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Edited Transcript of TEAMLEASE.NSE earnings conference call or presentation 8-Nov-19 11:30am GMT

Q2 2020 TeamLease Services Ltd Earnings Call

Ahmedabad Nov 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Teamlease Services Ltd earnings conference call or presentation Friday, November 8, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashok Kumar Reddy Nedurumalli

TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director

* Narayanaswamy Ravi Vishwanath

TeamLease Services Limited - CFO

* Ramani Dathi

TeamLease Services Limited - Finance Controller

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Conference Call Participants

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* Abhijit R. Akella

IIFL Research - VP

* Devang Bhatt

ICICIdirect.com, Research Division - Research Analyst

* Dipan Anil Mehta

Elixir Capital Limited - Chairman of the Board

* Prashant Tiwari

SBICAP Securities Ltd., Research Division - Research Analyst

* Prince Poddar

JM Financial Institutional Securities Limited, Research Division - Analyst

* Pritesh Chheda

Lucky Investment Managers Private Limited - Analyst

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* Sandesh Shetty

* Soumitra Chatterjee

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

* Vimal Gohil

Union Asset Management Company Private Limited - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the TeamLease Services Limited Q2 FY '20 Earnings Conference Call, hosted by IDFC Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Rohit Dokania from IDFC Securities. Thank you, and over to you.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [2]

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Thank you, Stephen. Good evening, everyone, and welcome to the Q2 FY '20 Results Conference Call of TeamLease Services Limited. I would like to thank the management for giving IDFC Securities the opportunity to hold this call. The management team is represented by Mr. Ashok Reddy, MD and Co-Founder; Mr. Ravi Vishwanath, CFO; and Ms. Ramani Dathi, Financial Controller; with other senior management personnel.

We'll start the call with the commentary from the management and then move into the Q&A. Thank you, everyone, and over to you, sirs.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [3]

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Thank you, Rohit. Just as an update on the quarter, while we have been showing a steady growth on the associate grounds by about 4,500 to 5,000, we've also negated all the losses that we have on account of the provident fund notification go live. 100% of the associates are live on that front. We've had a loss in the NETAP numbers though of about 6,500. And I think some element of an industry slowdown specific to manufacturing and auto are having an impact on that front.

I think the HR services businesses have been what we had indicated last time of saying that we will reduce the element of exposure to the government revenue, and focus on the collections has played out. And I think the continued focus towards both those variables on the training business will continue. And I think other HR services also -- businesses have started to show improvement quarter-on-quarter, which we see will reflect into Q3 also.

Just in the general staffing business, while the volume of associates has increased, I think we do have some additional costs that have come into the P&L this quarter. Accrual on account of ESOP, about [INR] 70 lakhs hit on revenues because of the NETAP trainee count reduction, an element of an additional focus and cost increase on the hiring front, where we've been upping the numbers that we can do by about INR 70 lakhs and some other onetime expenses.

But I think largely the platform for growth on the general staffing front stays good. And we believe the open positions will support the growth going forward. The NETAP -- as we have locked those numbers as a function of the industry, we are seeing a slowdown in that reduction. And hopefully in Q3, there will be a turnaround on that front. And the HR services largely are on track in terms of their revenue. The collections, having been a problem, are starting to come in and we've had a reversal on that front. So I think overall a muted quarter. But I think the aspect of continued growth on associates will be playing out.

We do also have some element of PAPM improvement to 739 from 730, but the overall aspect of a reduction in the total head count on account of NETAP has reduced the productivity ratio for the quarter. But I think as we add numbers, we should be able to correct that as we go forward.

So with that, I think -- and also -- the TDPL, the IT staffing, Hyderabad eCentric that we acquired is on track in terms of its numbers and growth. The earlier one on the services clients does seem to have a pressure, but the captive and the product company numbers continue to grow on that side.

So that's from my side, and we're happy to take questions to answer today.

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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 Vimal Gohil from Union Mutual Fund.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [2]

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Yes. Firstly, sir, I wanted to understand the reduction in NETAP employees. How -- why has that led to an increased cost pressure of [INR] 70 lakhs

(inaudible) on that?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [3]

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Yes. So the NETAP trainees are brought to the university. And we have a stipend and a markup that we charge on that. [INR] 400 of the markup comes to team leads, starting as a revenue for the comprehensive administration of the life cycle of the trainees. So that revenue dropped off because of the reduction in the trainee count.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [4]

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Okay. So that has been included in the cost item?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [5]

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The revenue item.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [6]

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Okay. So 70 lakhs is from the revenue -- one-time revenue loss?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [7]

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Correct. Not a onetime. It's a recurring revenue. For the quarter, it was 70.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [8]

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Right. Okay.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [9]

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What Ashok actually alluded to earlier was things that impacted profitability was your NETAP reduction along with other cost items, actually.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [10]

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The NETAP on an EBITDA front, will NETAP be contributing higher margins? Or will -- can we say that the mix -- I mean NETAP has better EBITDA margin and thus even that really contributed to our -- contributed to pressure on margins this quarter?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [11]

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Yes. NETAP does have higher margins. And obviously, there's reduction in numbers on that front.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [12]

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Okay. And sir, just on the HR services. Last quarter, we had made some provision of 6 crores. Has that come back? Because we were expecting that to come back this quarter.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [13]

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So part of that has come back. The overall training business is in about 1.2 crores profit this quarter. And I think some more of the collections are in the pipeline. So actually effective today, we got one bank credit and some more are in the pipeline.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [14]

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So how many have come back?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [15]

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Sorry, come again?

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [16]

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Yes. Out of 6 crores, how much have -- how much has come back?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [17]

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2.5 crores.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [18]

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Okay. Okay. And when do we expect this balance to...

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [19]

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It could be happening in this quarter.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [20]

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Okay. Okay. So we should see significant improvement in the HR services margins in the next quarter? Would that be -- would that understanding be right?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [21]

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Yes.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [22]

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Okay. Sir, my next question is on the balance sheet. We have seen a significant expansion in your receivables this quarter. So if I'm not wrong, about 27% from 264 crores to 335 crores. Can we have an explanation there? And also if you could just give some explanation on the others -- other current assets, which have gone up from 132 crores to 185 crores? What has this -- how has this happened?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [23]

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Yes. So the trade receivables have mainly gone up because of the eCentric receivables, which were added from Q1 onwards. So if you compare with March, in IT staffing business, the DSO is much -- I mean longer compared to the general staffing. Especially for eCentric, we mentioned that there is a much higher DSO, which is about 90 days. So we are working on it to bring it down over time. So that's the main contributor for increase in trade receivables.

And your other question is on other current business. So that's again on account of annual liability because annual liability is high in IT staffing and telecom staffing business. That has slightly gone up in the last 12 months.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [24]

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Ma'am, do you expect these kind of receivables to stay on -- for how long will this working capital -- higher working capital do it? Because essentially your working capital is almost -- if I were to see if your working capital has almost trebled or more in the next -- in the last 2 years, from 18 to 20. So do you see this trend reversing soon or what?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [25]

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Yes. Yes. So as Ashok mentioned, some 4.5 crores will come down in account services. And in eCentric, again, we are working on the DSO to bring down from 90 to 60 days in the next 2 quarters' time. So you will see a reduction in working capital in the next month.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [26]

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But also -- sorry, just as an add-on. The working capital increase overall over the last 2 to 3 years is also the fact that we have gotten into the specialized staffing, which is all a funding model, and effectively has a DSO cost being the salaries between 45 days to 90 days. But if you look at it in the core general staffing business, the funding exposure has been reducing year-on-year and it's now down to about 13.8%.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [27]

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Yes. So for us, that's not getting reflected in the overall picture because given the fact that the working capital for the specialized staffing business -- sorry, the core staffing business is fairly low, and that's the larger part of the business. Shouldn't that really reflect in the lower working capital, which is specialized staffing? It still has smaller business at this point in time.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [28]

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No. In terms of revenue, they are still small. You are right, they are only 4% contributor. But while specialized staffing DSO is 7 days, general staffing DSO is 7 days, specialized staffing is 90 days. So that's a very, very, huge difference in the working capital cycle.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [29]

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And final question, ma'am. So on working capital only, where do you see this working capital to be sustainable at what levels? If you could just give me a number?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [30]

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At consolidated level, it should sustain at about 25 days.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [31]

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25 days, okay.

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Operator [32]

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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 [33]

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Yes. The first question is actually if you could give us a little bit more clarification on this PF matter that's been alluded to in the footnotes to the accounts, the investment in the NBFCs. So any details you could share in terms of which 2 NBFC these amounts have been invested in? And how much do you expect the amount at risk might be? And then the unrealized gains and surplus, how much that might be? And what's the amount at risk essentially?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [34]

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The amount are about 173 crores, which is what the footnotes contain. These are typically with IL&FS and DHFL. These are the 2 NBFCs where the investments have been made with maturities of these instruments ranging from '20, '21 and going all the way up to '26, '27, so over the next 5 to 6 years, given the maturity case of these investments are. The surplus that the trust has is close to about 90 crores of surplus in what the trust has currently in the form of results and unrealized gains, which is why we believe that it's a little too premature at this stage to take any -- to look at any kind of provisioning or even assess what kind of loss at which we provided for because there is an adequate amount of headroom available at this stage. It's like about 90 crores of results and unrealized gains is what we have in the trust currently.

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Abhijit R. Akella, IIFL Research - VP [35]

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Okay. So just to understand the thing, so 173 crores is the amount at risk and 90 crores is the surplus. So...

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [36]

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Correct.

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Abhijit R. Akella, IIFL Research - VP [37]

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So in case, let's say more than 50 -- in case the entire amount is unrecoverable, then there will be a provision required of some 80-odd crores?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [38]

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Over a period of time, as and when those -- these investments mature, that's when the provisions will be required to be made. Yes.

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Abhijit R. Akella, IIFL Research - VP [39]

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Understood. The -- Then second on the employee head count. There's been quite a sharp increase in the core employees in the staffing business it seems this quarter. So what might have driven that?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [40]

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Largely, some element of project-driven hirings that have happened for the project hiring with respect to certain projects that we have. These will be for 2 quarters that we will have these project-based teams on board and some element of a beefing up on the client team at the back end that has also happened. So part of it is temporary, part of it will stay for a while.

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Abhijit R. Akella, IIFL Research - VP [41]

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And so on your productivity metric, which has dipped this quarter both because of the fall in NETAP associates as well as the increase in core employees. Is there sort of a target that we can work with for year-end (inaudible)?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [42]

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So on an average, we've been moving it up by about 50 to 60 numbers yearly. And I think lastly, we should be able to stay on track for that.

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Abhijit R. Akella, IIFL Research - VP [43]

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Sorry, 50 to 60 EFP or employee headcount, is it?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [44]

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No, no, no. 50 to 60 productivity enhancements. About -- we were at about 270. We are targeting between a 300 to a 310 by the end of the year.

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Abhijit R. Akella, IIFL Research - VP [45]

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Okay. Understood. And specialized staffing also, there's been a dip sequentially in head count. If you could help us understand that and also give a breakdown between IT and telco?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [46]

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Yes. So in the IT staffing, like I just mentioned earlier, the product -- company growth has been good. So that's actually grown from 880 to 982, but the service company growth has actually reduced. So from about 2,200 in the previous quarter, it has come down to 2,073. So the reduction has largely happened on that side.

On the telecom front, from a 3,700, it's come down to a 3,500. But that is an anticipated reduction that we were talking about of reducing exposure to certain projects in a sales manner. And to some extent, there is also no new growth happening there given the overall telecom industry slowness.

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Abhijit R. Akella, IIFL Research - VP [47]

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Okay. Got it. One last quick one, and I'll come back in the queue. The unallocated expenses are a bit on the higher side this quarter, and so some clarification there. And the other HR services also is still like a little bit of a slight loss. So…

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [48]

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Yes. On a cumulative basis, I think the learning services has gotten into the positive. The other businesses, like I mentioned, have improved from Q1 to Q2, and we will see a further improvement in Q3. Some of the other cost items that have added in, one is we've got new leadership, which is a cost of about 40 lakhs, 50 lakhs, that has come in to take charge on some M&A pipeline that we have. So we wanted to have the leadership in advance of -- to take ownership for any deal that happened. The CSR provision of 60 lakhs has happened this time. This will be the first year where we have compulsory CSR, and we have started making positions for the same.

Schoolguru, some collections have been delayed. And that's about a 1 crore additional cost that has come in on that front and about 40 lakhs of other expenses.

So I think the new leader one will get distributed in a phased manner. The CSR is additional one. Schoolguru collections will, again, on collection get reversed and so...

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Abhijit R. Akella, IIFL Research - VP [49]

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All these items were in the unallocated line, is it?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [50]

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Yes.

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Operator [51]

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(Operator Instructions) The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [52]

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Sir, I have 2 questions. One on the HR services and the expenses that are leading to this EBIT loss or EBITDA loss, if you could highlight them? And I think at the end of quarter 1, your opinion that we've taken some write-offs and a lot of it should reverse. So that's my first question.

And my second question is on the head count side, this NETAP training reduction, is it a quarter-end phenomenon which came in? Because until quarter 1, we were of the opinion that the overall staffing growth rate would be about 20%. So if you could explain that? And does that 20% now hold true or (inaudible)?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [53]

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So I think our outlook on the staffing side still stays positive, and I think we will continue the element of growth. The apprenticeship program, the NETAP largely has been -- by virtue of the nature has a larger exposure to manufacturing and auto industry. These 2 were large contributors to the volumes on that front. And I think the general slowdown that has impacted these 2 sectors has had an element of adjustment on numbers on that side. I think a large element of what should -- could get reduced has happened. We don't expect similar reductions going forward. But I think we'll have to wait to see how the industries play out, per se.

On the HR services front, I think we had a large provision that had happened in the training business. We had expected a reversal and the bottom line turning around on account of the reversals. Part of those collections has come in. Training P&L has turned positive. We are expecting more collections and reversals to happen in Q3.

Having said that, some of the other businesses in the HR services, the hiring and the compliance businesses were loss-making, continue to be loss-making but have reduced their losses considerably compared to the previous quarter. We believe the trajectory for growth on revenues and their costs being kind of flattish kind of sets them for a better K in Q3.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [54]

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So there will be a reversal of some of these -- what is the quantum of provision in the first half? And what is the nature of these provisions?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [55]

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Delayed collection is the only nature of provision.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [56]

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So we made a total of 6 crores provision in Q1. So out of that, 1.5 crores has already been collected and reversed in Q2. So we are expecting another 3, 4 crores reversal in Q3.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [57]

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Despite that the EBITDA is negative, so that explains why the dip in revenues?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [58]

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Yes.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [59]

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And what explains -- yes. Ma'am, go ahead.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [60]

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Yes, because we are slowly tapering off our exposure in the government training business. So you can see that the revenue has declined by over 30% year-on-year especially in the government training business. So in addition to that, in HR services, we have other businesses (inaudible) compliance, outsourcing and permanent recruitment. So both of them are closer to a breakeven but still kind of contributing to the losses.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [61]

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Which means that revenue growth is imperative for this division to turn profitable?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [62]

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Yes, for HR...

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [63]

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For CPO and for firm business.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [64]

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Yes.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [65]

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So what is the outlook there?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [66]

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I think we have a strong pipeline of revenue on that front. If -- in the firm business itself, they have actually increased revenue substantially in Q2. And there is a clear visibility for stronger Q3 revenues also. Similarly for the CPO business.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [67]

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And lastly, my question is on the cash flow side. What should be the EBITDA conversion into cash flow for you? Because if it is 25 days of debtors then that EBITDA to cash flow conversion actually reduces a lot. Thus we have this tedious element which gets cut. So I just wanted to know how much of EBITDA gets converted into cash flow.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [68]

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So typically, 50% to 60% of EBITDA converts into our operating cash flow. But because of the huge TDS impact, it's kind of not reflecting it. So going forward, since we are getting an early lower deduction certificate, even with the TDS factored in, we should be at a 50% conversion for the first half year. By end of the year, it will improve to 65% to 70% because first half year is when we'll have more TDS business.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [69]

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So I see in the last 5, 6 years of operations, there were a couple of years where this operating cash flow was negative because of TDS certificate. So those episodes are far and few? Or the nature of these episodes can be repetitive?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [70]

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So we normally have to get the lower reporting order every year. And I think the currency expenses -- I mean some delay is short term. But I think when you are shifting, the longest delay has been when you are shifting a registered office from Bombay to Bangalore, FY '19.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [71]

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So I can see that the FY '19, there was a negative cash flow.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [72]

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That is the year we shifted the registered office. So during that period, the lower withholding order was not passed to the transfer and transition to Bangalore right after.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [73]

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And lastly, sir, that footnote of yours with respect to 170 crores of investment, I couldn't understand. So is it [over] cash of the balance sheet, which is invested in DHFL and IL&FS? Or how is it?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [74]

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No. It's -- so we have a provident fund on track, which has about a (inaudible) in the balance sheet in the investment as per the government typically stipulated by length. This is money from there that had to be invested in different securities. And these are 2 corporate exposures that are there from the...

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [75]

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Okay, sir. Is the employee trust -- so instead of having an EPFO, you have your -- for a private employee trust in there, which the PF one has managed?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [76]

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That's right. Yes.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [77]

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Okay. Okay. Understood, sir. Okay. And when you mentioned positive gap of 90 crores, currently it's positive by 90 crores. What does that do?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [78]

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Our value, because of historical additional interest-earning and appreciation on certain investments, we have a 90 crore surplus in this line, again, liabilities towards the provident fund of the employees.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [79]

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Okay. And you actually didn't mention whether you will grow 20% on the head count side or for the FY '20? Or will we miss on that growth number?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [80]

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I mean normally revenue has always been 20-plus percent, and I think we will be sustaining that.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [81]

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Not the head count number?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [82]

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Head count has normally been about 15% to 17%.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [83]

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Okay. You'll sustain that despite missing this in quarter?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [84]

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We should be able to sustain it.

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Operator [85]

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The next question is from the line of Dipan Mehta from Elixir Equities.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [86]

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Yes, sir. Again, on just looking at the guidance, you gave about 20% of our growth rate. Sir, my question is that with the kind of stress to then the economy, which of these sectors where you're looking at, where you feel that your services are required and to an extent, those are the growth opportunities available to you? Because there are those stressing your traditional sectors like, say, the comment on expansion of IT. So are there any new -- kind of new segments that you're looking at expanding?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [87]

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In general staffing business, our exposure to telecom and to IT is relatively low. And similarly towards manufacturing, where we had a higher exposure from the NETAP side to manufacturing and auto. But I think overall if you look at -- while we agree with you on the stress per se, I think we are seeing demand still coming in from the BFSI sector, some element of FMCG and some element of the e-commerce players. And I think besides the element of potentially new hires that they could be looking at, we're also seeing some element of rebadging that is kind of happening.

So the opportunity to grow for us comes from a perspective of sectors that could add new employees and hence outsource it to us. Or it could be coming from a rebadging that is happening and came out to us.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [88]

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Okay. Sir, my second question is relating to other HR services. So is it a strategic decision to reduce focus on government business, and therefore, this may remain (inaudible) from a quarter? Sir, the government business is completely after this effect, and then you grow the business in the private side. Is that a correct understanding?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [89]

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So -- yes. So we historically had a primary focus on the government business and over the last 2 years have been driving up the corporate training business alongside. So today -- I mean yes to answer the first part of the question. We clearly want to have a sunset on the government business. It's not going to happen over the next 2, 3 quarters. It's going to happen over the next 2, 3 years given the mandates that we have, but we are not taking any new mandates.

But we clearly want to ramp up the corporate revenue to replace the loss in government revenue. So right now, we have about 30% of the training revenue coming in from the corporate side. We would like that to slowly phase itself up to 70% and become 100% in the long run.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [90]

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And when that happens, you will have a similar type of margin profile, what we are seeing? Or the private sector has got lower?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [91]

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Yes. And we won't have the challenges of collection because it is in the experience that we've had in the corporate training business. We don't have that much of an issue on invoicing and collection.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [92]

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Okay. One last question, sir. It's, again, regarding the provident fund. So what you are seeing is that the 90 crores is merely the softness which was there, which you can use toward the 173 crore loss and still not impact the 90 crores which is there, which did not impact the kind of liability that the trust has towards its employees. So it's just like a secret reserve or a state reserve which was built in the PF trust. Is that a correct understanding?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [93]

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Yes. And of the 132 crores, the maturity profile is up to 2026. And we would keep a watch on the recovery of the amounts over that period and effectively take a call as the maturity period arise for each of those papers.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [94]

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Yes. But after this they are not receiving any interest on those -- on the remuneration?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [95]

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Yes.

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Operator [96]

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The next question is from the line of Vimal Gohil from Union Mutual Fund.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [97]

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Sir, again, sorry to harp on this PF trust issue. Sir, factoring in the worst-case scenario, let's say, the -- what would be the write-off that we will have to take on our P&L?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [98]

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I mean the 173 crores is the investment value. So the worst case would be that. And we have a 90 crore surplus. As a running trust, we will not have any liquidity issues for the trust because, like I mentioned, we've got about 1,000 crores corporate, and we've got about 460 crores in aged, inactive accounts. And the average claim ratio there is about 15% to 20%. So from a recurring liquidity settlement aspect of continuance of the trust, we will not have any problems on that side.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [99]

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Right. Right. So on the worst-case scenario, this 173 crores is what the -- is the kind of write-off we'll have to take in the worst-case scenario on the P&L?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [100]

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Up to 2026.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [101]

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So -- okay. Okay. So would you want to take it in one shot? Or would you want to distribute it if the worst case plays out?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [102]

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I think we've evaluated the other trusts in the space with other companies. Everyone would like to just wait and watch how the repayment of the money on this side is going to play out. There is a clear indication and a dialogue for time to effectively give priority to retirement trust when the repayment aspect starts. And I think we'll wait to see how it plays out and then we will take a call on that.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [103]

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Specifically, the NCLT in the case of IL&FS has held that provident fund trust and other retirement trusts should have decisions in settlements or others. And that's something that we would like to see how that plays out in the final tally. And probably something similar might be held for DHFL as well, which is why we said we will probably look at provisioning it as we go along the way and not look at one big-bang provision upfront.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [104]

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And sir, could this disclosure could help -- could this disclosure, you would have bid it earlier? I mean rather than making it in Q2, maybe after the end of Q1 or so?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [105]

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I think we were waiting to see how the element of the payout plays out. And I think this has been in discussion with, like I said, with other trusts and how we weren't going about it. And we just felt it right to put the disclosure. So we don't know the value of the liability to be taken into the future. We said that it would be good to disclose it now.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [106]

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Fair enough, sir. Now coming to -- I have just one question now on the working capital. It's a follow-up. Your current -- if I'm not wrong, your current working capital days are about 18 days. You're expecting that to go up by 25 days on a sustainable basis because of the improvement in the specialized staffing business, right?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [107]

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Because of the growth in specialized staffing business.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [108]

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Yes. Yes. Yes. So the growth in the specialized staffing business?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [109]

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Yes. But generally mapping, we continue at the 7-day working capital -- 7-day week.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [110]

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Right. Right. Right. But what's the rationale to -- I mean wouldn't that be ROE dilutive, getting into businesses which have a slightly higher working capital? And that would -- what is the rationale of getting into these working capital-heavy businesses?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [111]

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Yes.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [112]

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So -- yes. As part of our margin expansion strategy within -- one of the clear things that we have said was we will get into specialty staffing and not restrict it to just IT alone. And we have identified IT, telecom, engineering services, interest services, hospitality and health care are potential areas for us to get into because: one, the business models are different; and two, the margin profiles are also very different.

While we do have the flexibility of a lower working capital or almost negative working capital with general staffing business, we said we will manage these other businesses in such a way that we do continue to maintain a fairly balanced internal equity as we go along despite these acquisitions that we make in these services -- in these specialty staffing services.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [113]

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Sir, last question. That FY '19 issue of TDS, how -- what was that amount? And has -- which is yet to come back?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [114]

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It's about 90 crores last year, FY '19, the TDS amount.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [115]

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Right. Right. And if that really comes back, that will improve our working capital situation?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [116]

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Yes. That's right.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [117]

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And when do we expect that to come back?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [118]

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That will be at least 2 years, at least.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [119]

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2 years?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [120]

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We have, overall, about 250 crores from TDS receivables over the last...

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [121]

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250 crores?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [122]

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Yes, 250 crores in TDS receivables. So this will be received over the next few years.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [123]

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So normally with the 3-year lag, the amount deducted 3 years back gets paid with a 6% interest by the government.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [124]

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But 2017 -- the 2017 assessment is probably getting done now. So -- and the return for 2019 March just got filed recently. So it will take some time before we get taken up by -- and assess that.

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Vimal Gohil, Union Asset Management Company Private Limited - Research Analyst [125]

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So if at all we have any working capital cushion, it will only be after 3 years, not now?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [126]

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We will get 20 crores, which are deducted 3 years back, hopefully this year.

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Operator [127]

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The next question is from the line of [Aakash] Gupta from Zen Securities.

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Unidentified Analyst, [128]

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Just to come back on the point that you mentioned that you are strengthening your M&A pipeline. So I just wanted to understand 2 things. Of these past acquisitions that you have done, are there any future commitments and what could be the outflow with that?

And second, what type of acquisitions are you looking at? Are those in the specialized staffing or learning management solution, as you have done in the past? What could be the size of those acquisitions? And given the cash requirement, could we see any debt? We have good books because of those acquisitions.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [129]

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So I think, largely, the acquisitions in the IT staffing and telecom are 100% done and Freshersworld. So there's no additional cash requirements on that front. We've taken a partial stake in Schoolguru and Avantis, which is online education and the regulatory compliance company. In those 2, we would be increasing the stake in a phased manner, but these are milestone related. And as they scale to certain numbers and stuff, we would look at increasing the stake over a period of time.

On the additional acquisitions, I think where we are largely looking at is largely smaller deals, but things that can either complement the existing P&Ls that we have or bring in a new -- specialized staffing vertical into the fold. So like the eCentric deal that we did recently was a fold up to the IT staffing business. And it came as a good opportunity to complement the existing business that we had, and we brought it on board.

Similarly, we continue to look for other options in -- that will complement existing P&L. And we do have some dialogues for some specialized verticals that are not in play at this point per se.

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Unidentified Analyst, [130]

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Okay. Got it, sir.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [131]

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(inaudible) and the reason for bringing [Sunil] in as a leader is to have a leader who participates in M&A discussions, so that there is more intimacy and ownership to running with those P&Ls as we close on the acquisitions.

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Operator [132]

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The next question is from the line of (inaudible) from Goldman Sachs.

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Unidentified Analyst, [133]

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Just on the specialized staffing business, what kind of EBIT margin you're running at today?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [134]

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So the IT staffing is at about 9% to 10%. The telecom is at about 3% to 4%. And I mean, these are the 2 that we have, and there are certain other ones that we're exploring. But nothing on the table, at this time.

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Unidentified Analyst, [135]

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And the receivable days are 90 days for both telecom as well as IT?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [136]

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So IT on services front, it's about 60 days, 55 days to be precise. And so for other companies, it's about 90 days. Even those 90 days, we are trying to bring down to 60 by working with the clients in the revised agreement review. Telecom is at about 90 days.

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Unidentified Analyst, [137]

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Respectively, I mean, from an ROC perspective, telecom, specialized staffing is not something you can do, right? Because at 4% EBIT margin, 90 days receivables, it's a very poor ROC compared to your overall ROC. The IT staffing still looks respectable because you are making 9%, 10% EBIT margin and so 60 days are kind of stable, assuming that there is no other CapEx and there is no other inventory and other capital employed. But why would you want to do telecom when in fact, EBIT margin, there is no scope of improvement there.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [138]

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So telecom was at an EBIT of 8% to 9%. But like we had mentioned, because of certain projects that were taken on. And currently, the stress in the industry is what has brought down the EBIT. But our belief is that -- and which is why we've been reducing some element of the exposure in some projects and stuff. But our belief is that over a period of time, we should be able to take that EBIT back up.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [139]

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And also within telecom, if we see -- or look at the DSO of the core telecom clients, it is still 50 days, the DSO, whereas on the TIRF front, it is almost 120 days. Because of that, the blended one is currently sitting at 90 days. So once we tone down the TIRF revenues, the overall DSO in telecom will also improve.

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Unidentified Analyst, [140]

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Sure. So I mean, what should be the time line which we should look at in terms of the specialized staffing overall with all the corrective actions which you are taking? I mean, what is the time line to actually improve the overall ROC (inaudible) but -- yes.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [141]

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So I think it should take another 2 quarters to get that in play.

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Unidentified Analyst, [142]

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Okay. Okay, and sorry to hop back on this PF thing again. But -- so basically, if I understand this correctly, there is a potential contingent liability of INR 173 crores? Or can you offset it against the unrealized gains and the trust? Because the trust is currently in the surplus, right? So I mean, you may have to fund the trust only to the extent of the deficit, right?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [143]

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Yes.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [144]

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That's right, yes.

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Unidentified Analyst, [145]

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So I mean, even if in the hypothetical scenario, you recover zero money on this entire INR 174 crores, the actual P&L hit on the company should be INR 174 crores minus whatever is the surplus at the trust level, right?

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [146]

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That's right. And also spread over multiple financial year going all the way until 2026.

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Unidentified Analyst, [147]

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Yes, that is correct. But in terms of the P&L impact -- although many people will treat that as a one-off, but treated as a P&L impact. Contingent liability (inaudible). But just wanted to clarify, it's net of the unrealized gains or does the accounting do not allow you to set off against unrealized gains, is the question.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [148]

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The accounting allows us to set off the results in unrealized gains against potential losses.

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Operator [149]

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The next question is from the line of Soumitra C. from Spark Capital.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [150]

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Ashok, if I recollect in the last quarter, when the concerns about the economy and its impact on the staffing company, you were relatively upbeat and had mentioned some 16,000 open applications still there. While you continue to be upbeat, you don't seem to have gained with respect to some of the factors that is undergoing. If the trend were to continue, can it happen that things can worsen further and we -- our growth expectation, what's currently being set up, 14%, 15% at volume level, it can reverse back to FY '18 levels of 5%, 6%. Can that happen?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [151]

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I don't think so. So I was upbeat, and I continue to be upbeat on the general staffing business. And I think our open positions and pipeline is healthy on that side, and we have grown with about 4,500 associates on that count. I think the impact of the slowdown and general weakness largely came in from manufacturing and auto, which the NETAP had exposure to. And again, as an immediate knee-jerk reaction aspect, I think the numbers that had to be let go of or laid off are done. And again, as feedback, while I'm not expecting some huge growth on the NETAP front, I don't think we should see a similar large reduction under some external macro variable changes. So as of now, the staffing outlook from our perspective still stays positive.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [152]

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On the NETAP front, the last quarter, you had an impact from -- there was a requirement of provident fund on these trainees, which the central government came out with the circular. As a result of which, a lot of companies had an issue on that. While this quarter, it is more or less with manufacturing and auto. You said that you're not expecting any growth. But can -- those people who are currently there, I mean, is the requirement of PF still there, which can actually impact the NETAP trainees further in second half of fiscal '20 and more so in '21?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [153]

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There have been some guideline changes in NEEM per se, the NEEM guideline which drives the NETAP numbers. I mean by virtue of some smaller players, effectively rebadging existing employees as NEEM trainees, and shifting people from provident fund coverage into a siphon structure, there was a flowback from the provident fund department, and they did go back to AICTE and MHRD and they have tweaked the element of the applicability and conditions for NEEM employees.

I think as on date, while we have covered all the employees and the employers to the required stipulation, we will also follow through with it for the future. So I think some element of the weeding out of the smaller players who were not abiding by the required structures should clean that element of demand from the provident fund department.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [154]

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Okay. So the guideline of provident fund on NETAP trainee still continues, right? Or am I mistaken?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [155]

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There's no guideline of provident fund applicability on NETAP employee.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [156]

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Okay. Okay. Okay. My third question is, can we get the number for -- of contribution from NETAP to TeamLease's EBITDA for FY '19 and first half of FY '20?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [157]

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I'll get back to you with that number separately, Soumitra.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [158]

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Sure. No problem. And my apologies for asking this question on the PF stream again, but if the provident fund -- the trust is investing in IL&FS and DHFL and then that 2, they're going on for some time now, more than a year. I mean when the issues first came in, few companies started to disclose. In other sectors as well, in the IT services, per se. I mean aren't we a bit late on this thing that we should have ideally disclosed it earlier? One of the previous speakers also -- participants also asked this.

And second part is provident fund investments getting into a -- I mean provident fund capital getting into some of these risker instruments, obviously, with the benefit of hindsight, how -- I mean are we going to see it in future? How are we going -- and then what is the proper -- if risk factors for these procedures were in place or not?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [159]

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So I think investment policies were strictly indicated by the government for investments into central government securities, state government securities, corporate bonds and mutual funds. And the structure of that was what we followed from the trust perspective. So there's no deviation in investment policy and philosophy on that front. Obviously, in hindsight, these 2 have been bad companies from our perspective of the current exposure.

So from a regular structural investment perspective, no deviation and I mean, most provident fund trusts do have an exposure on that front. I think -- from a timing perspective, I think we were waiting to get more element of clarity in terms of the payouts and stuff. But first maturity towards these bonds happen from next year. And in discussions -- we've been in discussion with auditors, we discussed that maybe this is the right time to put it out there. It was -- I mean, again and just the fact that you can say it could have been done earlier, but I think we just have been analyzing that situation, evaluating it and...

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [160]

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One last question. You have recovered INR 1.5 crores, if I'm not wrong, or INR 1.6 crores, right? From the government contract?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [161]

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That's right.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [162]

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And balance INR 4 crores you plan to recover and we hope to recover in this quarter?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [163]

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Yes, actually INR 3 crores to INR 4 crores we are hopeful to recover in Q3.

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Soumitra Chatterjee, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [164]

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Okay. And what is the outstanding...

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Operator [165]

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Mr. Soumitra, I would request you to rejoin to queue, please.

(Operator Instructions)

The next question is from the line of Sandesh Shetty from PhillipCapital.

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Sandesh Shetty, [166]

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Most of my questions are answered, but I just wanted to ask one question with regards to sustainable margins. So do we see any uptick in the margins going forward for the 2 quarters that we have in the current fiscal year?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [167]

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(inaudible) effectively drive the margin, the PAPM realization and the (inaudible). I think both of them (inaudible) do have visibility for driving up (inaudible) coupled with keeping the cost structures kind of flat. I think, given all of these 3 variables, we should see a margin improvement as we go forward, as they come through time.

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Sandesh Shetty, [168]

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Just a follow-up on that, like, do you see uptick in NETAP in segments of -- with regards to interaction with your clients, do you see any uptick in NETAP for the trainees going forward for the 2 quarters?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [169]

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For the immediate quarter, I would say, no. I have difficultly to say it for the 2 quarters, just given clients in the slowdown are taking it month by month.

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Operator [170]

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The next question is from the line of Prince Poddar from JM Financial.

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Prince Poddar, JM Financial Institutional Securities Limited, Research Division - Analyst [171]

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My question is that on the other expenses, which has -- on a consolidated basis, which has increased from INR 34.5-odd crores to INR 43.7-odd crores in the current quarter on a Q-on-Q basis. So could you please help me in breaking down the INR 9 crores increase in Q-on-Q other expenses? What are the various elements which are increasing in the other expenses?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [172]

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So other expenses on a Q-o-Q basis has gone up largely on account of the new NBFC leaseholding. So whatever incremental offices that we have been taking, so they're all falling under the lease accounting -- the new lease accounting, because of which there has been a straight INR 2 crores increase in other expenses between Q1 to Q2.

Also, we have other expenses like CSR provision, which we have started from this year. And we have other, like, other regulatory opinions and consolidations, which is to the tune of about INR 1 crore because of the recent tax changes and NETAP-related changes. Yes, and overall, some increase in training expenses under the IL&FS business, which is in line with the revenue.

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Prince Poddar, JM Financial Institutional Securities Limited, Research Division - Analyst [173]

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Okay. If I'm not wrong, Q1 also had that impact of Ind AS 116. So why this difference in the rent -- of accounting…

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Ramani Dathi, TeamLease Services Limited - Finance Controller [174]

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So this is the incremental business. These are the new offices, which we have taken from a client. So we are also working on a few projects where we give associates along these offices. So we have signed up for some new offices in Q2, which has contributed to about INR 2 crores increase in lease rentals.

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Prince Poddar, JM Financial Institutional Securities Limited, Research Division - Analyst [175]

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Okay. Got you. Got it. And just a bookkeeping question, Ramani. Margin in telecom and IT at 3%, 4% and 9%, 10%, respectively, is for this quarter, right? These are the levels as of this quarter?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [176]

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For this quarter, IT staffing is at about -- yes, 9% margin, and telecom is at 3.5% margin.

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Prince Poddar, JM Financial Institutional Securities Limited, Research Division - Analyst [177]

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Got it. And just last, bookkeeping question. Can you break up the specialized staffing, 6,500 associate employed into telecom and IT?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [178]

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So IT staffing, we had a revenue of INR [56] crores this quarter with a (inaudible).

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Prince Poddar, JM Financial Institutional Securities Limited, Research Division - Analyst [179]

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No. Number of...

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Ramani Dathi, TeamLease Services Limited - Finance Controller [180]

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Number of associates, yes.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [181]

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It's about 3,500 in the IT staffing and about 3,500 in the telecom.

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Operator [182]

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The next question is from the line of Devang Bhatt from ICICIdirect.

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Devang Bhatt, ICICIdirect.com, Research Division - Research Analyst [183]

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I just wanted to know, like, how long will your 80JJAA benefit continue? And if you are moving to the new tax regime, will this 80JJAA benefit continue with the new tax regime?

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [184]

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Yes, the 80JJAA will continue the new tax regime. In fact, that's the only reduction that the company will be entitled to, lower tax dispensation. Having said that, we do have -- we have evaluated the option of just moving to the lower tax regime, though we haven't taken a final call, given that there are still clarifications and consultations that are going on by the tax authorities in terms of how the MAT credit entitlement, et cetera, are still being debated, which is why we've discussed it and said that we do have time until the end of the year for which we could probably take a call on opting for the lower tax regime. In which case, the 80JJAA will get effective for us into the future.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [185]

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So I think we have until the year-end, at least, immediately to take a call on which of the options that we opt for. So the 80JJAA right now does not have a contest clause. This, as of now, will continue to play out. However, if we were to -- I mean while clarity is still, say, being rounded up with the discussions going on, we do have MAT credit that has accumulated, whether moving to the new tax regime requires us to write off that MAT credit or not is the opinion that is still pending. So at the required time, we will take that call.

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Devang Bhatt, ICICIdirect.com, Research Division - Research Analyst [186]

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Okay. And just one bookkeeping, like, your first half profit is INR 38 crores, and your cash flow shows tax paid of INR 36 crores. So can you wrestle with that?

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [187]

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Actually, withholding tax when that happened in our business, what we -- like Ramani explained earlier...

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Devang Bhatt, ICICIdirect.com, Research Division - Research Analyst [188]

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Okay. Understand. Yes.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [189]

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In the second half, it has come down significantly for us for the full year actually there.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [190]

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And sorry, just to interject on an -- on the earlier question, the IT staffing numbers are 3,050, not 3,500. So 3,050; and 3,500 for telecom.

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Operator [191]

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The next question is from the line of Dipan Mehta from Elixir Equities.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [192]

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Just a quick answer. Still, so far, any assessment has been completed with 80JJAA being accepted by the department?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [193]

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No. This will be the first year...

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [194]

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This is the first year that we're doing it, and we expect to get some orders very soon on this.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [195]

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So we will know for sure, in that sense, the tax refunds that will happen this year.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [196]

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Steering have been concluded and orders are expected.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [197]

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Yes.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [198]

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Okay. Just a suggestion. So whenever it happens, if you can just make a public disclosure because it's a very major respect for a company being a new section, which has come in. So sometimes, there could be a slip between the cup and the lip between what you have provided for and accounted from what the tax department thinks is the right way to calculate?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [199]

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Yes. We will...

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [200]

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Yes, we will do that. Yes, we will do that.

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Operator [201]

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The next question is from the line of Prashant Tiwari from SBICAP Securities.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [202]

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Guy, can you please tell me the markup for trainees in this quarter?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [203]

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It's average of 572. It was 565 the previous quarter.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [204]

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In Q1, it was 565, right?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [205]

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Yes.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [206]

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Yes. Okay. And what is the average salary for a core employee right now according to...?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [207]

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Core or a temp?

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [208]

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I'm asking for the core employees.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [209]

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For core employee, average salary is about INR 28,000 because we have a large chunk of employees at entry-level for the data processing and payrolling.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [210]

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Okay. Okay. And finally, on the acquisitions, when you said that you are looking for something in maybe hospitality, health care or engineering services, will these be purely staffing-based companies or you could look for some project kind of revenue also?

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [211]

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It will be largely staffing-based companies with very minimal to no...

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [212]

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We have (inaudible) on staffing but they're not outcome based.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [213]

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So these are -- these will not be outcome based.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [214]

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No. Yes.

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Prashant Tiwari, SBICAP Securities Ltd., Research Division - Research Analyst [215]

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Okay. And will these be similar to -- I mean, like, in terms of working capital days, will these be at around 60 days plus?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [216]

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Yes.

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Operator [217]

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As there are no further questions, I now hand the conference over to the management for closing comments.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [218]

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Thank you. So I think we, on the headcount front, had a muted quarter and effectively do believe that the pipeline that we have as open positions and time requirements will sustain growth in numbers as we go forward. And that should, again, play back to the aspect of productivity and the margin recovery as we go forward. We, in terms of investments on the provident fund trust, continue to keep a close watch on proceedings that are happening with the 2 companies, and we'll update as and when we hear more. And the aspect of the M&A opportunity, we'll continue to evaluate, that will either complement us on verticals or they'll integrate with an existing P&L. On the telecom staffing front, like we said, over the next few quarters, we will pay down some of the low-margin projects. And effectively work to improve the margins on that front. I think that's really it.

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Operator [219]

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

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [220]

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Thank you.