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Edited Transcript of TEAMLEASE.NSE earnings conference call or presentation 26-Jul-19 11:30am GMT

Q1 2020 TeamLease Services Ltd Earnings Call

Ahmedabad Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Teamlease Services Ltd earnings conference call or presentation Friday, July 26, 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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* Aasim Bharde

IDFC Securities Limited, Research Division - Research Analyst

* Abhijit R. Akella

IIFL Research - VP

* Amit Chandra

HDFC Securities Limited, Research Division - IT Analyst

* Ashish Chopra

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Garima Mishra

Kotak Securities (Institutional Equities) - Research Analyst

* Mihir Manohar;CapGrow Capital Advisors;Analyst

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* Shaleen Kumar

UBS Investment Bank, Research Division - Associate Director and Analyst

* Sudheer Guntupalli

AMBIT Capital Private Limited, Research Division - Associate of Technology

* Vaikam Kumar S

JM Financial Institutional Securities Limited, Research Division - Research Analyst

* Vimal Gohil;Union Mutual Fund;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 Q1 FY '20 Earnings Conference Call hosted by IDFC Securities. (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, sir.

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

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Thank you, Vanri. Good evening, everyone, and welcome to the Q1 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; Ms. Ramani Dathi, Financial Controller; and other senior management personnel. We will start the comments -- or we will start the call with a commentary from the management and then move into the Q&A.

Thank you, everyone, and over to you sir.

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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. So just as an update on the quarter, I think we've had a healthy growth in the staffing, general staffing and the specialized staffing businesses. They have grown at over 23% in general staffing and 30% in the specialized staffing, also partly contributed by the eCentric addition in there. I think we've had a bad quarter from a HR services perspective, both in terms of revenue and from the bottom line perspective, and we will come to that.

But I think in the staffing business, overall, we've added about 8,500 head count over the quarter, and we did have a drop in realization last year. At the PAPM, we've been able to improve that from 714 to 730, while we've maintained our funding exposure at 14%. Our internal call to associate productivity ratio also has marginally improved from 270 to 277. And also the recent Supreme Court clarification on PF remittance has been executed across our associate and core employee base.

I think on the general staffing and specialized staffing, the trajectory is kind of on track. The eCentric integration is completed. They contributed about INR 16 crores of revenue for Q1 with about INR 1.8 crore in profit. The HR services businesses have been hugely impacted from a bottom line perspective on account of collection delays both from the government and some element from the corporates, and we have provided for the same. And our belief is that across Q2 and Q3, reversal of these provisions would happen.

A lot of the processes for getting these payments have been initiated, and we believe that we will see the element of the payments coming through in Q2, Q3. But from a conservative perspective, we said let's provide for them now and account for it as a reversal as it happens. Otherwise, I think we do have a healthy pipeline and trajectory across the businesses, and we continue to drive on those fronts. The overall contributions from funding mix and from a percentage revenue mix and top 10 contributors in staff hasn't seen a quantum shift, and I think the hygiene aspects on those fronts continue to be monitored by us tightly as we go forward.

So that's as a rough introduction. Happy to take any questions and answer them.

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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 Sudheer Guntupalli from AMBIT Capital.

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

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Ashok, my first question is about the economic environment we are currently in, especially the weakness in some of the sectors like consumer discretionary and DFC, et cetera. There, we might be having a decent amount of exposure. So how do you see that impacting our head count growth in FY '20?

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

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So I think the overall slowdown or the relatively cold outlook that many sectors have is not really impacting the demand on the staffing side. Like we keep saying, we are a springboard in good times and a shock absorber in bad times. I think whether it's from a rebadging perspective or the uncertainty of the environment, driving corporates to want to use the temping route, at this point in time, I think we have a healthy pipeline of demand, client and open positions, and this kind of is also playing out as feedback from customers over the next 2, 3 quarters, clearly. So I don't think it should have a huge impact on associate additions. And if you see Q1, we did add over 8,000 associates. And I -- it is the current pipeline that we have from different sectors support a healthy growth into the next few quarters.

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

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Sure, sure. I think last quarter you shared this pipeline of open positions. Any number that you can share at this quarter at this point in time?

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

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We have about 12,000 open positions at this point with us across -- and this is a -- it's [not a staff-reverse] aspect. So at this point in time, we have over 12,000 open positions with us. And overall also we are having a much -- one of the concerns historically was also our ability to deliver more to the open positions. We've been consistently driving up that element of closures, which is also leading to the number of head count additions that we are having.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [6]

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Sure, sure. My second question is in terms of the average market per associate, I saw an impressive improvement to INR 730 this quarter despite the pricing pressure in the industry that is being talked about, so any color on what has driven this? And where do you see this metric sustaining for the full year?

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

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So I think if you look at it, the 3 elements to the mix on the PAPM, there are large accounts, there are medium accounts and there are small accounts. We have a healthy mix between the 3. The large accounts are really where the pricing pressure is the highest and the demand for lower pricing kicks in from. The medium and the smaller accounts have a higher PAPM by virtue of the size that they are. I think we've had good additions. Last year, we did have few contracts that came onboard from a large account perspective, which put the pressure on the PAPM. I think we've got a healthy mix and a pipeline of growth coming in from medium and small this time, and those help to improve the pricing.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [8]

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Sure, sure. One last question. So I think it [does seem that customer relationship] had gone from an unorganized to organized space. So what are the typical sizes of large deals you are seeing in terms of general staffing head count?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [9]

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So some of the large ones that we have had range between 2,000 to 5,000 to 7,000. And if it's some other large management discussions in the pipeline, but you never know until they get done. But I think a lot of them also come with -- some of them at least, come with large open positions that we can work to deliver on and use this opening balance to build numbers into the long run.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [10]

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So 2,000 to 7,000 seems to be the range, broad range that you are indicating.

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

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The big clients.

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Sudheer Guntupalli, AMBIT Capital Private Limited, Research Division - Associate of Technology [12]

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Okay. Okay. Actually, some of your competitors seem to be talking about mandates with almost 30,000, 32,000 kind of head count. So are we not seeing any such deals on the system?

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

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[Hard] to comment on, Sudheer, because I can -- the volumes we are seeing are in the 2,000 to 7,000 range.

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Operator [14]

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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 Mutual Fund;Analyst, [15]

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Congratulations on a good set of numbers. Sir, my question is on your working capital position. Excluding the HR -- under recovery that we've seen in the HR business this quarter, I would -- what would be your working capital position versus FY '19?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [16]

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We stay the same. So one is in the general staffing business, the 14% funding continues to stay at the same level as the previous year. There's no change on that front. In the IT and telecom business, as volumes go up, the funding -- working capital funding exposure increases. And the eCentric addition with 800-plus associates has the funding exposure. So other than that, there is no other incremental exposure on funding.

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Vimal Gohil;Union Mutual Fund;Analyst, [17]

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[Got you.] And sir, I had -- I just had 1 more question. Given the fact that your other HR -- other IT services and specialized staffing services are expected to grow faster or maybe have a higher-margin business or probably they might even grow faster, what are we doing to maintain our working capital position's in a tight leash? That is question number 1.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [18]

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So the specialized staffing businesses all work through our funding models. So one is obviously as volumes grow -- go up, the working capital requirement in those businesses will be a reality. But I think keeping a tight leash on collections to time lines thereafter becomes important, and that's something that we had control on. And there is no deviation on collections or bad debts on that front.

The second element is the higher margins that these businesses work at kind of demand the working capital requirement. And as long as those margins are kind of supporting the working capital requirement, we have to do that. So we do have a -- given the general staffing business is a low-margin business, which [again] support funding in a large way, we've been very controlled in that, and that we have been able to maintain at a 14%.

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Vimal Gohil;Union Mutual Fund;Analyst, [19]

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Right, right, right. And sir, the INR 6 crore underrecovery that we've seen in HR, could you just help me -- help us explain what exactly has happened there? And what could we do to prevent this in future?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [20]

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So we work with the government mandates, and they have granted system of giving 25% upfront. On utilization of 25% of the amount, we applied for the next 50% amount, and this is the utilization certificate. And the government process of review on the theme, they released the 50% amount. I think in the last quarter, we've had a huge delay, and part of it has also been attributed to the aspect of the general elections and most of the officers being out in the field and so on and not having the time to look at the validation process. So the 50% amount has been delayed from a release perspective. And by virtue of that, we have a backlog of batches that we've been conducting, for which we can't recognize -- we can't offset the aspect of collection to the revenues. So we have provided for that.

Also from earlier batches, there'll be a certain element of dropout, which we replace in the additional batches that happen. We haven't kick-started those additional batches waiting for the next lot of the payment to come in. So when we get the 50% balance payment, we will initiate the backfill, and that will also lead to an element of a write-back on the provisions. So I think the largest element of the provisioning that we have taken at this point in HR services business largely relates to these 2 aspects, which we believe now with the element of dialogue that we have, hopefully, should lead to a closure in Q2 and Q3.

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Vimal Gohil;Union Mutual Fund;Analyst, [21]

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And the last question on my front. When could we see an improvement in the specialized staffing? When could we see an improvement in the margins of specialized staffing business? We used to operate at around 10%, even the 7% range. So this is...

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [22]

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No. So we had the IT staffing at between a 10% to 11%. We had the telecom operating at about a 3%. Both of those continue to play to that. The eCentric business that we acquired, that is a 5%. So the cumulative margin has come down to 8 -- 6.4%. But I think we will be able to pick that back up over the quarters. So I think the pulling down has -- while both the earlier part of the IT staffing business and the telecom business are kind of at par with the previous years, I think part of the down-pull is from the new integration, but we'll be able to bring that up as we go forward.

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Vimal Gohil;Union Mutual Fund;Analyst, [23]

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So how much could -- could you just give us a number, how much could that go up to?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [24]

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I mean 8% is the average across the 3 that we would be looking at.

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Operator [25]

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(Operator Instructions) The next question is from the line of Vaikam Kumar from JM Financial.

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Vaikam Kumar S, JM Financial Institutional Securities Limited, Research Division - Research Analyst [26]

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Can you provide the revenue and EBITDA numbers for IT and telecom staffing, along with the associate base?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [27]

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Yes, Vaikam. So in general staffing, the Q1 revenue is INR 11.30 crores, and specialized staffing...

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Vaikam Kumar S, JM Financial Institutional Securities Limited, Research Division - Research Analyst [28]

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Specifically IT and telecom.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [29]

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Okay. Yes, IT staffing revenue for Q1 is INR 55 crores. Telecom is INR 43 crores. And in terms of EBITDA, IT staffing EBITDA is INR 4.9 crores, telecom is INR 1.4 crores. That's in rupee crores, not the margin percentage.

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Vaikam Kumar S, JM Financial Institutional Securities Limited, Research Division - Research Analyst [30]

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Got it. And yes, is it a base for IT and telecom?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [31]

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Yes. So in IT, we have 2,230. That's excluding eCentric. And the inorganic addition is 880 from eCentric. So both put together, we are at 3,190. Telecom is about 3,800.

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Operator [32]

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(Operator Instructions) The next question is from the line of (inaudible) from (inaudible) Investment.

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Unidentified Analyst, [33]

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So I have 2 questions. Firstly, there was a sharp jump in the depreciation and interest expense for this quarter. Could you elaborate on that?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [34]

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Yes. So there has been a new accounting change in this change with respect to the lease accounting. So earlier, whatever we used to report as rentals above EBITDA line item, a part of that have been -- they have to get capitalized and depreciated over a time. So that is the main change for increase in depreciation and amortization.

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Unidentified Analyst, [35]

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Okay. And the interest expense?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [36]

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Interest expense is also very -- I mean the increase in lease rental is broken down into interest and depreciation, into 2 components.

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Unidentified Analyst, [37]

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Okay. And my second question was the EBITDA margins in the general staffing came down to around 2.1% for the quarter, right? So any particular reason for the drop on a sequential basis? Or is it the trend in the first quarter is a [staffing] looking for?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [38]

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Yes. On an annual basis, it has improved from 1.7% to 2.1%. But however, if you compare to last quarter, typically in Q1, we do the annual appraisals like [annual] increments, which is close to about 9% increase in core employee salary cost. So because of that, there'll always be a slight dip compared to Q4 and Q1.

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Operator [39]

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The next question is from the line of Shaleen Kumar from UBS.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [40]

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I just want to understand, what kind of growth rate you are seeing in IT staffing and the telecom part?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [41]

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So telecom, we haven't really been growing much. As we had mentioned earlier, some of the earlier projects that we've taken on, we have been reducing the head count on those fronts. While some of the businesses within the telecom are growing, the larger volumes that we took up as an experiment last year, we are reducing the head count. So from that perspective, it's kind of a flattish business at this point in time.

In IT, we've added about 100-plus resources on an organic basis and 880 in an inorganic manner. But I think on the IT side, we still continue to see a healthy demand from customers coming in. But we are also seeing increased element of a conversion on to the rules of the company from the temping side. So while we are adding gross healthy and the net level, it is not as large, by virtue of conversions happening at the client end.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [42]

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So in terms of the growth rates, if you can provide like percentage-wise?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [43]

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We've grown at about 30% on the IT staffing front. But if I remove the element of eCentric, it would come down to about 13% to 15%.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [44]

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Sure, sure, sure. Got you. My next question is with accounting recurring [literally, India's]. So just want to understand the -- what is the percent -- what is the amount that rental that has gone into depreciation and interest expense? What are the standalone and consol level? And is it the same kind of thing? Or is the position and interest has gone up higher because they made a different kind of a lease you have. So…

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Ramani Dathi, TeamLease Services Limited - Finance Controller [45]

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Yes. So on the console level, between depreciation, there is an incremental INR 2.8 crores on account of the India exchange. So there is an INR 1.1 crore impact.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [46]

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INR 2 point -- like INR 2.2 and INR 1.1?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [47]

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INR 2.8 and INR 1.1. And the next [fee income] impact is about INR 15 lakhs because this is just a reclassification from above EBITDA line to below EBITDA line. And incremental P&L charge because of this accounting change is about INR 15 lakhs in this quarter.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [48]

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So basically, you're saying that cash outflow is less -- is INR 15 lakh less?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [49]

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Not really. Actually, cash outflow is actually the same. There is no change in the rental. It's the same. It's just the way that we are accounting. Like earlier, we used to report our rental of, say, INR 4 crore. That has gone up INR 4.15 crores, INR 15 lakh increase.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [50]

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Okay. Okay. Okay. Does it have consol and standalone?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [51]

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Standalone. We can get back to you with that.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [52]

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Standalone. I'll get back to you. Because for subsidiaries, we don't have much of depreciation on account of lease rental because they're all very small offices. A large part of it is standalone. I'll get back to you separately on the exact breakup on standalone and console.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [53]

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Okay. Sure. So just on this then, the EBITDA we have is actually not comparable in a way, right, with the margin of...

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Ramani Dathi, TeamLease Services Limited - Finance Controller [54]

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Yes. Yes, that's right. So we have to adjust INR 2.8 crores to get the right conversion of EBITDA.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [55]

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INR 2.1.

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

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INR 2.8 crores to get the right conversion of EBITDA.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [57]

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Why INR 2.8 crores? Isn't INR 4.1 [more reasonable lease with] INR 4.1. Is it adjusted?

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

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This is below line only.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [59]

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Yes. Both the interest as well as depreciation has gone below line. So we need...

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

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No. Here earlier, the INR 2.8 crore, which got reported as depreciation now that used to get reported as rental.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [61]

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Correct. And INR 1.1?

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

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INR 1.1, a part of that is always in interest cost.

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Operator [63]

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The next question is from the line of Garima Mishra from Kotak Securities.

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Garima Mishra, Kotak Securities (Institutional Equities) - Research Analyst [64]

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Would you please help me understand what was your minimum -- what was your median wage in the temporary staffing business?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [65]

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So we have an average of INR 23,700. Median will be INR 18,000 or so. But the average is what we normally track, Garima, and that's about INR 23,700.

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Garima Mishra, Kotak Securities (Institutional Equities) - Research Analyst [66]

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Got it. And Ashok, could you also touch upon on this PF issue, which you alluded to in your opening comments? And also some comments on this wage core business, which has been recently passed. It had been, I understand, in the works for quite some time. So what do you see as the progress on that going forward?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [67]

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So I think earlier, definition and application, the way companies are structuring CTC was factoring certain line items of income for provident fund calculation. And a lot of the -- there's a grey element in dialogue across companies in how salaries were structured and on what heads the PF was calculated. And the Supreme Court gave judgment on the case in saying that a lot of the income heads should be considered for provident fund calculation. And we've kind of gone with that liberal approach to revisit our core employee salaries and associate salaries to factor for calculation of the provident fund amount. This has an impact from cost to company and also has an impact from a net take-home of the employee. So in as many cases as possible, we have tried to protect the net take-home of the employee to factor for higher provident fund contribution that comes in by virtue of the calculation. What we will also do is we forward the notification on that front, the PF Supreme Court judgment notification, and that would also clarify the matter.

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Garima Mishra, Kotak Securities (Institutional Equities) - Research Analyst [68]

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Okay. Just on this, does this lead to creation of any kind of receivable from your perspective in terms of if the amount is higher or lower than what the ultimate employer has been paying the associate employee?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [69]

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It's all been approved by our clients, and we have factored it into the invoices. And this has been happening since April, so we have no accumulation of receivables on this count.

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Garima Mishra, Kotak Securities (Institutional Equities) - Research Analyst [70]

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Okay. That is great. And if you could comment a little bit on the wage code, please. That's it for me.

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [71]

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Hi, Garima. So the labor codes -- the 4 labor codes the government has actually introduced: the 1 on wages; 1 on social security; 1 on working conditions. And so these have been in the works for a long time. It's going to subsume a lot of other individual codes. For example, if you take the code of wages, it's going to subsume Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, Equal Remuneration Act. All these things are going to get subsumed into 1 law. Essentially, what the government is trying to do is to simplify the entire labor law -- all labor laws to -- then to facilitate either doing business. Essentially, what they're also trying to do is to see if they can generate employment without diluting basic aspects of safety, security and health of workers and more importantly, to increase outreach of schemes to the unorganized and to the informal sectors. So this is what the government is trying to do. So -- and this is what we've been saying for a long time that these 44 different labor laws will need to go into -- will need to be simplified. And I think it was in that direction that this law has been done.

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Operator [72]

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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 [73]

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First, Ravi, I just wanted to seek some more insight from you on that same topic, the new labor codes. Obviously, I heard you -- I heard your comments about how it's likely to drive a significant increase in formalization of the sector. I just wanted to get your specific thoughts on which specific aspects of these codes do you think will drive this. I mean I noticed that in the code on wages, for example, there was some mention of having a compulsory appointment letter for all employees or some such thing. Is this the 1 element that will make it more difficult for informal players to sort of continue doing business the way they have been? Or is there some other aspect that you think you could look -- be the biggest driver of the spur towards increasing formalization?

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [74]

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Yes. I think it's not any of these things that will probably drive it. It's the enforcement of these, which will actually drive formalization. You can have the best law in the world. But if you're not enforcing it the way it's supposed to be done, the best laws will not work. Ashok has a point to say. I mean I'll just hand it over to him, yes.

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [75]

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So I think what the unification of the code is that it simplifies the multiple labor laws that we have today and the multiple definitions that exist today. But like Ravi said, at the end of it, while simplification is one of the desired objectives towards formalization, enforcement of the simplified labor laws is as important. So I think while we appreciate the simplification, the next step to drive formalization will be the enforcement. While a lot of the things indicated in there are positive towards simplification, I think we continue to have a negative feedback on the national minimum wage, which was again talked about in there. We believe that, that is not a good idea. But it is there, and we'll have to see how that will play out.

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

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And on that topic, given that the central government have -- seems to have given states the freedom to set their own desired minimum wages, do you still see a risk that there could be too high a floor, which will sort of discourage employment generation?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [77]

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Which is exactly why we are saying that the national minimum wage is a bad idea because the cost of living variables across different states and different locations are different. And if you are going to mandate a floor at the national level and if that is set very high, many corporates might resort to informal employment as a way to get around that.

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

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Okay. Got it. Second, the other thing I wanted to ask was on a completely different topic. Just going through your annual report, which came out today, and I just wanted to seek a clarification on the cash flows. So it seems from the cash flow statement there has been a significant increase in working capital last year and therefore, a negative cash from operations for the full year on a consolidated basis. So if you would just comment on what are the key drivers of this and how you see this going forward.

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Ramani Dathi, TeamLease Services Limited - Finance Controller [79]

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Yes. So Abhijit, last year, if you remember, we moved our registered office from Mumbai to Bangalore. So because of that process, our lower TDS certificate got delayed by about 3 months. So if you compare with the last 2, 3 years, we used to have a TDS of about INR 15 crore in the first to 3-months period. But last year, it has gone up to almost INR 60 crores because of the delay in lower TDS certificate because of shifting of registered office and [staff]. So that's the main impact on the operating cash flow. So if you exclude the TDS impact, our conversion of [low tiers] to net profit is almost 75% to 80%. And increase in working capital is in line with the increase in our specialized staffing businesses and HR services. So last year, our HR services have grown by more than 100%, and the working capital requirement also has increased.

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Operator [80]

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(Operator Instructions) The next question is from the line of Ashish Chopra from Motilal Oswal Securities.

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Ashish Chopra, Motilal Oswal Securities Limited, Research Division - Research Analyst [81]

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I just had a question as a follow-up on 1 of the questions asked by the previous participant. Just for the purpose of clarity and bookkeeping, if you could share what would be the like-to-like EBITDA margin adjusted for the accounting changes. Because while the general staffing margin seems to have increased by 40 basis points, I just wanted to understand on a Y-o-Y basis, what would that expansion do?

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

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We don't have the exact number on that. But just as a rough indication, it will be about 22% to 23% EBITDA growth in the general staffing; will be about a 5% growth in the specialized staffing; and then the balance would be the impact in that, the HR services, which is already negative.

And we have also managed to reduce the unallocated by virtue of direct hit to the P&Ls. We're trying to transfer as much of the unallocated as possible into the P&Ls. While this will vary quarter-on-quarter, but clearly identified, we've been able to reduce that in this quarter.

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Ashish Chopra, Motilal Oswal Securities Limited, Research Division - Research Analyst [83]

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Understood. And just secondly, Ashok, you mentioned the target of maybe taking the overall specialized staffing margin to 8%. Any time lines that you set yourselves for getting to that number?

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

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I think at end of the year, we should be at that.

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Operator [85]

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The next question is from the line of Aasim Bharde from IDFC Securities.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [86]

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So I have a broader question at the industry level. So yesterday, Maharashtra recently announced a minimum wage hike, almost doubled it. This risk has come up again where all players could possibility see margins shrinking with salaries in the state and for us, other states going up. I know this keeps coming up every now and then. But could you let me know how you are seeing this? Does this benefit organized players as a gap between unorganized and organized swing? And then also could it lead to a hit in margins in the near term for you guys given that the [natural] consumption environment [of staffing slumps of] recent things and it possibly might take some time to recover? Maybe not in your existing mandates but you may have a price inflation pass through, but in future mandates. Just want to know your thoughts on that.

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

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So most of our mandates are a cost-plus structure. So effectively, whatever the wage is, it's a direct pass-through cost to the client. And over and above that, we earn our markup. So when wage -- when minimum wage revisions happen at the state level, we can go to the clients for approval for revision of the same, and it is then incorporated into the salary structure and invoicing to the customer. So firstly, it does not have impact on our margins at an absolute level. But at a percentage-statement level, it could be marginally lower because the PAPM relative to an increasing wage salary could look lower as a percentage.

While it's a reality today that every state can make revisions to its minimum wage, and there's no control from our end or otherwise on what revision could happen, we had a similar incident 1.5 years back in Karnataka where the wage hike -- minimum wage hike was a large kick up that happened. Like I mentioned in my earlier statement of national minimum wage and a very large hike happening on the minimum wages front, it does tend to, at times, have a major reaction from corporates to try and drive employment to the informal route, so that they can circumvent minimum wage payment. But I think in the long run, if the enforcement from the authorities on the labor laws and the compliance requirement gets better, the formalization would have to happen. So there is a cost to corporates being in the formal space by virtue of the hike in minimum wages. But it doesn't have a direct impact on our margins at this point in time.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [88]

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Okay. Yes, that's very helpful. The second question is on the general staffing business. For that, I have a set of futuristic questions, but what can -- somewhat can be done to raise the margin profile of this business from current levels? And theoretically, where can explore other -- what can be a ceiling to margins in this business?

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

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So from a percentage or PAPM perspective, there won't be a huge change on this front, and I think we've been -- we were marginally increasing it by about 5% year-on-year. We had a dip in PAPM realization last year. We've been able to cover some of that again into this quarter. But I think -- I mean the bet for margin improvement in the volume staffing business is really going to come from volume growth and productivity of the team. So the way we measure productivity is the number of associates who can be serviced by a core employee. And that's something that we've been continuously looking at on a year-on-year basis and showing progress. And we've now effectively been able to -- about 40, 50 improvement in productivity year-on-year, so we've now brought that up to about 277. We do believe that through technology interventions, process changes and dialogue with customers on a recurring basis, the headroom for improvement on that front continues to play out to the long run. So it's difficult to peg a cap to that, but our belief is that continuous improvement year-on-year on that is possible. And that is really what will play to margin improvement in the long run where our costs are not linear with the revenue growth.

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Aasim Bharde, IDFC Securities Limited, Research Division - Research Analyst [90]

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Okay. Okay. And finally, do you have any plans to enter new verticals in the future like in the new industries within such [like] staffing or maybe, let's say, facility management and security services? Are there any plans?

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

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So I think our plan to continue to play to our 3 verticals of employment, employability and ease of doing business are still our focus areas. At this point in time, we have no plans to get into managed services or into any unrelated businesses. If we can organically or inorganically look at options for more specialized staffing verticals or opportunities, we will continue to keep our eyes open for that.

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Operator [92]

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The next question is from the line of Mihir Manohar from CapGrow Capital.

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Mihir Manohar;CapGrow Capital Advisors;Analyst, [93]

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Just wanted to know 1 thing. The recent legislation, which under British government has passed regarding the 75% utilization. So how would that impact us?

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Narayanaswamy Ravi Vishwanath, TeamLease Services Limited - CFO [94]

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I'm not sure how it will impact our business. But definitely, it is going to impact mobility of labor as far as Andhra is concerned. I'm sure -- I mean over time and -- I mean I guess, it's a very, very new thing that they have done. We need to visit to look at the law, the way in which it's been passed and try and see how it's going to impact us. But our initial reaction is that these things should not matter really. We'll probably need to assess it a lot more in detail.

And once again, I'll leave you with Ashok.

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

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And also the other reality, at least in India, that we have been facing and delivering to on a recurring basis is that we take people to jobs. We are not able to take jobs to people. So obviously, if states that mandate reservation for local employment are able to generate that volume of the jobs, we are more than happy to be hiring locally. But I think the reality at this point is a lot of the migratory population taking the jobs. And I think we will -- we don't see an immediate impact, but we will have to take it forward as it comes about -- if it comes about with more states.

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Mihir Manohar;CapGrow Capital Advisors;Analyst, [96]

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Got it. Got it. Perfect. And what would be your [perspective] for Andhra Pradesh, the amount of the total labor force that you are having?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [97]

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Very little, actually. Because historically, most of the industries were in the bifurcated State of Telangana. The exposure in Andhra Pradesh will be very limited, but we could come back with that.

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Operator [98]

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The next question is from the line of Amit Chandra from HDFC Securities.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [99]

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So we have seen regarding the additional core associates in the quarter. But if I see the number of associates in NETAP. So after 2 quarters, strong growth. We are seeing some slowdown there. So what is happening there? So is it going to pick up? Or is it a new number now?

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

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No, I think there has been an element of a slowdown in number growth. Twofold, one is we've had higher attrition in trainee numbers, and that has led to lower net growth; and two is some of the corporates received provident fund notice for coverage. And I think some of them have gone through, subject to clarification from the STT on this front. And I think that clarification should close out from the ministry of [HRD] and the STT in Q2. And post that, maybe we will again see an uptick in the proactive approach from clients. So I think we will -- and we do hope that the market's opportunity is still very large, and we will play to that opportunity. The 2 elements -- attrition is something we don't control, but we are working actively to see how we can reduce that. The second element is the regulatory clarification, which, when done, should again open opportunity on that front.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [101]

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So attrition in the NETAP is higher than the core associates. So if you can quantify what is the attrition overall for the company in addition to it.

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

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It's not higher than for the core. We also have a high attrition in IT -- in general staffing. In the associates front, as the volumes have been grow -- going, our early-stage attrition used to be only 5% to 10%. That has now gone to nearly 30% to 40%. So it's not that our associates -- our gross additions in volume staffing is actually very high. But the attrition being what it is, the net addition turns out to be coming around the 7,000-odd number. But when I say the attrition here has gone up, it used to be 5% to 10% but over the last 18 months, has gone to nearly 30% to 40%.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [103]

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Okay. And third, furthermore for the NETAP, what is the markup that we have this quarter?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [104]

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So it's the same, about INR 570 as an average realization, and the average stipend also stays the same at about INR 10,500. No difference from the previous quarter.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [105]

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Okay. So the INR 550, INR 570 is the range that you have been seeing for the last [many] quarters. So is it going to be in this in whole year? Or we can see some uptick here?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [106]

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I think it will be the same. I don't think there will be a huge uptick on this front. It's about 5% margin. And it's -- I mean relatively speaking, it is a competitive space with about 40 players permitted to provide new agents. And I think protecting this will be what we would look at.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [107]

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Okay. And so my last question would be on the income tax refunds that we're expecting this year. So what is the total quantum of the net income tax refund that we are expecting from all internal department and also the time lines if you can provide us?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [108]

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Yes. So we have a total we expect to be north of about INR 270 crore, Amit. Out of that, we are expecting about an INR 30 crore refund this year.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [109]

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Okay. So ma'am, after the 80JJAA thing that happened and -- after the 80JJAA benefit that you started to receive, so this INR 270 crores is the cumulative amount that we have -- that we expect from the income/loss department? Or this is going to be only for this year?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [110]

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No. INR 270 is the cumulative [80JJAA from below] the last 3, 4 years put together, and the INR 30 crore refund, which I mentioned, is the first year with 80JJAA, first year of adjustment with 80JJAA.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [111]

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Okay. So as of now, we have not received anything related to 80JJAA from the income/loss department, any receivable from the department, income/loss department?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [112]

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No.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [113]

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Okay. So this is -- this INR 30 crore will be first installment.

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

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That's right.

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Operator [115]

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The next question is from the line of Rohit Dokania from IDFC.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [116]

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So I just -- 2 questions. So Ashok, you did allude to the fact that this slowdown should not have a sudden impact on us, and we are kind of a springboard and also a shock absorber. But I just wanted to sort of understand if I'm not wrong, I think, for the FY '10 and FY '11, we did see sort of falling associates. So I just wanted to understand what was the environment then and what is different now, which makes us confident that as far as these sort of additions are concerned, that would continue to happen?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [117]

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'09, '10, I think, was a global recession. The likes of which no one had in a generation had experienced. And also it was widespread across industries. And at that point in time, even if we look at TeamLease, a larger element of our volumes came just from 2, 3 industries without a wide exposure to multiple industries and multiple clients. So when the recession hit and hit across sectors and more so the 3 sectors that we were prevalent in at that point in time, and there was a knee-jerk reaction where people pulled back. Also the ramp-up to '09, '10, I think was a scenario where there was a huge element of employment ramp-up that had happened without necessarily monitoring on the productivity aspect. At this point, I don't think there are many industries that have created employment as a large [flab] in the system. And the cutbacks, our belief will be more controlled in that sense. Also indicated at this point in time, don't seem to be a global recession of the like of '09, '10, and we'll have to wait to see how that plays out. And I think as [keys], we are more broad-based across industries and clients at this point in time. We do have a long tail of customers without major concentration to a few customers or industries. And we have other P&Ls that complement the organization at this point in time.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [118]

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Sure. This is very helpful. The last question that I had from my side was, so if I'm not wrong, and please correct if I'm wrong, the sort of [80JJAA] benefit is for sort of salary below INR 25,000. I think our average now is about INR 23,700-odd. So which means we'll probably be reaching that cap probably in the next, I don't know, 2 years maybe. So then how did the whole sort of tax piece, we'll call it, with the incremental hires was, you know -- we'll still to be able to ensure that our tax rate is almost close to 0? It was on the P&L side?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [119]

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Yes. Rohit, while the average is about INR 23,000, the median is still at about INR 18,500. So we still have a long way to go to catch up on the INR 25,000. So we believe that, at least for the next 2 to 3 years, we are -- we should not have any problem as far as the INR 25,000 limit is concerned.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [120]

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So Ashok, just can you confirm, so the sort of new hires, are they coming towards the sort of lower end of the band or...

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [121]

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At the lower end of the band. At the lower end of the band.

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Operator [122]

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We have one more question from the line of [Akshen Whorl] from (inaudible).

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Unidentified Analyst, [123]

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A couple of questions. First one is on the HR services. Even the top line is a bit soft in the quarter. I'm sorry if this was called earlier. Just wanted to understand what is the reason for that. And on the margin front as well, what should be a more sustainable margin going forward for the rest of the year?

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

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So like I said earlier, we, on nonreceipt of the money, don't take charge the new batches and hence, our ability to bill also comes down. So no new batches were started, and hence, the billing does not happen, and that kind of pulls down the overall billing. And that's primarily the reason why there is a reduction in revenue per se. Typically, the business works to about a 10% margin, and I think once we have a reversal on collections and that train is kept on track with the multiple states that we work with, the 10% margin is really what we target on the other HR services.

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Unidentified Analyst, [125]

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Understood, understood. And just -- when I look on the third item of the last quarter, it was about INR 5.5 crores, and how do we understand about this? Because that -- it's not helping us comparing the margins on a sequential or on a year-on-year basis. Adjusting for that unallocated, how would our general staffing margins look like as compared to 2.3% last quarter?

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Ramani Dathi, TeamLease Services Limited - Finance Controller [126]

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So if we adjust for the release accounting on a like-for-like basis, the general staffing margin for this quarter would be about 1.95%. So there is an overall 25 bps improvement in general staffing margin on a year-on-year basis, EBITDA margin. Unallocated, so if you mentioned, last time, Ashok mentioned over the call that we have been reducing our unallocated expenses by pushing all expenses maxed to their respective use to the extent possible. So except for very few corporate employees like the MB, CFO salary, we don't have any other material expenses in unallocated. So everything has been allocated to their respective use. So I mean on -- so right now, we are at about INR 1 crore of unallocated per quarter, and we expect this to more or less remain at the same rate.

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Unidentified Analyst, [127]

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Understood. I'll take this one offline, but I have just one last one. In terms of your pipeline, which subsegments are currently driving your demand? And just wanted to understand is there a meaningful exposure to [automotive rank] space and SI?

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Ashok Kumar Reddy Nedurumalli, TeamLease Services Limited - Co-Founder, MD, CEO & Executive Director [128]

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So I think like I mentioned earlier, we don't have concentration to any industry, and we do have an open position pipeline and growth coming from across sectors. So there's manufacturing. There's BFSI. There's consumer. There is the digital. So it's -- I wouldn't say there's 1 sector that is kind of giving us the maximum volume at this point in time. As I mentioned earlier also some of the larger dialogues that we have are in the 2,000 to 3,000, 7,000 kind of range. They're not that many. They're not concentrated to any industry. The medium- to small-client spread is across industry. So there's no major concentration at this point.

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Operator [129]

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That was the last question. I would now like to hand over the -- 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 [130]

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Thank you very much. So I think like we would continue to focus on building the general staffing and the specialized staffing services, playing to the productivity improvement and margin play on that front. Obviously, the integration of eCentric is done in Q1, and we'll work to ensure that the scaling up of the IT staffing business happens over the year. I think the focus for us is clearly going to be on the HR services front over Q2 and Q3 to ensure that the collections and the flow back of the provisions happen. And we will focus on that as a clear attention to ensure that, that loop gets closed out. But I think, overall, the trajectory currently for the coming quarters seems healthy, and we will continue to chip away on that front. That's it for me. Thank you.

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Operator [131]

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Thank you, sir. On behalf of IDFC Securities, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.