Are we confident to grow on that number for the current year? Because last year Q4 was very strong. And just to get sense on that trend from full year perspective I understand there would be quarterly ups and downs but when you look from full year perspective how confident we are on to grow on that base? And last question is on the DAU indicated some regulatory action even for agri client. Can you give some more detail around it and how you expect it to play out? Thank you.
Ashok Reddy
Yeah HR services there’ll be a marginal improvement in EBITDA because as we called out in the beginning of the year in HR tech segment we still continue to make investments both on sales as well as on the product front. And while there’ll be a overall net improvement it would be still be in low single digit on year on year EBITDA at services level. And on the second question regarding the DA client where there is a regulatory impact. This is specific to a client which is in the business of agri. And earlier they have taken GST exemption on some of the associate profiles which are involved in agri activities.
But subsequently in their, I mean subsequently the GST department has come back and said that these particular profiles cannot come under exemption category. So because of that they have insourced these profiles.
Dipesh Mehta
Understand. Thank you.
operator
Thank you. The next question is from the line of Madhur Rati from Counter Cyclical Investment. Please go ahead.
Madhur Rathi
Sir. I wanted to understand that last we did share buyback in 2023 and in the recent budget the buyback taxation has been made very favorable and whereas our stock price is lower than what it was even in the COVID crash. So are there any plans to do a share buyback so as to increase shareholder value?
Ashok Reddy
Madhur, as I called out, there is a dialogue with the board in the Q4 aspect on the capital allocation. So a decision on any action on that front. We will have an idea in the Q4.
Madhur Rathi
And sir, how do we see our payroll processing business in terms of adoption as well as scaling this up with the new labor law changes?
Ashok Reddy
Sorry, could you come again on that? Madhur?
Madhur Rathi
Sir, how do we see the our payroll processing business? Like, like if you could help us understand how do we see the payroll processing business going forward with the new labor law changes and how do we see in terms of adoption of third party or outsourced payroll processing versus for the in house or either going through the banking channels?
Ashok Reddy
Yeah, so I don’t think the labor code element has a direct impact on the payroll outsourcing business. Obviously there is an element of a consulting aspect involved at the early stage for corporates to identify what the impact is, what they need to do, how they need to restructure structure, what elements are applicable under basic, non basic and stuff of that sort. While that’s a one time activity, I think the continued element of corporates who decide or want to outsource on the payroll front will continue to play out as it was before. So I think the aspect of us continuing to drive corporate acquisition Both in the SME segment as a SaaS solution and the medium to large corporates on the service front are focus areas that we are continuing to have on the payroll outsourcing business.
Madhur Rathi
Got it. And sir, we acquired two subsidies TS Dr. And Crystal HR sir. So what kind of margin profiles do these businesses currently have? And so if I would, if I would consider these businesses to our competitors like all DG or ADP or workday. So how do we plan to differentiate ourselves or how do we plan to. Sorry, please go ahead.
Ashok Reddy
Yeah, so TSR is primarily more of enterprise service provider on payroll outsourcing. So this is a payroll service provider where we maintain the records, we process for the corporate and address the output for them. On an average it’s at about a 15% margin. Play Wallet HR is more of a SaaS platform for the SME segment. On the aspect of payroll outsourcing where companies do self service using the technology platform and there the margin is roughly about 30%.
Madhur Rathi
Sir, I wanted to understand. Pardon my ignorance, I’m new to the company. Sir, when I’m comparing our margins with our peers like Quest Corp or even a very tiny player like RV and Con, so they are enjoying margins of like almost double of our margins and even Quest Corp is doing over 2% margin. So. And RBNCON is doing 3 and a half percent operating margin. So basically what has to happen for our margins to increase to our peer level or even reach the earlier margins that we used to do few years back?
Ashok Reddy
Yeah, so one major difference between Quest and teamlease margins is they have a much larger share coming from their international business on IT staffing, on the specialized staffing we have entered very recently and right now that volume contribution is hardly about 100 headcount. But other than that in terms of general staffing our margins are not that different. Plus, minus, we are at the same levels. So the main variance is coming from specialized staffing segments.
Ramani Dathi
Just as a like to like Madhur, I think certain businesses are common and we should compare the element of the margin profile in those businesses. Certain businesses we are not doing or certain areas or regional play like the global that Ramani just called out is relatively small for us and that’s a higher margin business in the long run and that is really what accounts for the difference. Answer the second part of the question that what needs to happen to the macros for our margins to go back to the previous levels that we were doing few years back. So I think that’s largely the element of the portfolio play for us which. Is effectively. Specialized staffing and DA had either stagnated or declined as a function of the element of how the market was. The two of them coming back to the table from a growth perspective will start contributing to the margin improvement. The continued growth on the staffing side coupled with the productivity enhancement leading to cost optimization will also contribute to the margin improvement to bring it back to the old level.
Madhur Rathi
And sir, what percentage of Our total revenue is coming from the IT sector because now we are hearing a lot of disruption in IT sector due to AI and so on. So what kind of impact can IT have on our business? 6% is the revenue contribution coming from it. This is including GCC. However on bottom line the contribution is almost 30%. 30%.
Ashok Reddy
Okay. So madam, is there a risk of, I mean now IT companies are not increasing their payroll. So in fact there is a decline in the payroll in absolute number. So madam, can our profitability get hit due to some AI related disruption in IT sector?
Madhur Rathi
So mother, in fact within IT services we have kind of corrected the headcount over the last two years and almost 50% headcount has come down. And since last two quarters the headcount has been steady and GCCs have been consistently adding numbers. Maybe NITI can also add on Madhu.
Ashok Reddy
To add to what Ramni is saying. We are also seeing hiring actually happening in newer skill sets for AI, data security, cloud. So while conventional skills are not being hired and that’s why we’re seeing a volume drop, but there is a high value hiring that is continuing to happen and I don’t think that’s going to go down in the near future. So it will balance out in terms of revenue growth and margin growth. It will not give us the volume growth that IT services gave us till. About three years ago.
Madhur Rathi
Okay. And madam, lastly, madam, I can see that our absolute headcount has decreased from 3.6 lakhs to 3.35 lakhs. So just directionally, madam, again pardon my ignorance, madam, until our total head count increases, does that not indicate the growth? I mean if until the headcount increases then how else will the growth materialize?
Ramani Dathi
So as we called out, this has been a specific instance driven largely by a regulatory directive leading to about 28,000 headcount. Moving away from a specific customer net of that and the seasonality element in Q3, we broadly see continued growth. And that reduction in headcount has been largely across general staffing and degree apprenticeship. Specialized staffing had a net headcount growth.
Madhur Rathi
Thank you so much and all of us.
operator
Thank you. The next question is from the line of Asha Mehta from DT Partners India. Please go ahead.
Unidentified Participant
Hi, can you hear us?
Ashok Reddy
Yes, Ashay.
Unidentified Participant
Hi. Hi. This is Mahesh, Asha’s colleague. Thanks for the opportunity. My question is on the transition which is going to play out. So first of all, kudos to Ashok, you and the founding team who’s really built this commendable business. The question really for us as an investor to understand is as you thought this transition through and went through the process of identifying professionals who were to come and run it. What sort of. Person or ideal candidate you were looking in terms of coming and taking this forward from you to the extent what you can share, of course, not really trying to get into very specific, but just trying to get a sense of as you sort of bring someone from outside running in what is sort of brief and mandate and what should we be signing up for?
Ashok Reddy
Yeah, so primarily Mahesh, I think it was a logical transition that we have been working on in saying that bring in the external CEO play that enables us to effectively continue to work with the person in the long haul through the board and kind of direct the company to be a board run company that outlives the promoters. By having said that, I think the key skills or the capabilities that we were looking at was obviously Team Leads is a large organization. It is large in volume and in terms of in a sense the portfolio. So continuing to maintain the element of traction and keeping the train running on the tracks was an important variable.
But also I think what we always been calling out is the drive for some element of a transition from B2B to a B2C revenue stream, improving our margins from the low margin to a portfolio that enables margin improvement to come in and also kind of complement the service offering that we have with a stream of our product portfolio into the future. And I think from those perspectives is really where we were looking at the probable person. And I think Supanna fit well into what we saw on that front. She’s clearly from outside the industry and we will hand hold the element of learning the industry.
There is a lot of leadership and bandwidth within the organization that is kind of steeped in the industry and the businesses that we do. But I think she brings a fresh set of eyes and perspective to what we’ve been doing for a very long time. And I think also her capabilities from her past experiences are Primarily from the B2C side, from a high margin side and from a product portfolio side. And I think those are great complementary skills into the leadership of team leads that we believe will play out to strength in the coming quarters.
So it’s two days since Supanna has been on board, so she will be inducted into the the team, into the structures, into the business, into the customers. And we believe that just given again past experience and seniority, the onboarding process will be quick. We are here to work with her and handhold the element of the way forward, no one is kind of leaving per se in that sense of the word. But she will have the ownership as we go forward on the executive element of the business.
Unidentified Participant
Thanks Ashok, very helpful and wishing all the best to Suparna as she take charge and look forward to interacting with her. I have a second question for maybe Ramni just to confirm the understanding on other HR services is the understanding still holds in terms of the fact that a lot of capex investments are behind us and as HR Tech Regtech scales up there is going to be operating leverage on those revenues because bulk of OPEX is already sort of invested in. Is that understanding fair? Ramni?
Ramani Dathi
That’s right Ajreen. So in Regtech in fact we don’t have much of incremental Capex as such. So now most of the sales investments are product investments are fully charged to the P and L. HR Tech is one business where we still need to do more investments in product. And also now in light of the new labor codes, we may also come up with other solutions. Especially once the Shram Suvida portal gets launched, we may have another line of business wherein we can have AP for direct filing, seamless filings on those front. So we will continue to have more capex investments on HR Tech and the rest of the team related investments have been fully operationalized and been charged to the pnd.
Unidentified Participant
Got it. Thank you so much.
operator
Thank you. The next question is from the line of Priyam Srivastava from Casey Capital. Please go ahead. Yeah, hi. Thank you so much for the opportunity. Can you please discuss the contingent liabilities from the tax cases? Like what is the quantum in the current legal status?
Ashok Reddy
So with respect to tax liabilities under atjj there has been open items specific to whether outsourced associates can fall under the ATJJ claim or not. However, we don’t have any open demand as such. So all the refunds have been released but the completed assessments have been reopened. So there are new, no new items on tax contingencies as of date.
Unidentified Participant
Okay, got it. Okay. Okay. And my second question was what is the impact of labor codes on the transfer business?
Ashok Reddy
Which transfer business? Sorry, can you.
Unidentified Participant
I think this. Correct me if I’m wrong, there’s a certain business which the employees are already there with the client and then they transfer to the company’s payroll.
Ashok Reddy
Yeah, even the team lead here we. Have two categories of employees. One is associate employees who are deployed at client location and then core employees. For core employees there is a net impact of about 5.7 crore mainly towards gratuity and leave and catchment liabilities pertaining to past period. So that provision has been made and it has been disclosed as an exceptional item in the P and L statement coming to associate employees who are working at client location. So we have back to back arrangement with the client saying that for any new liability or any incremental cost arising out of any regulatory changes with respect to statutory remittances and others, so it will be passed on to the client.
So as of now, if you can see our balance sheet and the disclosures that are being made, we have back to back recognition and disclosure of these gratuity and leave and catchment liabilities as well as receivables from clients. So there is no net impact to the P and L on associate employees.
operator
Okay, got it. Thank you so much. Thank you. Thank you ladies and gentlemen. We’ll take this as the last question for today. I now hand the conference over to Mr. Ashok Reddy for closing comments. Over to you sir.
Ashok Reddy
Thank you very much. As we look back and then look forward, I think yes we had headcount decrease in Q3 on account of a specific regulatory impact. But we do see positive outlook across the degree apprenticeship staffing and specialized staffing for Q4 in terms of demand and a net positive outlook on headcount growth. We do also believe, as was called out, that we will be able to to work on and improve the margin aspect in Q4 on account of cost optimizations and the digitization initiatives that we have been driving. And also there would be some element of seasonality impact coming in from the EdTech in Q4.
We do believe that a lot of the leadership and structural elements are in play at the team leads and for the various businesses and will continue to give benefits as we go forward. We will work the transition on the executive roles front with Suparna for her to come up to speed on the business, on team leads, on the team and on the customers. And we do believe that the skills that she’s brings to the table will hugely complement the aspect of the requirement for team leads. As we go forward with that, we do look forward to giving you a strong quarter four and take leave from here.
Thank you very much.
operator
Thank you very much on behalf of HDFC Securities. That concludes this conference. Thank you all for joining us today and you may now disconnect your lines.