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Edited Transcript of QUESS.NSE earnings conference call or presentation 23-May-19 10:00am GMT

Q4 2019 Quess Corp Ltd Earnings Call

BANGALORE Jun 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Quess Corp Ltd earnings conference call or presentation Thursday, May 23, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ajit Abraham Isaac

Quess Corp Limited - Chairman & MD

* Manoj T. Jain

Quess Corp Limited - CFO

* Sangram Keshari Mallick

Quess Corp Limited - Assistant VP of Investments

* Subrata Kumar Nag

Quess Corp Limited

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Conference Call Participants

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* Abhijit R. Akella

IIFL Research - VP

* Aditya Bagul

Axis Capital Limited, Research Division - Assistant VP of Midcaps

* Ashish Chopra

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Atul Mehra

Motilal Oswal Securities Limited, Research Division - Former Research Analyst

* Kaustubh Pawaskar

Sharekhan Limited, Research Division - Senior Research Analyst

* Rajesh Kothari

AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director

* Sandeep Baid

* Snigdha Sharma

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Quess Corp. Q4 FY '19 Earnings Conference Call hosted by Axis Capital Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Aditya Bagul from Axis Capital Limited. Thank you. And over to you, sir.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [2]

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Thanks, Steven. Good afternoon, ladies and gentlemen. And a warm welcome to the Q4 and FY '19 Earnings Call of Quess Corp. Limited. The management of Quess Corp, is represented by Mr. Ajit Isaac, Chairman and Managing Director; Mr. Subrata Nag, Group CEO and Executive Director; and Mr. Sangram Mallick, Investor Relations.

I shall hand over the call to Mr. Sangram for his opening comments, post which we could go to Mr. Ajit Isaac for his opening remarks. Over to you, Sangram.

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Sangram Keshari Mallick, Quess Corp Limited - Assistant VP of Investments [3]

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Thanks, Aditya. Good afternoon, everyone. And thank you for joining the earnings call today. Please note that the results and the press release has been updated on our website.

Please note that anything, which we say, which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. These uncertainties and risks are included, but not limited to, what have already been mentioned in the prospectus filed with SEBI.

With that said, I would now turn over the call to Mr. Ajit Isaac. Over to you, sir.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [4]

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Good afternoon, and a warm welcome to all of you. Thank you for joining us on today's call.

As all of you would know, Quess as a company is very representative of the Indian economy. 85% of our company's revenues are derived from our Indian operations. And the Indian economy, over the last few years, has been seeing growth of about 6% to 7%.

Job creation and employment have been a subject of much discussion. And with more than 300,000 employees at Quess, we are among India's largest employers and an essential part of this discussion.

At Quess, we hired almost 100,000 employees last year, perhaps making our company India's largest hiring engine and, therefore, with significant visibility to most parts of the Indian economy. Added to this, Quess was coming on the back of a large round of fundraising in 2017 in an IPP where we raised about INR 870 crores. This capital was invested through the year 2017-'18. And our priorities, therefore, in the last year ended 2019 March were: one, [we're interested clearly] in value-accretive investments; two, that we have an organic growth rate of about 20%, against an economy that is running at about 6% to 7%; three, to consolidate our operations and to ensure that cash realizations across the company grew by about 50%.

In this context of these priorities, Quess had a very strong year. We've grown our head count by 22% to 318,000 in our head count; revenues by 38% to about INR 8,526 crores. In line with previous years, our organic growth rate for this year was 24%, which is about 2/3 of our total growth rate.

While our investment has been making good progress, about which I will discuss later, I'd like to add that our EBITDA to OCF conversion has improved significantly to 59% in the fourth quarter this year versus the entire year number of 31% for financial year 2018.

Some of the key initiatives taken up by Quess last year, and most of which were discussed in the annual investor meet in -- held a few months back in February this year, was the following: one, we have transformed our sales into a platform structure by consolidating our operations into 3 platforms: workforce management, asset management and BPM and Tech. But leadership, our reporting structures have been accordingly realigned. Our future reporting, therefore, will be as per new structure. This consolidation has brought in more alignment across our services, streamlined our operations and will further expand our market share with a wider range of services to our clients.

Two, our focus on cash conversion, with a track record of 45% [CAGF] over the last 7 or 8 years. We have had a challenge to book cash generation because the large part of the capital generated by the company went to funding growth. But with the cognizance of this and through feedback provided by the investor community, we have significantly improved our EBITDA to OCF conversion in the last 18 months without compromising on growth. Our conversions is more than 31% in financial year '18, and we closed '19 with 43%.

In the last few quarters, we have significantly improved our conversion to about 59% for Q4 of the last year. This has articulately enabled us to reduce our debt by about INR 210 crores to INR 784 crores in '19 versus INR 994 crores in the year '18. There was also a reduction of leverage ratio of our gross debt-to-EBITDA to 1.7 compared to 2.8 last year. Optimizing our working capital cycle, improving cash conversion is an ongoing sort of event, and we see that there is further scope for improvement.

One of the topics that have consumed much attention at Quess has been Monster. In the last -- in the initial months post acquisition, there were some challenges turning around Monster. But over the last 15 months, substantial work has gone into it. We have revamped the core platform by launching Semantic Search 2.0. We've launched Better Together set of recruitment modules, which includes the automated interview solution called Quinton, Pre-hire Assessments and curated profiles. We have also launched a Monster brand campaign called Work Life Balance which has gathered good traction with 600 million impressions, 7 million clicks and 4 million individual visits. All of these initiatives have resulted in improving business metrics for Monster. Our traffic has gone up by 68% to over 11 million per month compared to our pretraffic – pre-acquisition numbers. Similarly, new [seat] registrations have increased by 76%.

We're continuing to build and monitor the results the platform is delivering. We think that the initial heavy lifting is down to a reasonable amount. There's some more work to be done, but we think a lot of it has -- work has gone into it. And we expect Monster to deliver targeted results in the coming quarters.

In an Industrials vertical, our segment has seen a reorganization. First, we continue to focus on O&M contracts in metals, power and oil and gas sectors. Second, we have decided not to pursue any further smart city contracts. As far as the Ahmedabad smart city project is concerned, project had been well executed with initial phases having been completed. This project also won multiple awards including Transport and Mobility Award for Intelligent Transit Management Systems from India's Smart City Awards in 2018. We expect to complete the project in August and commence O&M phase of the project thereafter.

Before concluding, I'd like to highlight some aspects of our future strategies. As mentioned earlier, this year will continue to be a year of consolidation in the platform structure with margin improvement and cash conversion. We don't expect to do any major acquisitions going forward. And building on the investment that we have right now is our current focus.

Branding. We are planning to consolidate all of our Quess brands under a brand -- a Quess brand umbrella. From current brand count of about 28, we expect to come down to Quess plus maybe another 8 or 9 brands, therefore, significantly changing up the brand architecture of our company.

Speaking about individual platforms, our workforce management, asset management and BPM and tech platforms have all done very well over the last 1 year. Some of the highlights of them have been our general staffing numbers growing to about 192,000 and an addition of about 200 new logos for the year. Our operational efficiency there has gone up with the core to associate ratio being 1:330 versus 1:260 in the last financial year. Our Collect & Pay contract share has also increased to 65%, up from 58% in the last year.

In Excelus, our training division. We've trained over 38,000 candidates. And with the additional focus on employment and [through] generation in our country, we expect this business to gather greater traction in the future.

In the assets management platform, we have also seen significant organic growth momentum. We've added 120 new logos with the health care and education verticals doing significantly better from the others. Our security services company has added 2,400 in new head count over the last quarter, taking our total head count to almost about 20,000 people.

In the BPM and tech space, Conneqt business solutions has had a good year with an EBITDA of about INR 74 crores, translating to a margin of about 8.6%, a significant improvement over the previous year's number of about INR 55 crores. We've also restructured our entities in North America, which is Brainhunter, Mindwire and MFX into a consolidated [job]. And this will enhance the service offerings that they have and should gain additional market traction by the cross-selling that they are able to do.

At DigiCare, our aftersales service business, our growth in our service centers have reached to about 250 service centers. The focus on this will -- in this business, we're seeing maintaining our growth momentum and in expanding our growth -- our margin structure. Recently we have also added Allsec Technologies. And we believe that this addition will be a significant one to Conneqt where we're able -- that we are able to add another service client in the HRO business and addition in the financials business.

At this point, I'd like to add that I'm joined by my colleagues from our corporate office and the finance function. And together, we will address the questions that you will raise. So we're looking forward to an interactive discussion. And thank you all once again for joining us on this call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Jain Andwani] from [Profit Research].

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Unidentified Analyst, [2]

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Sir, I will be asking 3 questions, following one order. First question is, in Monster, how are we trying to differentiate from our competitor, Naukri.com, given it has a massive 70% traffic share and more synergies than we had with our business?

Question two...

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Operator [3]

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(technical difficulty)

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Unidentified Analyst, [4]

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Can I continue?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [5]

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Yes, please. Go ahead.

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Unidentified Analyst, [6]

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Second question is, in terms of capital allocation, is that a portion of total amount of investment approved for Monster? Question three, as we focus on improving our cash flow conversion and tightened the working capital towards the client, what adverse events it could have on our growth and margin?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [7]

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Sir, so on the first part of -- on the first question that you raised, which is -- what is the differentiation that we have with Naukri? I think the key aspect of this is the differentiation that any competitor with anybody else can bring in terms of user experience. So a number of the features that are enunciated earlier in the call in terms of Better Together is aimed at driving the differentiation between us and competition. This is an ongoing process. And I don't think any single differentiation as an aspect will make our conversation topics. But we are hopeful that a collection of some of the initiatives that we're driving there will build sufficient differentiation.

In terms of synergies with our existing business, there are, I think, 2 or 3 levels of synergies: one, we're able to examine the requirements of job markets from a very close point because we are hiring 100,000 people across many sectors, we're seeing patterns, we're seeing trends, we're seeing requirements. Based on the feedback that we get from each of these sectors, we're able to factor those influences into the product at Monster. And therefore, we're able to draw the domain strength that we have of hiring into our portal.

The second one is that, with the hiring engine that we've got, we're hopeful that we can convert a large part of the requirements that come on -- through an online model and towards an off-line delivery program, that's the second part. The third is, at the staff function level, in human resources, finance, et cetera, there's a fair amount of synergy between our shared service center at Quess and the requirements in Monster. So this is the response to differentiation of synergies at Monster.

In terms of capital allocation, Monster has seen an acquisition that was done at values far differentiated from what its competitors are trading at. So we still have some headroom in terms of how much capital we need to put into it. We have cash. We've been very prudent and frugal, focused allocators of capital over time. As you would note from most of the assets that we've bought in the past, we're cognizant of the fact that this is an intimate business, and it can draw and consume more cash than the conventional services business [that we have been through] at Quess. So we'll be prudent in the amounts that we'll allocate to this.

In terms of cash conversion, I don't think cash conversion -- the focus of cash conversion will reduce the margin structure. Our margin structure is dependent on the service quality, type of services that you deliver and the type of markets that you operate in. The results from the cash conversion efforts that we're running is basically out of a more streamlined process, more management focus on the topic and better commercial and contract structures. I hope I've covered the questions that you raised.

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Operator [8]

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The next question is from the line of Atul Mehra from Motilal Oswal Asset Management Company.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [9]

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Sir, just one question on Trimax. What is the current status on the particular -- this rebuild of INR 150 crores that we have here, given the telecoms ran into some kind of a problem? And what is the level of confidence you have of the recovery of INR 150 crores, given this industry's micro (inaudible) in terms of compensations might be higher? So what is your internal level of confidence of recovering this INR 150 crores?

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Sangram Keshari Mallick, Quess Corp Limited - Assistant VP of Investments [10]

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Yes, this is Ram Keshari here, that we see for Quess. Thanks for the question. So we have the receivable from Trimax. Trimax as you have seen in the notes has gone into the insolvency but the [NCLT]. But having said that, we are working with both the [Skiddle], which is the end customer in terms of implementation of the project and in terms of receiving the money. So Skiddle , like (inaudible) itself, the project has been progressing really well. And since the project has been progressing really well, Skiddle has also said they will go out and receive the money, and they will go out and pay the money to us in terms of the fact that there is an escrow arrangement which is currently there between Skiddle , Trimax and our company. So that being the case, Skiddle has said that they will have to uphold that escrow arrangement and, hence, the money will still flow once the project is completed and the project milestones are achieved. So hence, we're also in constant talks with Skiddle in this matter, and we'll report information about getting the money.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [11]

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Sir, would you have taken any legal opinion, and...

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Unidentified Company Representative, [12]

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Yes. Atul, a couple of things here. First of all, as Ram Keshari said that we have an escrow arrangement and as per the escrow arrangement, whatever money we receive from [Skiddle], [90%] of that money will be flowing as per our agreement with Trimax IT. So we are already in touch with the Axis bank. We are in touch with the POC and also the insolvency professionals of Trimax. So we have that assurance, and we have that kind of confidence that there will be no issue as such. We have also had discussions with [the Skiddle] and they know that we are executing the project. And they say that they will make sure that the money goes to us and there should not be any issue.

Overall, however, we have spoken and of that they know -- Deloitte who is the auditor, they also have a large [panel] insolvency professional business. We've also spoken to KPMG and also some lawyers in the NCLT. And we don't see any issues till -- if this -- the insolvency process -- the process unless it goes to the liquidation. So we have time until 70 days. And the project is -- as a final aid. And we are getting some of the payments, as I'm speaking getting processed. And I hope that most of the payment we will be able to get in the next 60 days. Actually, because of the election last year 60 or for 90 days, we couldn't get processed because most of the things were -- as per the code of conduct. So once election results got over, and we have the assurance that we'll receive most of our payment. So from our side we don't see any issues about -- any of the -- any write-off on this account. And as you know, the auditors also agreed with our viewpoint and whatever opinions we have provided. So we will strive to get this money as quickly as possible, and you will see that in the next 1 or 2 quarter results.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [13]

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So August is the time line, right, sir?

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Unidentified Company Representative, [14]

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August is the time -- almost, you know, the projects are -- if you go to Ahmedabad and you'll be surprised to see, actually, they don't jump the red light because we're getting [a challan] automatically, and you have to find they are getting INR 10 lakhs and fine they are collecting, their municipal [coming] every month there. And even there you will see the display board. So whatever project we have completed, we are running the control centers. Problem is in -- as the metro work is going on, there have been some sites with display boards where they live -- we have to put the [display] but they are not able to give us a size. So most of the sites we have got, few are still pending. So we think that by August, we will be closing the project and move on the O&M phase, which is 5 years from now we have to do.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [15]

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Sir, secondly, in terms of the Internet business so INR 14 crores of EBIT loss for the quarter. Obviously, we are in investment phase for this quarter. But as we look forward next year and now that the launch has already gone through, so how do you see the profitability? And if this level of [run] which will continue, do you see that this is a peak month and next year onwards, we should, at least, look at some level of breakeven in this business?

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Unidentified Company Representative, [16]

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Yes. See, out of the INR 14 crores primarily as you know that we launched a digital campaign. The first digital campaign, we want to test the products. And actually we spent around INR 8 crores or INR 9 crores on that digital campaign. So operationally, I think, we -- our loss was around 5 to -- INR 4 crores to INR 5 crores. So I don't see any major operational loss. And that loss I think over the -- in the quarter going, will come down. And as we, also in the -- on the day of our Investor Relations, we told that by Q3 we are quite confident that we will achieve the operational breakeven.

Having said that, this is an Internet business, and we are revamping and relaunching the products. So we have to take a call. And we take a call that how much marketing and other expenses we'll do. But overall, as I showed in the Investor Day also that our final is that around -- we paid around INR 100 crores and maybe another INR 30 crores or INR 40 crores we will maybe burn. So and by that time, I think hopefully whatever track that we've chosen, we have seen a lot of traction, but it will take some time the traction to convert into the new orders and new revenue. So we hope that the key one which give a sum we are expecting, and we are seeing the early signs that some traction are coming. So I don't see any major -- we are budgeting around INR 20 crores, INR 25 crores net-to-EBITDA loss in this year, not more than that.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [17]

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And sir, one final question on this associate income for the quarter of INR 9 crores. How much of this has created the East Bengal (inaudible).

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Sangram Keshari Mallick, Quess Corp Limited - Assistant VP of Investments [18]

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So the associate pickup, we had about 3 components: one component is the loss on account of East Bengal, that's about INR 10 crores. And then we had some losses on Heptagon. And then there was offset by profits from Terrier which is about INR 7 crores. So that's the kind of component you have on associate pickup.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [19]

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But wouldn't INR 10 crores be too large? East Bengal has one terrible quarter. And how do you see this going forward?

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Unidentified Company Representative, [20]

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No. No. Actually there's a little of the -- most of the expenses actually we did and payment made in this quarter. So overall, annual and this year also our budget is between INR 10 crores to INR 12 crores as of -- because last year actually, we came in a very later part of the -- when the league already started, and we didn't have the time to get any sponsors and get our act together. So our -- this year, we think that we will -- at least, INR 5 crores to INR 7 crores revenue, we'll have. Last year, we had INR 2.5 crores revenue. Our overall exposure for this current year is around INR 10 crores, between INR 10 crores to INR 12 crores.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [21]

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And of which, you will try to make up, try to recover the earnings. So next year, we are seeing...

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Unidentified Company Representative, [22]

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Our total cost will be around INR 15 crores. We are expecting between INR 5 crores to INR 7 crores will -- as our revenue. So our net loss between -- for entire year -- for the '19-'20, between INR 8 crores to say INR 10 crores maximum.

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Operator [23]

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The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited.

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Ashish Chopra, Motilal Oswal Securities Limited, Research Division - Research Analyst [24]

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Firstly, Ajit with the focus on mainly organic momentum right now, with the current portfolio of business, could you share what could be the optimal level of operating margin and cash conversion in your assessment?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [25]

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So I'll start with the second. We've raised metrics by 55%. We think we can grow up by another 4% to 5% in that. It depends also in terms of how we can realize some of our current commercial contracts to ensure we can get to about 60-plus number. In terms of margins, our focus now is clearly in terms of how we generate more cash in the company. So whether we generate 5.5% margin or 5.3% margin. If we're generating cash, we'll choose the second option than choosing a higher-margin structure. And I think that's paying off because our return on capital is improving. Cash availability in that business is improving and the metrics are looking a lot better. Sometimes when you increase margins then ultimately you also have to give a larger credit [terms] and that increases your working capital pressure. So we seem to be finding the sweet spot now in terms of margins for this cash conversion, and I think this improvement will continue.

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Ashish Chopra, Motilal Oswal Securities Limited, Research Division - Research Analyst [26]

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Fair enough. And secondly, on the technology solutions split. So looks like the technology staffing has had a soft year. And you've made a mention of that in part in the Analyst Day as well. So just wanted to understand as to what's the outlook on that piece going forward, with the demand environment being fairly strong for technology.

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Unidentified Company Representative, [27]

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See, in the technology, now today staffing is only a part of that. We have 3 components in the technology segment. One is IT staffing in India and Singapore and in North America. And then our IT products and services business and the third largest component in Conneqt, which is our BPM business. So I think about all this -- we had a very good year in the Comtel Singapore. Actually, initially after we took over, there was a little slump but last year was a good result. We have very good results in the Conneqt. Actually, if you see after we took over, the profit has gone up substantially. Revenue also gone up. We are signing new contracts and we have -- are opening new centers in -- delivery centers. As to I think overall technology segment last year is only soft spot little bit was the Indian staffing. But we see actually slowly Magna also getting its act together. So overall, in the technology services business last year had a good year overall. And we see that continuity will be going -- continuing this year also.

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Ashish Chopra, Motilal Oswal Securities Limited, Research Division - Research Analyst [28]

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Okay. And just lastly from my side, one clarification. I think on the line item on the balance sheet, which was noncurrent loans, which seems to have gone up quite substantially, if you could elaborate on what that pertains to.

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Sangram Keshari Mallick, Quess Corp Limited - Assistant VP of Investments [29]

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Yes. So this pertains to intercorporate loans, where some of the intercorporate loans have been moved from current. You'll also see a corresponding reduction in the current loans. So some of it has been transferred as noncurrent.

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Unidentified Company Representative, [30]

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Actually, [one of this --] the INR 100 crores, basically we have said, given from us to Quess Singapore for acquiring the balance stake of the Comtel, okay. So instead of directly, we do -- because the acquisition was done through Singapore's entity, so that is the intercorporate loan and that is coming as -- that is one of the major reasons that -- the incremental amount you are seeing there.

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Ashish Chopra, Motilal Oswal Securities Limited, Research Division - Research Analyst [31]

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So the incremental would be INR 100 crores, and the remaining would be reclassified from current?

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Unidentified Company Representative, [32]

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Yes. Yes. Yes.

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Operator [33]

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The next question is from the line of [Harish Kothari] from [Alpha Accurate Advisers].

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Unidentified Analyst, [34]

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With reference to invested asset management, where [we have a degrowth] ? And that is my first question. If you can give outlook on this segment for FY '20? Second question is with reference to the JV share, if you can again give a breakup of that minus INR 8.5 crores for fourth quarter. And how do you see full year FY '20 for your JV shares with the component pickup?

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Unidentified Company Representative, [35]

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So on the industrial, as Ajit was mentioning in his initial comments, that we will not pursue any project in the smart city area. We compensate on the -- originally, we started our industrial when we acquired Hofincons. And Hofincons is primarily specialized in the wind and space in the power, in the metal ferrous and nonferrous and in the wind -- oil and gas industry. So we will basically go back to basic. We'll try to concentrate ourselves on that and expand our business there in the wind and space. And I think last year was -- we had some of the incidents where we didn't have any control aspects like the incident happened in the Tuticorin. And which put us in setback. We will backlog a large contract. So immobilization of that contract, actually we had to take a lot of losses there. Hopefully, that is beyond our -- in the past now. So currently, I think this year, we are expecting to a healthy margin and normally industrial use to give us around 7% to 8% margin. Last year it was, I think 3% -- 3%, 4% margin.

I think this year we'll bounce back to our original -- even if not 8%, at least 6% to 7% margin, 6.5% margin, we will be achieving this year. We are -- whatever issues are there, I think we are -- and we are strengthening our process. And the telecom sector also last year was a really, really -- and particularly, the -- we have a large telecom business to Vedang. And that Voda and Idea, the merger and all this process, and new - actually didn't come. So that is now also got resolved, and we are seeing the new contracts started coming in, in Q1. I think Vedang also will have a better year I think this year. So that is the industrial. And what are the questions...

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Unidentified Analyst, [36]

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Yes. So just to continue in industrial. So in FY '20, considering you had a lot of impact in FY '19. Do you think on top line also from here on over next 2 to 3 years, is it safe to assume good mid- to double-digit kind of a growth or how one should look at it?

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Unidentified Company Representative, [37]

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I think industrial -- see, understand one thing actually, like we have been expanding in the general staffing or strategy management the industrial O&M field also. And we work, basically, in a very large format client. So in contrast, the sales cycle is a very long sales cycle. So we'll say that we'll have a very huge revenue growth. It's mainly varied. It will be between 8% to 10% revenue growth we can expect. But definitely we will have a better, I think, margin expansion and EBITDA growth from the business.

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Unidentified Analyst, [38]

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Okay. My second question was with reference to the associated breakup for fourth quarter? And also how do you look at FY '20 share of -- your sharing associates?

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Manoj T. Jain, Quess Corp Limited - CFO [39]

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Yes. So associates, as we were just telling earlier that, I think, total around INR 10 crores are loss from the football club is Bengal, around East Bengal, it's basically around INR 5 crores loss, and around Terrier is the INR 7 crores profit. So that gives us around INR 8 crores negative loss. Now one thing you have to understand, please don't think that the failure in East Bengal will lose generally that INR 40 crores. East Bengal, most of the win -- actually we got into East Bengal in the late in the last year, and we started our spending also last year. So most of the spend came middle of Q4. Overall, East Bengal, as I just mentioned, that yearly loss, this whole year we expect will be only INR 10 crores. So Q1 also onwards, you will see that there will be a substantial reduction as far as the loss in East Bengal is concerned.

But I think Terrier is -- yes, has been doing very well. And I think there are lot of -- in last year actually, the Terrier, we -- head count has gone up substantially, touching almost 20,000. But we are making a lot of investment in Terrier. Understand that Terrier is primarily a very, very mandating company. But we would like to convert into a company in the security services space with the likes of integrated facility management and complex security services along with the e-surveillance and e-security. So there is a lot where we have bought command-and-control center and others, a lot of technologies we are bringing. So that has an impact. Though we've added to the almost INR 7 crores, INR 8 crores profit, but that has an impact in the cost. I think this year, Terrier will give more EBITDA. So I think overall, last year throughout the full year, I think, we had a positive income -- associate income over this '19/'20.

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Unidentified Analyst, [40]

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So you're minus INR 10 crores will remain largely -- 4Q was minus INR 10 crores in East Bengal club, and you are seeing FY '20 to be minus INR 10 crores. And the other 2 -- the minus INR 5 crores loss, how -- what will happen to that? In the quarter, your loss is a minus INR 5 crores?

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Manoj T. Jain, Quess Corp Limited - CFO [41]

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Yes. Yes. The second loss will be -- that is -- it will come down also. Because they are also in a [possible] project that we have started and working. I think that 2, you can expect overall remain between INR 15 crores, INR 16 crores loss. But that loss will be offset from the overall Terrier income.

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Unidentified Analyst, [42]

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So Terrier from INR 7 crores in 4Q, whether we should see sequential improvement from INR 7 crores, over next 4 quarters?

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Manoj T. Jain, Quess Corp Limited - CFO [43]

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You will definitely see sequential...

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Unidentified Analyst, [44]

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So for INR 35 crores, INR 40 crores kind of -- your share, that is possible from INR 7 crores quarterly for FY '20 full year?

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Manoj T. Jain, Quess Corp Limited - CFO [45]

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Let's talk off-line. Let's talk off-line. I can give you a quarter-to-quarter. It's not -- But overall, definitely we expect much more positive results from the associate company on overall. It should contribute positively to our overall EBITDA.

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Unidentified Analyst, [46]

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Because this is a big drag to your overall numbers.

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Manoj T. Jain, Quess Corp Limited - CFO [47]

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No. No. So no, this is just a 1 quarter because of East Bengal, but that will not be there, okay. So we will see a positive movement there. But if you want a more detailed analysis, just get in touch with us. We'll provide you with the information.

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Operator [48]

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(Operator Instructions) The next question is from the line of the Snigdha Sharma from Motilal Oswal Asset Management Company.

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Snigdha Sharma, [49]

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Congratulations for a good set of numbers. Just -- my questions are related to the people for the services business. Just one, we still have a very strong growth of 25% on the top line, and I believe this is purely organic in nature. Can you talk a little bit about what sectors and segments are driving this growth? That's one.

And then on the core 2 associates ratio as well. We've seen a very smart improvement going to [1:330]. How much higher can this number go? And has some of the margin that we benefited as a result of this bond because our collect and pay shares is going up. And where does that number go from the current 65%?

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Manoj T. Jain, Quess Corp Limited - CFO [50]

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Snigdha, this is a -- a lot of, in the last year, actually, in the initial years, we were little weak in the BFSI segment. So here, I think, 18 months, 24 months back we took a call that we have to get into DFI segment. That's a large segment, and we started pushing and making a lot of inroads. So last year a lot of relevant -- our growth came in the BFSI segment. Other than, as you know, we're very strong in the telecom, FMCG, retail sectors, so those sectors also contributed substantially. But BFSI is a focused sector, and we have been growing. In April this year also I think, we'll see strong growth in that sector.

And also new sectors, like [MTF] and in manufacturing sectors, particularly, we have been -- post-GST, we think, that sector will open up, and it is opening up, particularly in the manufacturing sector. And I think the next set of growth on numbers will be coming in the manufacturing apart from our normal where we are very strong.

Second question was that at collect and pay. I think 65% in collect and pay, our ratio is to 50/50, but we have been working on that. And today, March end, it is at 65%, but we feel that it is growing. Our initial target at least to end of this year is between -- reaching between 75% to 80%. Having said that, I just want to highlight 1 point for your information and for the larger audience. There is an apprehension in some of your analyst mind that collect and pay is an anti-margin. If you invest in collect and pay you have to dilute the margin. I think that is not the way we are addressing or we are looking into that. We think that with the collect and pay also we can keep our margin, and we can increase the end margin by more efficient operation, by more -- bringing more technology into our services and reducing our cost of services and bring more managed services that are not only just meant for payrolling but bring more managed services like our [lineage] product and many other services what we are providing. So that, at the end term, we'll keep the margin at the current level and maybe at a higher level even if we collect and pay, which will help us our working capital and our cash flow generation.

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Snigdha Sharma, [51]

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Okay, sir. And for the associate ratio, do you have a target in mind?

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Manoj T. Jain, Quess Corp Limited - CFO [52]

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See -- this is -- I will not put a number because we have -- when we started 5 years back, I think, we are 1:180, today is we are 1:330. I do not know where is the final point. Our effort will be to keep our services, at the same time bring more technology and more efficiencies in the system, and see where we can go, because that operating leverage is a one of a tool that we work for increasing margin. So I think if everything goes well, we can touch -- maybe definitely, we'll touch, I think, 1:400 by this year. But there is a possibility we can reach that, and there's a possibility where we want to (inaudible) also we touch some time. But we will be working on that. That is -- the goal is only go up. But where? I don't know. Let's see. I hope that we'll be doing good on that front.

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Operator [53]

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The next question is from the line of Kaustubh Pawaskar from Sharekhan.

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Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [54]

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Sir, my question is again on the margin front. We are seeing improvement in the mix because some of the acquisitions which have better operating margins, they have consolidated and they have -- doing extremely well for you. And going ahead, you're also expecting the industrial asset management margins to improve, even Monster's losses are expected to come out and second half is going to be good. So considering all this, should we not expect a little better margins in FY 2020, at least, we should on a conservative front 40 to 50 bps improvement in the operating margins on the consolidated level?

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Subrata Kumar Nag, Quess Corp Limited [55]

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That's a good question. I think the core of this answer lies in the position of the business mix as our starting business continues to grow. It's a very large-size business for that matter. But lesser margin than the other businesses. So if its rate of growth continues at the rate which it's growing, which is good for us to have because it's a good business run by a good management team. It's #1 in India and expanding in professional staffing to other geography as well. If the practice work means that we should start, then I think it will overshadow the higher-margin business but grow at a slightly lesser rate. That's really the effects of the problem. But having said that, our newer investments that we're making is also in margin-accretive businesses. Business like Allsec is in about a 20% margin. The mix that we invested in last year is approaching about 9% -- 8.5%, 9%. And the targets that we recently had have all been of that type. So we think there's an upside possibility. But we'd rather be a little conservative on that right now.

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Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [56]

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Got your point, sir. The second question is on the cash flows. So what are your operating cash flows at the end of FY 2019?

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Manoj T. Jain, Quess Corp Limited - CFO [57]

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INR 202 crores.

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Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [58]

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INR 202 crores. And considering that we are expecting cash flows to improve going ahead, and there are no major acquisition plans, so can we expect debt to reduce in FY 2020, at least, by about INR 150 crores to INR 200 crores?

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Manoj T. Jain, Quess Corp Limited - CFO [59]

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See, last year, we already -- you see, we have reduced our debt by INR 200 crores, okay. And that our, of course, that will be our target. But this year, some money will go for also in acquisition. So mostly that acquisition will be funded from the internal. So after the Allsec acquisition, our next target, we're definitely going to reduce the debt over the next period, couple of months. But we have to see that, yes, how much we can reduce the debt.

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Subrata Kumar Nag, Quess Corp Limited [60]

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But you are right, there is -- after the Allsec business, we will reduce debt, okay?

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Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [61]

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And so when can we expect Allsec to consolidate?

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Manoj T. Jain, Quess Corp Limited - CFO [62]

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Allsec, if everything goes well as per the plan, next 15 days, we are expecting to close first 2 -- other than the open offer, first 2 transactions from the current line and from the promoters. We'll be acquiring around 61%. And in the Q1, I think, we'll do the first consolidation for a period of maybe a month or little less than a month. And then post that, the consolidation will go on.

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Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [63]

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From quarter 2, we should expect the entire -- for the entire quarter...

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Manoj T. Jain, Quess Corp Limited - CFO [64]

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Yes. Yes. Sure. Yes. You're correct. That's the profit target. Yes.

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Operator [65]

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The next question is from the line of Abhijit Akella from IIFL.

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Abhijit R. Akella, IIFL Research - VP [66]

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At the outset, I just wanted to compliment you on your new-look investor presentation with all the new data. It's extremely helpful. So thank you for that. The question was first on the performance of the facility management and the technology segment. FM: we've seen a little bit of slowdown in growth this quarter to about 13%, but the margins have improved substantially. So if you could just comment on what's happening there? And similarly, margins have improved across P&S and technology as well this quarter. So if you could just shed some color on that?

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Manoj T. Jain, Quess Corp Limited - CFO [67]

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See, facility management, you know that most of the contract actually comes in the first 2 quarters, okay. So Q4 you don't get any major contracts as such because it's last end of the year, so people normally don't change their service provider. So -- but still it's a 13% quarter to a year growth. But overall, I think we can just advise that you're asking a very substantial traction in this, particularly particular quarter. And another thing in the facility management, our full concentration only in that direct business. As you know, 4, 5 years, we have an indirect business of 30%-plus. We brought it down to almost less than 10% to date, okay. And we are competing in the all the large contracts in India today. So I think the facility management in this year will be also a very robust year as per the growth is concerned.

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Abhijit R. Akella, IIFL Research - VP [68]

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And in terms of margins, can it be sustained at the 7%?

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Manoj T. Jain, Quess Corp Limited - CFO [69]

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Yes. Yes. Margin, we are certainly -- I think we can work around 7% of margin. I think we can, 7-plus margin. We can sustain the margin. But our -- last year's margin is little, I think, with the Greenpiece. That is the new addition. And we hope with the Greenpiece as a part of our overall offering, there is a possibility, but I am not telling that. But we'll be trying very good. Definitely we'll try to increase some margin there.

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Abhijit R. Akella, IIFL Research - VP [70]

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Okay. Great. Second, I also just wanted to clarify. You mentioned about moving towards your platform-based structure. So does that mean that the segment reporting format is going to undergo a change during the year?

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Manoj T. Jain, Quess Corp Limited - CFO [71]

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Yes. From the next quarter, the Q1 result, you will see that results in the 3 segments, that Workforce Management and Asset Management, and BCM and technology.

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Abhijit R. Akella, IIFL Research - VP [72]

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Understood. And one last clarification was regarding the footnote #10 in your financials about the Supreme Court decision on the PF liabilities. So how -- if you could just elaborate a little bit on that? And how we should think about any possible risks that might arise because of this? I presume it's for the entire industry.

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Subrata Kumar Nag, Quess Corp Limited [73]

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So one of the points to keep in mind while we're addressing this issue is that this an industry-wise issue not restricted to Quess alone but to industry in general, one. Second is that at Quess, all employee cost are pass-through. So let's say there's a bonus to be paid, an increased allowance to be paid or a change in the retirement benefits or benefit structure of an employee which [could be an associate] of the company, that cost is passed now to client as part of a contract agreement that we have with them. So while this is a note of information, it is not something that is applicable to Quess as a (inaudible).

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Operator [74]

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The next question is from the line of Sandeep Baid from Quest Investment.

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Sandeep Baid, [75]

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Just wanted a bit more color on the technology formation piece. I guess the 3 parts of it: Magna, Comtel and the U.S. piece -- U.S. and Canada piece, if you can talk about how each of them have done? And the growth prospects going forward for that?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [76]

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So I'll give the result easily. And then Subrata can come in. On -- in constant reduction in Singapore, the economy has still been growing between maybe 2% and 3%, so then it's been a rather subdued session of economic growth. And hiring has been a problem there because of the issue of employment process with the government. We're restricted in granting them. We see now a greater throughput of process. The hiring per month has also increased. In fact, for the last month, for first time, I think it increased 100 per month after about a few months. So we're seeing a progression in the numbers. Comtel numbers will increase in the next few months, for sure.

In Magna, which is the Indian IT-professional staffing business. While the sentiment of hiring in the active segments have improved, a large part of the business of Magna actually comes from capitals and from -- and through companies, various users of IT services and IT-services industry themselves. So while we're seeing green shoots, we'll wait for another quarter to give you more affirmative comments on the rate of change in this industry. We are also undertaking some changes within the business in terms of structure of people, leadership to give us more momentum. And this, we hope, will start reflecting in the results that Magna has.

At MFX, it has a combined business with Mindwire right now, so they would do -- give (inaudible) of both a combination of insurance services, IT asset management services and staffing services. We think that the markets will improve there. We have a combined sales team in the U.S. And across U.S. and Canada, this should be a better year for us.

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Sandeep Baid, [77]

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So Ajit, what kind of growth do you think is possible for this segment going forward? And what kind of margins if you can give some more color going forward?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [78]

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Yes. Before getting into it, I just tell you from the FY '18, Magna and Comtel will be part of the Workforce Management, okay? So technology segments from now onwards is basically the 2 major parts: one is our insurance and services business that is the MFX; and our BPM business that is the Conneqt, okay? And I think -- and we -- our technology business, our focus is actually to build a large BPM business. Allsec, the acquisition is actually to make that happen. And with Allsec and Conneqt, I think this year will be a great year for the technology business. As you see the last year itself, we have made a substantial progress either in the revenue as well as in the margin and EBITDA in the Conneqt business. And I think with Allsec, the international exposure, CLM and HRO business, I think, we can expect definitely our margin which is in the double digit which is almost -- Conneqt itself is at 8%, 9%. But with Allsec, we can expect in technology a double-digit margin. And MFX, actually, last year, in February, we lost one of our clients because of a merger and acquisition happened in the insurance segment in the [MFX]. But that took us some time to recoup our revenue and subsequent EBITDA. So this year, we expect in both overall technology will be a much better year than last previous year.

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Sandeep Baid, [79]

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Second, the Comtel and Magna piece. I guess that will combine with the People Services business?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [80]

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That is Workforce Management.

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Sandeep Baid, [81]

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Okay. But if you can maybe talk a bit about what kind of margin currently are you seeing in that business going forward? I know from next quarter onwards, you may not be able to differentiate. But if you can just talk about it.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [82]

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Well, I've been told, actually, Comtel in your -- after we took over the first year, there was a little bit of restriction on the EPs in the Singapore, so that has an impact in our Comtel business. But that restriction and it goes to March in the last couple of months, we've seen there is a lot of traction happening in the Singapore. And it gives us almost 7%, 8% margin in the -- excess margin in the Comtel. I think that margin will remain in that. It will not increase substantially, but we'll have a better year there. Magna, we are currently around 9%-plus margin, and I think we will be around 9%, 10% margin. So overall, between Comtel and Magna, our margin will be around 9%, between 9% to 10%.

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Operator [83]

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The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [84]

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Sir, just one question. In terms of -- if I look at your overall debt, it has reduced. But your interest cost in fourth quarter has jumped significantly. So can you guide how do you see FY '20 in terms of overall interest cost?

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Manoj T. Jain, Quess Corp Limited - CFO [85]

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So the overall interest cost -- the debt levels have gone down, but most of the interest cost that [doubled] here is pertaining to intercorporate loans. That's what -- is the interest cost.

And secondly, what's also happened is -- compared to last year to this year, the utilization of debt lines has been more. I mean in terms that we had some of the IPP money and some of them in the previous years. So the debt lines were not fully, kind of, utilized, which means that the interest cost was only for part of the year. In the current year, the lines were more fully utilized. That's the kind of reason we have. And also I think, during the year is that the P&L has also gone up.

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Unidentified Company Representative, [86]

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Yes. So interest rates also went up. It has gone up about 1.5%.

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Manoj T. Jain, Quess Corp Limited - CFO [87]

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1.5%. So that has impact. But we are trying to reduce our working capital. And you see the DSO level, which came down from 64% to 39%, which is helping in cash generation. And I think that will also help us to reduce our interest cost this year.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [88]

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So from quarterly now INR 32 crores run rate, how do you see this number? Because cash will be used for Allsec. Of course, Allsec numbers are (inaudible) to that extent. It might be not much impact on EPS from Allsec perspective. But your interest cost from INR 32 crores, would it be a quarterly base? Is that the new base that you are trying to interpret?

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Subrata Kumar Nag, Quess Corp Limited [89]

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That was interest cost.

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Manoj T. Jain, Quess Corp Limited - CFO [90]

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Yes. It isn't actually -- it will come down to, I think, whatever...

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Subrata Kumar Nag, Quess Corp Limited [91]

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Interest cost is a function of 2 things: One is the quantum of debt you applied. So it's the interest rate at which you apply. So if interest rates go up, we have no control of that. But what is certainly clear is working at reducing the debt utilization. So I think if interest rates remain constant, the amount of interest cost that we will have should only come down because we will utilize this.

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Manoj T. Jain, Quess Corp Limited - CFO [92]

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See, primarily understand one thing. Out debt level last year almost came down [200], and we do not have any plan to increase our debt level. Actually, we're planning to reduce that. So that will have an impact to in the interest cost. It will get reduced. That is our assumption.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [93]

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Sir, you are absolutely right. Your operating cash flow conversion has improved, which is definitely a really good thing. But the only thing which is a little bit -- we got confused, which you explained that there might be more limits to utilization. And therefore, at times, it is not possible to have direct correlation of interest on your debt. Because the debt is reduced. But the interest rate has gone up by 52%. So even If I look at Q-o-Q and Y-o-Y, 4Q is also 32%. So If I -- if you say 32% is a new base or even 30% is a new base, that is a big number. Because then I think your overall interest cost will look significantly higher in FY '20.

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Subrata Kumar Nag, Quess Corp Limited [94]

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Yes. Fine. We noted that, and we'll see that. But I think overall, you can expect that annualized quarter interest cost, will not go up actually. And maybe it will come down to a year-on-year basis.

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Operator [95]

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We'll take the last question which is from the line of Atul Mehra from Motilal Oswal Asset Management Company.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [96]

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Sir, just on Allsec. So in terms of -- could you talk a little bit about the specs of the business going forward as you see it? Given one of the things that we've seen is some level of volatility in earnings and numbers from them in the past, even the number is very big. And secondly, they've also had one [entitlement] From the last quarter. If you could explain a little bit on what's to be with the entitlement in the liquidity? And nothing on that side anymore.

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Manoj T. Jain, Quess Corp Limited - CFO [97]

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See, Allsec had a business in the [mortgaging], they had acquired a company couple of years back in the mortgaging space, and that business is not -- no more there. So that is, actually, we -- as per when we discussed, so that is -- as that business is not there, there is no point in carrying that goodwill. So they cleaned up their balance sheet before we took over. So that is already done. We know that. So I don't think that will have any impact in the Allsec going forward, okay?

Now I will -- Allsec, as I was just telling, it is around INR 250 crores -- between INR 260 crores overall revenue with a 20% overall margin. And it has primarily 3 lines of business: one is a CLM international business, which they service from Manila and a little bit from India. One is CLM India business, domestic business, and a large HRO business, which is almost between 35% to 40% margin.

So our emphasis will be to use Allsec for international CLM and the HRO to work on the HRO business and see how -- and we are a large HR services company started with. And the payroll was one area where we didn't have any presence. So this gap, I think, will be filled by Allsec there also. So I think in the -- in India, payroll outsourcing is a large area. And Allsec is very rightly placed there to exploit that opportunity. So we think there will be a -- Allsec will definitely have it all. It add into our BPM space to a large extent.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [98]

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Sir, who will run the show? Because the promoter used to be the one over here initially. But in terms of going forward and ongoing business, who will run the Allsec as an entity? How will it be consolidated from a management perspective?

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Subrata Kumar Nag, Quess Corp Limited [99]

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Yes. One of the projects for this year is combined business of Conneqt and Allsec that we will build. Together, this will be a business of more than [134] EBITDA and primarily, we'll close to about 35,000 people. With a margin level, that goes to about 12% or so. So it will be amongst the largest BPO businesses in India. The structure is emerging. We will make an announcement about that shortly.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [100]

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Sir, one final question on Allsec. So do you see growth returning back [ROI] in terms of strongly? Given that you're buying it on a 20% decline here in terms of growth? So how confident you are in terms of dividing growth significantly in the business?

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Subrata Kumar Nag, Quess Corp Limited [101]

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One way to look at this is to try to look at the previous track record of how we have done with investment that was previously done. About 20-odd investments that we made, most of which were assets that needed injections of capital, management, process, structure, et cetera. So we have been turning them around, which has brought us -- encouraged us to do many of these acquisitions. We believe we can do the -- we believe we can repeat that here.

Then next to that is terrific for last year. It grew from about INR 55 crores to about INR 70-odd crores of EBITDA. Substantial growth in spite of the fact that 3 years prior to our investment, it has a main remained fairly constant in terms of earnings. So we think that we have a good platform to build out from here. And Allsec should return to some growth.

Additionally, one of those segments of business with Allsec is, which is the HRO business, is a business that's very well known to us. There was almost about INR 50-odd crores of sales in that. It was with fairly high-margin structure in the payroll space. And we think we can take that out to a large section of the -- in our larger and adjustable portfolio. So all said, we are consciously optimistic about what we can do at Allsec.

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Operator [102]

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I would now like to hand the conference over to Mr. Aditya Bagul for closing comments.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [103]

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Thank you to the management and all the participants for taking the time to attend this call. I'll request Mr. Isaac for any closing comments.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [104]

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Sure. So in closing, I would like to say that the management's attention continues to be on the 3 platforms that we've built in terms of generating cash from our existing operations and ensuring that the consolidated business of our-- in each of our business. The leadership positions that we have in-- the leadership position that we have in each of the business that we have invested continues to grow. In professional staffing, in general staffing, facilities management, full investors business, in security services business, they are all in the top 2 or 3 positions, sometimes even #1 in some of that We would like to see how we can grow the lead.

We'd also want to work the successful integration Allsec Technologies with Conneqt to ensure that this investment pays off. We think we've got 2 good assets in which a combined one will be a force to reckon with in the market. The turnaround at Monster and Industrial Asset Management is important to us. Collections from the Trimax project is on the line. And these are the things that will occupy and redemption and will be the focus of our efforts at Quess.

We want to thank all of you being -- for being investors in our company, for the support we've had from the investors. And we think that this year is going to be -- a year in which some of the efforts that we're paying -- that we're putting into the consolidation of operations, cash generation and returning of the assets will pay off. So we're happy to be with you in this journey. And thank you once again for joining us on this call.

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Operator [105]

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Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.