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Edited Transcript of QUESS.NSE earnings conference call or presentation 25-Jul-19 10:30am GMT

Q1 2020 Quess Corp Ltd Earnings Call

BANGALORE Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Quess Corp Ltd earnings conference call or presentation Thursday, July 25, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ajit Abraham Isaac

Quess Corp Limited - Chairman & MD

* Krish Seshadri

Monster.com India Pvt. Ltd. - CEO for APAC and Middle East

* Subramanian Ramakrishnan

Quess Corp Limited - CFO

* Subrata Kumar Nag

Quess Corp Limited

* Vijay Rajagopal

Quess Corp Limited - Director of M&A and IR

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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

* Ajit Motwani;Bharti AXA Life Insurance;Analyst

* Atul Mehra

Motilal Oswal Securities Limited, Research Division - Former Research Analyst

* Sachin Kasera

Lucky Investment Managers Private Limited - Analyst

* Shaleen Kumar

UBS Investment Bank, Research Division - Associate Director and Analyst

* Sudheer Guntupalli

AMBIT Capital Private Limited, Research Division - Associate of Technology

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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 Limited Q1 FY '20 Earnings Conference Call hosted by IIFL Capital Limited. (Operator Instructions) Please note that this call is being recorded.

I will now hand the conference over to Mr. Abhijit Akella of IIFL Capital Limited. Please go ahead.

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Abhijit R. Akella, IIFL Research - VP [2]

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Thank you, Chris. Ladies and gentlemen, good afternoon, and thank you for joining us on the Q1 FY '20 Earnings Conference Call of Quess Corp. My name is Abhijit Akella, I'm the mid-cap analyst at IIFL, and it's my great pleasure to introduce the senior management team of Quess who are here with us to discuss the earnings.

We have with us Mr. Ajit Isaac, Chairman; Mr. Subrata Nag, CEO; and Mr. S. Ramakrishnan, CFO; along with other members of the management team. We will begin the call with opening remarks by Mr. Vijay Rajagopal, Director, M&A and Investor Relations.

I'd now like to hand the call over to Vijay to take it forward. Thank you, and over to you, Vijay.

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Vijay Rajagopal, Quess Corp Limited - Director of M&A and IR [3]

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Thank you, Abhijit. Good afternoon, everyone, and thank you for joining the earnings call today. Please note that the results in the press release have already 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 risk 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 our Chairman and Managing Director, Mr. Ajit Isaac. Over to you, Mr. Ajit.

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

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Thank you, Vijay, and good afternoon, and a warm welcome to all of you. Thank you for joining us on today's call and I'm sure that many of you would have gone through our latest quarterly earnings presentation and financials. From a contextual standpoint, our country is poised to grow significantly from where it is. While the economic survey for 2018-'19 had predictive gross domestic product growth to be around 7% for '19-'20, elements like the consumption store is slowing down and a liquidity squeeze in the NBFC sector have made the operating environment more challenging.

Despite such macroeconomic headwinds, Quess has continued to deliver healthy growth for the first quarter of '19-'20. Revenues are at INR 2,395 crores, a growth rate of 22%, and EBITDA at INR 147 crores at a growth rate of 44% on a year-on-year basis. The company has adopted Ind AS 116 standards for -- with effect from 1st of April 2019, and accordingly the PAT for this year -- for this quarter is at INR 50 crores, which is higher by INR 4.4 crores than the reported PAT of INR 56 crores due to the impact of Ind AS.

I shall now give you a summary of changes in key operating parameters during the quarter. Our revenues grew 22% on the back of an increase in employee headcount, 85,000, which is an organic growth of 21%. Our quarterly EBITDA grew by 17% year-on-year to INR 120 crores, resulting in an EBITDA margin of 5.02%. Our diluted earnings per share stood at INR 3.9 for the first quarter compared to INR 3.7 for the similar quarter in year '19.

Significantly, our cash flow from operations stood at INR 52 crores for the first quarter as against INR 33 crores for the same quarter last year, an increase of 60% on a year-on-year basis. The OCF/EBITDA conversion improved 45% during the quarter compared to 32% for the same quarter last year.

The company's focus remains on consolidation while driving synergies across Quess platforms and we are not planning any fresh acquisitions in the near future. However, the company would continue to pursue strategic partnerships with leading global players or investors to scale up some of our growth businesses.

I would now like to give you some highlights for the quarter.

Sales wins. The company has added a total of 106 clients for the first quarter, aggregating a total contract value of INR 2,500 crores. This gives us a good base for growth for the rest of the year.

Strong growth in staffing. In our General Staffing business, we registered the highest ever quarterly headcount addition of 32,000 for this quarter as against a full year addition of 35,000 for the whole year.

Also the partnership between Amazon and DigiCare will help scale our business in DigiCare itself. The investment of INR 51 crores by Amazon will drive the growth of DigiCare, enabling it to expand service network from an existing 250 centers to about [150] centers. This will make DigiCare truly a pan Indias player when providing market-leading customer experience to its partners, particularly Amazon.

We've now built on a leading BPM platform through Conneqt’s acquisition of Allsec, which has resulted in creating one of India's largest BPM platforms. Allsec has become a vehicle now for our HRO operations and International Customer Lifecycle Management business.

In Excelus, our training business, we've built up a strong pipeline for training. This year, we have received an additional contract for a value of about INR 31 crores under the PMKVY scheme for about 31,000 students to be trained for the rest of the year.

While moving further, I'd like to take this opportunity to also give some key updates on some of the business initiatives and on some balance sheet items. Number one, Trimax loan recoverability. The project is now 85% complete and field acceptance testing is ongoing. As per escrow agreement we have with the bank, 99% of the amount received from the contracting above this (inaudible) would be due to Quess. An amount of INR 7.6 crores have been recently received into the escrow account. And the company is in discussions with the Resolution Professional to transfer this amount to Quess. A petition has also been filed in NCLT Mumbai asking Resolution Professional to release the dues. Internally, a senior management team has been formed specifically to focus on the project completion and collection of dues.

Number two, loans to subsidiaries and associates. Several of our subsidiaries or associates are in various stages of evolution at business lifecycle. Smaller entities require working capital funding towards their growth and their business and their financial strength is not as much as their parent. Hence, we continue to fund these entities.

Loans to related parties, the INR 396 crores on March 19. Out of this, a total repayment of INR 125 crores has been received, including a INR 103 crores from our subsidiary in Singapore and other group entities. Loan of INR 84 crores they have taken is expected to be received by Q3 of this year. We have appointed one of the big 4 accounting firms to suggest road map of streamlining all intercompany loans. This exercise we expect to complete by H1 of this year.

Number three, update on goodwill. The company has recognized goodwill of about INR 1,176 crores as on March 2019. 80% of all goodwill pertains to entities which are profitable and whose future cash flows are positive.

The company has also taken a more conservative approach by using a higher discount rate for future cash flows. Also the terminal growth rate assumption, which are key, have not being changed. The entire goodwill impairment testing has been done by a reputed external valuer and inspected by our statutory auditors.

An update on Monster. Mr. Krish Seshadri has been appointed as the CEO of Monster is a seasoned executive with about 23 years of experience in the Internet space. During the quarter, Monster's average monthly visits grew by 37%, organic traffic grew by about 78%, new physical resume addition grew by about 26%, acquired a total of 471,000 physical resume since June of 2019 and that's a high figure in recent times. The brand campaign was also successful and we expect this momentum to continue.

With the tight focus on cost optimization, we are estimating to exit Q4 at an operating breakeven level.

Five, an update on Quess East Bengal Football Club. The investment with the club was made with a 3-year horizon, discussions around with stakeholders to monetize this investment this year and the process is now ongoing.

Lastly, an update on the spin-off of TCIL Holding. We have obtained necessary approvals from SEBI and the stock exchanges. The scheme has been filed with NCLT Bangalore. The court has directed us to have the shareholders and creditors meeting on the 20th of August. The entire process is expected to get completed by November of 2019.

Post completion of the spin-off process, Quess would no longer be a foreign-owned and controlled company. One of the positive results of this exercise is that will allow us to increase our stake (inaudible) 49%.

We will now move on to questions to be taken from members on this call. I'm joined by my colleagues Subrata Nag, our CEO; Ramki, our CFO; and we are now ready to start taking your questions. Over to you ladies and gentlemen.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Sudheer Guntupalli. My apologies. It’s from Sachin Kasera of Lucky Investment. Sudheer Guntupalli of Ambit Capital.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [2]

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Firstly, loan and interest receivable from TSIPL was INR 93 crore in March ‘19 that seem to have increased by around INR 24 crore to let's say INR 1.17 crore in June ‘19. So incrementally over this 3 months after Trimax has gone to NCLT what has resulted in this increase?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [3]

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This is Ramki here. When we said that as of March ‘19 whatever numbers were reported was based on the project status at that point in time, which we had mentioned that it was about good about 65%, 70% of the project completed. Like Ajit mentioned in his opening remarks, the project is about 85% completed now. So obviously, we had to spend that additional money to bring the project to that status of completion. And that's what has increased in the additional expenditure, which you're seeing here which has resulted in the increase of INR 20 crores.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [4]

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If I understand it right, so there is an additional loan given to this entity over this 3 month period. Is that understanding correct?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [5]

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Yes.

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Operator [6]

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The next question is from Sachin Kasera of Lucky Investments.

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Sachin Kasera, Lucky Investment Managers Private Limited - Analyst [7]

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If you could just give us some sense on what is the type of synergies we see from Allsec in our BPM business? And secondly, are you looking at consolidating all the entities in the BPM into one single entity? And how we're looking to do the management, are we retaining the existing management or bringing some new management?

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Subrata Kumar Nag, Quess Corp Limited [8]

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This is Subrata here. When we were looking for an acquisition in the BPM segment after we acquired TBSS, we had 2 objective in mind. One is to get into a new practice-led revenue and also get a foothold in the international BPM segment, particularly in the CLM space. Fortunately, we got the both objective met with Allsec acquisition. Allsec has a very strong CLM business having center in Manila and U.S. and also they are the prominent payroll processing company in India doing almost 500,000 to 600,000 records per month.

I think along with that and Conneqt, which is a very dominant domestic CLM player, we have 3 clear line of revenue between these 2 company; one is a very dominant CLM in the domestic segment, a very dominant HRO business in the domestic India and a CLM business in the U.S., Canada. I think we are having a very strong platform now and we would like to build upon our business which is a much higher margin. If you see the Allsec result, it is almost 27%-28% EBITDA margin business, Conneqt works around 8% to 9% business.

I think if in the next 2 to 3 years, we can build as a large business, which is currently around 20% of our overall revenue, idea is to bring this contribution to a larger level which will help us to increase our overall EBITDA margin in going forward.

As far as the new management is concerned, we have a really strong operational management, but still we always look for strengthening our management team and also we'll be doing the same maybe in near future in case of Allsec also.

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Operator [9]

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The next question is from Atul Mehra of MOSL AMC.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [10]

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Sir, just one question on -- so how has been the debt movement for this quarter, so versus 4Q, gross and net debt?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [11]

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Yes. So the gross debt was about INR 1,294 crores and the net debt was about INR 336 crores as compared to about 160 change, which we had in March. Primarily, the increase came because of our increase in debt in Quess Singapore. If you remembered, we had -- last time, one of the intercompany loans from Quess -- for Quess Singapore, for Comtel acquisition, 36%, that got replaced by an external debt that was about INR 102 crores. And the working capital increase which was there due to increase in operations, that had a balance of about INR 60-odd crores. So that's the overall debt position.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [12]

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So INR 339 crores net debt, right, 339?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [13]

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336.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [14]

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336 and this is against 116?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [15]

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Yes.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [16]

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And sir, just one clarification here. So this net debt figure is now...

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [17]

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336 against 176 last.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [18]

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Last quarter, right, 176? 176 in 4Q, right?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [19]

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Yes, yes. But you also need to say that what has also happened is some of these amounts have come back during July. So basically, we are talking about INR 102 crores, a portion of it which has come back from Singapore because that intercompany loan got replaced with this external loan.

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Operator [20]

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The next question is from [Abhishek Jain] of Equirus Securities.

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Unidentified Analyst, [21]

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The first question is regarding the growth in the staffing business. Have we kind of replaced any incumbent vendor or win, got market share? And if yes, then is it at the expense of pricing?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [22]

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One of the -- out of the 32,000 new addition we have in the staffing business, one of the contract, I think around 28,000, this is the company actually started the outsourcing or staffing for the first time. And so this is I think no replacement as such. There is a new -- you can say the expansion of the market and we are lucky enough to grab that market in this quarter. So I think primarily we are gaining more market share. And also we are seeing particularly after GST and demonetization the more and more companies in the Tier 3, Tier 4 cities are coming into the organized staffing space.

So overall market actually expanding I think in India. And being the largest player in this segment, definitely, we have an advantage to grab as much market share as possible, and we are increasing our market share. And definitely not at the cost of margin. We are very much conscious of our margin. And I think we have a healthy staffing margin compared to many of our competitors, and we would like to keep that way.

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Operator [23]

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The next question is from Atul Mehra, MOSL AMC.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [24]

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Sir, just I couldn't complete my question earlier. So this net debt now at INR 336 crores, does it -- it’s all done with in terms of Allsec as well? Or Allsec concluded in July [late], in first week of July?

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

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Allsec is concluded -- the funding of Allsec already done before July. And actually, we funded the entire 26% in open offer. That is INR 127 crores. And out of that only we got 12%, 12.04%, and so around INR 57 crores. Around INR 60 crores plus will be coming back on 10th August. Because in escrow, after the deal is done, 30 days mandatory you have to keep the money. So the money will be coming back in 10th August, and that will be also used for reduction of the debt. And also we are expecting some of our IT refunds also will flow in. So I think over the next 2, 3 quarters, you will see and all that accumulation of this year cash flow, our debt level will be substantially coming down.

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Operator [26]

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Next question is from Shaleen Kumar of UBS.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [27]

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I have bunch of questions over here. So with the 28,000 employee coming from one vendor, I presume this is substantial that will be a substantial vendor. So I just want to understand like how does this kind of -- is it like one-on-one kind of an agreement or there is a tender process happen? And how much time do you -- have you placed all of them, all the 28,000, I'm assuming it's more of a shift of a payroll they’re already having, those people or am I wrong here? Just want to understand how…

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [28]

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They have -- they had a subsidiary and I think these guys were housed and this actually is the large BSSA client and they also do an aggregation of -- it's a 28,001 I am saying, but there is a 5, 6 other companies also under that. The total 6, 7 companies but came on a one contract, at a one go. Normally in a private sector in a commercial contract, there is no RAC, basically you can say they call and because this is a large contract so they’ll call maybe 3, 4 players who are the leading players in India and then we put forward our proposal and how we want to handle that and what is -- because you have to do this entire exercise has been done in 15 days on-boarding, you cannot -- so based on your compliance based on how you want to manage that, we got the contract. Actually there 2 guys got, we got around 28,000 and another guy, another leading player got 5,000 or 6,000 so total 35,000, 34-35 rough figured got transferred, we got almost 90, 85% to 90% and one of our competitors got around 6,000, 7,000 people.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [29]

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So basically the old -- one of the 28,000 are there and then the same revenue will be appearing for the next 3 quarters as well?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [30]

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Yes. That is the good thing actually because it started in April 1, so entire 12 months this benefit will come and that's why we are very bullish about the staffing business, particularly this year.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [31]

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Now coming back to the other segment, what's exactly happening at the Industrial Asset Management? Revenues are coming off and even the -- it's went into a bit of loss also first time. What’s management is trying to do over here?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [32]

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See Industrial Asset Management, as you know, we have 2 as on -- 2 large business there, one is the Hofincons business what we had. And we had got into some trouble when Tuticorin project got closed. So that has some effect into our overall profitability. We had to let go -- rationalize the workflow, we had to pay them some money. So that has a one. And in India, as there is no new capacity in the steel or copper or power sectors upcoming, so you are not getting any new large business. So that is the one of the problem we have there.

And the second one is the Vedang and our telecom business. You know the telecom, entire industry is going through a very, very rough batch and that has a direct impact on the pricing and the margin. So margin is tremendously coming down. So these are the 2 factors actually are working and headwinds we have in the industrial segment. So what we have been trying actually to try to ring-fence ourselves and some of the business which we started like utility and others try to think that business so that we will be concentrating only on the core Hofincons what we have and little bit of telecom business so the overall our loss should not go beyond this INR 1 crore, INR 2 crore maximum.

So hopefully, but we have done some restructuring in the management of the leadership also. We brought [Buru] (inaudible) looking after this also. So we hope that the next quarter and quarter after we will able to cut down the loss and may be able to turn the tide.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [33]

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So basically, if my understanding is correct, was it more of a onetime loss in this or it’s like a recurring because a loss of contract and...

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [34]

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The first one definitely there is a onetime loss because of the Tuticorin -- that impact it have, but overall also if I say going on concerned basis also, I think this business at I will say honestly at the breakeven level. It may not lose much, but the money, but it will not give, contribute also to a large extent into our overall revenue or say EBITDA. But anyway, the impact in the overall business is very miniscule because our 3 large business in the staffing, facility management, which is a part of asset management and particularly BPM segment have been doing extensively well. And I think that will be somehow this industrial will not have a very much negative impact on the overall profitability of Quess.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [35]

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Now coming on the tech segment, when I look at the way we have reported now compared to way we were reporting earlier, the additional primarily I can see that the revenue contribution from Comtel and Magna or the EBITDA contributor from Comtel and Magna is roughly INR 15 crore versus it was INR 24 crore in the last year Q1 and roughly INR 34 crore in last quarter. So that’s a massive decline?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [36]

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No. I think what happened actually, Magna and Comtel didn't have any much drops there. There has been little bit of drop in Magna, but it's not that. Particularly in the last Q4, what you are mentioning, we had some of the -- our selection business also was a part of the technology business, our search or RPO and all those business. And we had some of the large RPO, particularly one or 2 contracts, 1 government contract and 1 of the large industrial house contract we executed that quarter. So there is some one-off revenue and EBITDA was there in the Q4. So that is not there in this quarter. So that has an impact in this quarter.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [37]

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So what kind of EBITDA you can, like if I say INR 15 crore is for this quarter, what kind of an EBITDA can we expect coming out from that verticals? I know we’ll not be reporting in the...

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [38]

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So I know -- see technology as on today, what we have as on today I think in a very strong foot, particularly on account of Conneqt have been doing very well. Conneqt last year, as you know, almost did 860 and INR 71 crore to INR 72 crore. I think they have done couple of large contract. We already transitioned in this quarter almost another large BFSI 800 plus seats. In Allsec, we have adding some of the 100 and 200 new seats. We have got some of the -- 1 of our 2 international customer have been increasing their seats also. So between Allsec, Conneqt, MFS and (inaudible), I think we have a strong year in the technology business. And yes, I think what you have seen this quarter, Allsec also you had only saw at least 3.5 weeks where basically that the one month impact. So that full impact also will come. So it will be a very, very, I think strong year actually. I don't want to give a forward number, but it will be a very much strong quarter and the year also.

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Operator [39]

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The next question is from Aditya Bagul of Axis Capital.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [40]

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Just a couple of questions from my end. Can you describe or can you elaborate on the impact of Ind AS 116 across the 3 segments that we had?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [41]

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Yes. Let me just probably summarize that at the company level and then break it down more at segment level. At a company level, if you look at it, primarily the rental expenses came down by about INR 27.5 crores and the corresponding incremental in terms of depreciation was about INR 24.5 crores and interest was about INR 7 crores, resulting in the impact at the PAT level negative of about INR 4.6 crores that's more at a company level.

Bulk of this Ind AS impact, if you look at it, nearly about INR 6.8 crores or INR 7 crores is for the workforce management. And if you look at it from the tech services, that's where the balanced portion of the Ind AS has gone. And that's because bulk of the contracts we have, majority of the contracts we have is from Conneqt business which is contributing to some portion of the Ind AS and that's why the impact has gone primarily there.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [42]

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The second question is on the East Bengal Football Club, we've talked about ways in which we are trying to monetize this asset. Just wanted to understand 2 things. What is it that we are likely to -- I mean what are the future plan of action there? And if you can just help us understand some time lines on that?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [43]

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Yes. East Bengal Club when we invested, we have around a 3-year investment horizon there, so this is a second year. We already started talking to our other relevant stakeholders here that how do I monetize this asset. We have been also talking few possible investors also. So it will take some time. I think maybe another 2 quarters, you can expect 2 to 3 quarters, but at the end of this season, we are confident that which is say June, May to -- June to May next May by end of this, definitely by end of this season we are sure that we will not be there most probably in that club from the next season.

So by next 2 to 3 quarters, I think we’ll be out of this arrangement. But what this year we have been trying to do actually to increase our sponsorship income, initially last year as a first year we didn't have much time. We already signed 3 sponsorship this year. So our idea for the current year is to 2-pronged, one is to content our loss year and make it as minimum as possible. And at the same time look for an exit from this investment.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [44]

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Sure, sir. So this is -- the time line on this is likely to be by the end of this year if not beyond?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [45]

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Yes. That is the ultimate, but we’ll try to do it as early as possible. And max, I think you can see that that is ultimate latest time line kind of thing.

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Aditya Bagul, Axis Capital Limited, Research Division - Assistant VP of Midcaps [46]

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Sure, sir. Just one last question. We've had a healthy addition in staff count in the general staffing business. Just wanted to understand if there was -- I mean going forward, would we have any training or any other upfront cost that we would have to bear which could possibly impact the margins in Q2?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [47]

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No, I don't think so. I think there is no such training as such. And even if we do our training in the staffing, primarily, we do with the instruction of the customers and we charge also for that kind of training. So I don't see any cost coming in the Q2 or after that quarter, after next quarters also.

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Operator [48]

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The next question is from [Abhishek Jain] of Equirus Securities.

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Unidentified Analyst, [49]

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So 2 questions here. The first one is regarding the financial services client that we are talking of in the general staffing business, which gave you that substantial number. Just to understand, is it coming because of our acquisition of Allsec? Is there any relation between there?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [50]

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No, no, no, this is our sales effort and came just on the basis of our sales initiatives. Nothing to do with the Allsec about on this contract.

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Subrata Kumar Nag, Quess Corp Limited [51]

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Primarily, to win a contract of this size and scale and complexity, an organization needs to have a certain set of strength. One of them is geography. The second one is account management and how you manage the relationship. The third one is technology. The fourth one is on-boarding and scale to do it at this level. Very few organizations have that to do that in India today and that's really how this project came to us.

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Unidentified Analyst, [52]

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That’s helpful. And second, if you can just give some color in terms of the growth rates because we have reclassified the way we look at the business. So historically, you used to give commentary about each of your segments and the growth rate that you would kind of achieve. So if you can again share some thoughts on the 3 segments, that could be helpful.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [53]

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The segment, the workforce management, you have already seen there has been substantial growth in this segment. And you have to understand that this segment normally, from the EBITDA percentage basis point, it's little soft because Excelus, which is our training business, normally, we get most of that mandate in this quarter and which at normally getting executed in the Q2, Q3 and Q4. So you will be seeing definitely an uptick in the margin in the workforce management going forward. And I think our work -- staffing business every year they added more numbers than the previous year. And I think that trend will be continuing and we have good traction in the Q2 also.

On the -- I'm coming to the second question, with operating asset management, facility management has been -- was a very good year last year and they are continuing the good run this year also. We have owned couple of very large contract this year and 1 or 2 contracts which are getting into operation in September. One contract where -- which will be our largest contract for the time being, almost INR 30 crore contract in the FMS space. So FMS and security both are doing well. I think we'll be growing almost normally 20% plus margin.

And though this is overall margin maybe a little less because I don't think that the industrial segment will be doing that great. Our idea is to contain there and keep it at breakeven level.

And I'm very bullish about the technology segment. Technology Conneqt has -- once we took over, it has INR 57 crore turnover EBITDA. Last year, INR 71 crore. This year, we are expecting that same kind of growth. And Allsec, you have seen the first quarter they have done INR 18 crores. I think the run rate will be continuing. So overall as we always say that organically you can expect around 20% growth from ourselves as far as EBITDA is concerned and we are sticking to that. I think we will -- we delivered much more previously but -- though the overall -- the base is much higher, larger than previous years. But I think keeping these 3 large segment in mind, we will be able to achieve that kind of target.

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Operator [54]

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The next question is from [Ptesh Chirah] of Lucky Investments.

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Unidentified Analyst, [55]

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Sir, in your previous question you mentioned FMS growth will be 20%, right?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [56]

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See our overall growth is always more than 20% and FMS has been contributing handsomely. So yes, I think if we have to grow 20% plus, FMS has to grow in that at least in that same direction.

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Unidentified Analyst, [57]

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One question is on ROC. So if you see the capital which is deployed in FMS at industrial is a fairly large portion of capital invested and the ROC is fairly low, so what are your comments or directionally where do you see the ROC of these 2 business improving, not improving, if you could give some thoughts there?

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Subrata Kumar Nag, Quess Corp Limited [58]

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I think the first point here is that as an organization our focus is clearly on getting back to some of our pre-IPO ROC levels. So we have a number of initiatives that we are driving. Some of it I think we will start seeing results and start being able to tell you what they are as they come along, but our objective is to get back to about 20% number at ROC level.

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Unidentified Analyst, [59]

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So that would mean a substantial improvement in ROC of this facility management industrial because half of your capital is employed there which has a fairly low ROC. So just on the thought process side, will it be a function of margins, will it be a function of a slightly tighter capital in these 2 businesses or it is something else which would drive up the whole ROC so you might even review the capital invested in these 2 businesses. So if you could give slightly more granular thoughts on how the ROC will improve?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [60]

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See if you take the case of facility management business, particularly I would say 50% of facility management business, if I go further down, ROC will be very high because that involve what we organically grew actually. What happened actually ROC came down, what you are referring to, because after we did the Manipal acquisition because that was large acquisition and substantial amount has been invested.

So currently our objective is 2-pronged. Number one, as I said increase our overall EBITDA and at the same time increasing the margin. Getting into and we are diversifying in a mode in the healthcare and hospitals. Today we manage almost -- I was checking yesterday, 45 units, healthcare units today we manage in pan-India, almost 15,000 beds and there is a margin almost 12% plus. So our idea is to getting more and more in that kind of business so that overall margin can grow up in that. And second thing what we have been trying and internally bringing more efficiency in our invoicing and collection so that my working capital cycle, what is currently, how I can contain that and how can I bring it to say today we are around I think 55 days, 56 days, can I bring it to around 45 days.

So these are the couple of things, the initiatives we have been working on. It may take a couple of quarters, but we are confident that you have to give on maybe some time that ROC will come back to a level where it should be.

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Unidentified Analyst, [61]

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And same comments on industrial management? This you gave for facility.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [62]

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Yes. See industrial, as I was telling, going through a little bit of a rough patch. First idea is not on the -- honestly if you ask me I think ROC will be our second, little letter objective. Current objective to not to bleed any cash there and make it a breakeven and profitability because if they lose any cash that is actually taking my other business profit. So that is the primary objective for the next one and 2 quarters. If we are able to turn it around that and do reach there, I think then we’ll take out to how to improve the ROC from there. But for the time being I think immediate objective is to make it a profitable venture.

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Unidentified Analyst, [63]

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And on the cash flow side, you mentioned that the cash conversion for the quarter was about 42% and on the other hand, we have this net debt increase. So I just wanted to know the utilization of cash flow and the consequent increase of debt if you could give some idea where was the cash flow utilized?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [64]

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So let me just explain this. Our cash conversions were not 42, I think they’re more about 44% for the quarter. And again some of the cash conversions for the quarter had been through much better receivables management like what Subrata said. Our DSO days have dropped again this quarter. That’s again...

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Unidentified Analyst, [65]

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That I got, sir. I wanted to know where is the cash utilized for the net debt to rise.

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [66]

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Yes. So the cash -- basically let me tell you, there are 2 places where the net debt has rise, I think I covered it in the first question. In terms of our working capital requirements, we've got about close to INR 60 crores or INR 65 crores where we had to utilize on our working capital requirements because we've got all these bigger contracts now. So there is initial working capital [as part of it]. And additionally, I also said on the debt side, the debt in terms of Quess Singapore where we had initially the amount which was there that portion of it. And other than that there are some expenses which we also incurred internally which is towards the Allsec.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [67]

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The acquisition of Allsec also funded through the internal accruals. So some of the cash were gone also acquisition of the Allsec.

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Unidentified Analyst, [68]

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And lastly on the general staffing side what is the growth expectation now since you’ve added 32,000 in the quarter one through a bulk contract. So I just wanted to understand what is the expectation on growth from the general staffing?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [69]

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See, as you know, our -- 60% of our business comes from the general staffing. And previously if you see, we have been growing 40% plus growth. And that growth primarily came, a large, large part growth came from the general staffing. So this quarter also if you see, a large part of growth came from the general staffing. I think instead of without going into any specific forward-looking numbers, I think that trend will be continuing. And as I told that when -- if you want to get 20% on the overall growth general staffing has to contribute a substantial higher number than the 20%.

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Operator [70]

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The next question is from [Kishore Agarwal] of [Pure Capital].

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Unidentified Analyst, [71]

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I just wanted to go back to the Trimax JV. So your receivable to Trimax increased during the quarter, you clarified on that. So just wanted to understand what is the total contract value of the Smart City project? And because you have completed only 85% of the job, do you expect more support to the JV going forward?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [72]

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Yes. So let me clarify, I think -- let me take the second question first, that's easier because like I said, we're about 85%, 90% and I think most of the expenditure is completed. We probably expect another about INR 10 crores to INR 12 crores max if it is on the CapEx portion. And of course later on once the CapEx is over and the FAT is completed then we have the O&M piece, which is for a (inaudible). That's in terms of what's the residual. In terms of the overall contract value, all inclusive including GST and everything is about, little about INR 20 crores,

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Operator [73]

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The next question is then from Abhijit Akella of IIFL.

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Abhijit R. Akella, IIFL Research - VP [74]

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Just a couple of questions from my end, one is on the OCF-to-EBITDA ratio, which has been improving continuously the last few quarters. So what would your target be for this ratio by year-end? And consequently, what do you -- where do you see debt position ending up by the end of the year?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [75]

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So let me tell you in terms of the OCF/EBITDA ratio, I think we've been consistently improving and you will continue to see because there's a lot of focus on our working capital management, on our cost management. So there has been multiple focus and very dedicated teams which have been working towards this. So this trend would continue. And if we go as per plan, we should be getting somewhere closer to the 50% mark by the end of the year. In terms of our debt levels, there is increase in debt in the interim, but you will start seeing some of the debt levels coming down starting Q2 itself and moving forward. Again, we have some very good plans on the debt side also to bring down our debt numbers because our collection is kind of really going very strong. If things work well, we should be probably ending up at debt levels which are equal to our last year debt number, if not better and that with an increased working capital requirement.

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Abhijit R. Akella, IIFL Research - VP [76]

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Second on the sales -- new order wins, you've already announced something large in general staffing and then there is also something upcoming in facility management. And I think your disclosures talk about INR 2,500 crores TCV that you have won. So what time frame is it executable and how do you see the pipeline going forward in terms of new order wins?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [77]

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Yes. In some of the calls that to 2,500 few were 3 years, others -- most of them like one year contract, it depends on what contract tenure we sign so based on that we get that calculation. That is the number one. But we have a very strong sales pipeline, Abhijit, today, whether it is our general staffing, facility management and security and also in our technology, particularly BPM segment, Allsec and Conneqt. So I think this number -- we hope that this number -- we’ll continue this kind of number. It may not be 2,500 every quarter, but a substantial increase in every quarter. And we have formed cross-sell team, which has been actually doing well. They are getting more traction. And now primarily, all the India business other than technology we have brought under one leadership umbrella, and that also helping us facilitating more, selling more cross-sells between the facility management, staffing and Conneqt business. So that also will help us to getting some of the large contract.

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Abhijit R. Akella, IIFL Research - VP [78]

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And lastly, given that we are not planning much by way of M&A activity going forward, can we assume that the 20% EBITDA growth aspiration that we have year-on-year is basically going to be pretty much entirely driven organically itself?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [79]

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100% organic. I don't see any acquisitions we are doing in the near future. So whatever we are discussing today is organic growth.

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Operator [80]

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The next question is from Ajit Motwani of Bharti AXA.

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [81]

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On this migration to Ind AS 116, which has differential EBITDA of about 127. So if I go to slide 19, it has reporting based on old structure. Where exactly are those housed in this people services technology and facility management?

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

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So I think again the Ind AS impact primarily -- and if you look at the workforce management, it was only about INR 7 crores at workforce management level. And the majority of the Ind AS impact is in the tech services and that also primarily being driven by Conneqt business.

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [83]

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So of the [27], you are saying INR 7 crore is only in workforce management?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [84]

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Yes.

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [85]

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Okay. So would it be then fair to assume that the workforce with this people services business is in large part has seen expansion in underlying margin despite improvement in collect and pay?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [86]

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Yes, 100%. We have been always telling that when -- we have a focus to improve the collect and pay from the working capital in a point of view to reduce our working capital cycle, but we never told and we don't encourage our team also that collect and pay at the cost of the margin. We have to go to the collect and pay. Simultaneously, we have to protect our margin and increase our margin. So it is not a mutually exclusive that you have collect and pay and you lose your margin. So we don't -- that is not our philosophy. So we don't work on that front. We would like to have both.

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [87]

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So on slide number 20 when I look at the workforce management, 4Q, you had a INR 95 crore EBITDA, you have done INR 100 crore more sales, you have benefit of INR 7-odd crores on Ind AS and still your EBITDA is INR [90] crores. So in the sense the delta...

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [88]

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Yes, yes, I know. See primarily you have to understand what I told that this business has 2 components, one is the general staffing, one is the skill development. Skill development, Q1 is always a very, very soft quarter. Basically, most of that -- like when the company budget comes and the allocation happens. So most of the April, May and June goes for state-wise or the central-wise to get the mandates of the students what you will be training for the year. So most of the training start pickup started actually mobilization and other in the Q2, but majority of the net, 80% of the training happens in Q3 and Q4.

So there is highly variation of the training business EBITDA between the quarter 1 to say quarter 4 if you take that kind of way. And that is a 20% of margin. And last year, if you see, we did almost INR 22 crores, INR 23 crores I think EBITDA in the Excelus and mostly came that is actually in that last quarter, last 2 quarters. And this year, we are expecting much more revenue EBITDA from that. So that is the primary. Though general staffing did very well, but EBITDA-wise, you are not seeing that jump of escalation because the drop in the Excelus business or skilling business. You will see that impact come on Q3 or Q4 where general staffing will be doing well. At the same time, skilling business will be doing the EBITDA which is normally does in the year.

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [89]

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Because the delta is very large, see the people service business moved from INR 61 crore to INR 74 crore, it's a INR 13 crore impact positive, whereas here we are seeing a negative impact. So does the skilling business incur losses in Q1, Q2?

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [90]

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Not even losses, maybe some losses or breaking even kind of thing is a very -- some sort of way. I can give you the exact details if you want, you can contact Ramki and we can…

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [91]

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I will connect with you offline on this. On the milestones that you are seeing, so you're saying that opposed to that 43% OCF/EBITDA last year, this year you will be targeting about 50% for the full year, right?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [92]

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That's right.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [93]

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Yes, yes.

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Ajit Motwani;Bharti AXA Life Insurance;Analyst, [94]

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So basically last year you generated INR 200 crore cash, this year you would far better then also you're saying that the year-end debt will remain flat in the sense. So that means you will be…

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [95]

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No, no, we didn't say that year-end rent will remain flat. What we have been telling that we -- and also understand that we have just recently done Allsec, so lot of internal accrual has gone there. And as you know, we have 2 other staff to buy out in this year, one is the Golden Star, we have already told and that is Vedang project coming November. So both together will go INR 50 crores, INR 60 crores to buy that out. So that commitment is there. But still after doing that we are very confident that last year we reduced the debt by INR 200 crore and same kind of, I don’t know exact amount, but definitely there will be a substantial reduction because the cash what we’ll be generating, we are very determined that we are not going ahead and doing any acquisition, so most of the cash will go after this 2 paying of the debt.

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Operator [96]

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The next question is from Atul Mehra of MOSL AMC.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [97]

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Sir just one observation on Monster, so we have reported very good metrics in terms of traction on the platform, but it’s not translating into revenue in any form so far. So if we look at on a sequential or on a Y-on-Y basis revenue is largely at that similar run rate of INR 36 crores. So could you just help qualitatively what is happening in this business now given that this was perhaps the first quarter of the revamp platform?

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Krish Seshadri, Monster.com India Pvt. Ltd. - CEO for APAC and Middle East [98]

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So there are 3 levels of activity at Monster, one is of a technology level to ensure that the search engine and algorithm is working at a specific efficiency level. The second one is in terms of sale and in terms of the site activity level, how many visitors and (inaudible) which you’ve seen improve. The third is finally financial. Unless you get the first and the second right, the third will not happen and there is a lag time to it. So what we are actually doing right now is getting the technology and the [ventures] on the site up and ensuring that our financial losses on this are minimal. If we go on the basis of our plan, we expect in Q4 this year to reach a breakeven level in terms of financials on the site. So that is our goal that we are working towards.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [99]

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And sir, have you expanded the sales team already ramped in order to make sure that the revenue from this particular business comes about as per your plan. So has there been a substantial addition to the sales team as well apart from the tech investments?

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Krish Seshadri, Monster.com India Pvt. Ltd. - CEO for APAC and Middle East [100]

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No. Our sales team will not be expanded from where it is right now. Still our product acceptance levels in the market increase and we are happy with the type of differentiation we are able to show with competition. So contingent on these 2 issues, we will go back to market with an additional sales force.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [101]

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And just one question on the industrial asset management business. So when do we see things coming into the business because it’s been slow for some time now and this quarter we have seen obviously profitability come down quite a bit? So when do we see recovery in this business going forward?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [102]

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So I think we are about one quarter away from seeing this business turn around. I think if you view Q2 of this year and then we have start seeing some results, the changes that we’re making in Q3 and then we’d be able to hopefully put a runway for growth after that.

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Atul Mehra, Motilal Oswal Securities Limited, Research Division - Former Research Analyst [103]

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And sir, just one final question that as we are now at the start of the year. So how do you look at say profitability for the end of the year, for this financial year given that there are too many moving parts now? So as you guys see it and you have always guided in terms of numbers in the past. So any numbers that you would like to guide for in terms of EBITDA, PAT, OCF, FCF for the year, for the entire financial year, fiscal ‘20?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [104]

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So given the fact that we don't have guidance as a policy in our company, we want -- we don't want to give specific numbers. But what I can tell you is that we've got goals in our company that we’re working, but we want to work towards OCF-to-EBITDA conversion level of 50%. We want to work towards an EBITDA growth of about 20% from the previous year. We want to work directionally in terms of reduction of debt and reduction of interest costs in our company. We want to work towards the consolidation of our subsidiaries, a project that we've engaged with the big 4 firms with. So I think there is substantial effort level in some of these things that will translate to numbers towards the end of the year.

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Operator [105]

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The next question is from (inaudible).

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Unidentified Analyst, [106]

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I have 2 questions, one is the depreciation and amortization

(technical difficulty)

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Operator [107]

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Apologies, ladies and gentlemen. That line has unfortunately disconnected. The next question is from [Tar Agarwal] of Allbridge Capital.

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Unidentified Analyst, [108]

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I had -- I wanted to understand with respect to Conneqt. I went through the annual report and it says that 2019 revenues were around INR 850 crores and profit before taxation was negative INR 10 crores, whereas somewhere in the earnings call, one of you mentioned that the EBITDA was around INR 70 crores, INR 71 crores. So just wanted to understand what -- why is there such a huge differential between the EBITDA and profit before tax?

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [109]

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We can take it offline.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [110]

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Yes. But I -- I don't think, I think somewhere you are making a mistake. It's definitely not negative in the PBT, but I think we'll check that and if not, I don't think…

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [111]

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Definitely not.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [112]

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Yes. Just check your number and connect Ramki. It is not that.

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [113]

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I mean just if you look at the March quarter alone, Conneqt had about close INR 13 crores of profitability.

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Unidentified Analyst, [114]

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Sir, I’m on page 246 of the annual report. Okay, we can take it offline.

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Subramanian Ramakrishnan, Quess Corp Limited - CFO [115]

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Yes, let’s take it offline and I can clarify this.

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Operator [116]

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Ladies and gentlemen, that is all we have time for regarding questions for today. I would now like to hand the conference back to the management for some closing comments.

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Ajit Abraham Isaac, Quess Corp Limited - Chairman & MD [117]

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So thank you very much for having joined on this call. In closing, I'd like to say that we’re committed to maintaining a similar level of disclosure in our reporting. We are committed to improving the business metrics that we've spoken about. And I think as a management team, our focus is clearly towards -- is clearly towards ensuring that some of the goals that we are mentioning on this call come true. We’d encourage any of you to come back to us with questions that you will have. Our IR team is available to take your questions at any point of time. Thank you again for joining us on this call.

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Abhijit R. Akella, IIFL Research - VP [118]

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