Quess Corp Ltd Management Discussions

Economic Overview

Global and Indian economy:

Global economy remained resilient as the growth perceivably bottomed out in Calender year ("CY") 2022 at 2.3%, with a growth of 3.2% in CY 2023, and is projected to grow at the same pace in CY 2024 and CY 2025 as well. While the pace of growth is historically weaker owing to near-term factors of high borrowing costs and longer-term factors of Ukraine-Russia conflict and weak productivity growth, the economy circumvented the risks of stagflation and recession along with steady growth in employment and incomes. The Indian economy maintained its steady ground in 2023-24, notwithstanding persistent headwinds from external demand, geopolitical tensions and volatile global financial markets. GDP growth sustained at 7% and above for the third successive year, driven by capex-push by the government leading to growth in fixed investments. Consumption, on the other hand, slackened a bit during the year due to uneven monsoons dragging both rabi and kharif production. However, urban demand was supported by improvement in labour market conditions, higher disposable incomes and a tapering in retail inflation.

Indian Labour Market Overview:

Labour market in India has improved beyond pre-Covid levels in India with steady growth during 2022-23 and 2023-24. As per the periodic labour force survey (PLFS), the unemployment rate declined to 3.2% along with an improvement in labour force participation rate, which now stands at 57.9%. Rise in formalization of labour market The share of the formal sector in the Indian economy has risen to 56%. While the number of workers in the formal sector has almost doubled in the past 15 years, the overall formalization in the labor market is still quite low at ~15%, signifying a huge headroom ahead. The organized sector job market, measured by payroll data for EPFO, indicate a consistent YoY increase in payroll addition since FY2018-19, and the yearly payroll additions have nearly tripled to 1.4 crore in the last 5 years. Increase in Female Labour Force Participation-Over the last five years, the female labour force participation has improved from 23% in FY2017-18 to 37% in FY2022-23. The government, in its G-20 presidency, listed ‘women-led development among the six priorities and also passed the women reservation bill (NSVA) in September 2023, doubling down on its commitment to increase the female participation rate. Female participation has been quite encouraging in the wave of human capital formation through the Skill India Mission and Start-up and Stand-Up India programmes. Under the PM Kaushal Vikas Yojana, over 59 lakh women have been certified (~40% of the total certified). Additionally, around 70% of loans have been sanctioned to women entrepreneurs under PM Mudra Yojana. Rising youth employment- Over the last decade, demographic dividend has been one of the central focus of government policy-making. According to the periodic abour force survey (PLFS), the unemployment rate among youth (15-29 years of age) has declined from 18% in 2017-18 to 10% in 2022-23. The Worker Population Ratio (WPR) has risen to 40% from 31%, five years ago, amounting to an additional 35 million people who have found work, compared to a population increase of only 17 million for the youth age group. While progress is encouraging, concerted initiatives to create ample opportunities for youth employment and skill development need to be created.

Workforce Management:

General Staffing:

In FY2024, Indias general staffing sector continued to remain an integral part of workforce management, demonstrating resilience and adaptability within a dynamic economic landscape. General staffing, which includes temporary, contractual, and flexible hiring solutions, continued to play a key role across various industries in addressing manpower requirements. The Indian Staffing Federation (ISF) has reported sustained growth in the general staffing industry, highlighting its continued importance in the countrys economic framework. The primary factors driving this growth include economic development, providing cost-effective solutions, access to a diverse talent pool, a refined regulatory framework, and technological advancements. A major contribution was witnessed during the post-COVID-19 recovery phase, when businesses increasingly relied on general staffing to adapt swiftly to fluctuating market conditions. During that time, general staffing offered organizations a cost-efficient mechanism for managing human resources, enabling optimized workforce utilization without compromising productivity or quality.

Leveraging Indias extensive talent pool, the general staffing sector has successfully facilitated access to a diverse range of skills and expertise, effectively addressing skill shortages and meeting the demands of short-term projects across various industries. Among the sectors, there has been a rise in the manufacturing sector, along with growth in BFSI and Retail. With India transitioning from a services economy to a services cum product and manufacturing economy, alongside the PLI scheme and skill-based programmes, the manufacturing industrys growth trajectory should continue in the medium to long term.

Within the staffing landscape, one of the major trends that has reshaped the industry has been digitalization. General staffing providers have leveraged technology to streamline recruitment processes, enhance candidate matching accuracy, and improve overall operational efficiency. As Indias economy continues to advance, the general staffing sector remains pivotal in driving productivity, competitiveness, and sustainable employment opportunities across multiple industries.

IT Staffing:

In a year marked by macroeconomic uncertainties, the technology industry demonstrated resilience, with enterprise software and IT services maintaining demand through extensive cost optimization and automation initiatives. Global technology spending in CY2023 increased at a slower rate of 4.4% year-on-year, largely due to a decline in hardware and device expenditures. The growth in spending was primarily driven by enterprise software and IT services, which expanded nearly 1.1 times the total tech spending.

Amid global geo-political tension leading to a more cautious approach towards investments and delayed decision making, Indias technology industry revenue, including hardware, is projected to reach USD 254 billion in FY2024, reflecting 3.8% year-on-year growth and an addition of over USD 9 billion compared to the previous year. Exports are expected to approach the USD 200 billion mark, growing at 3.3% year-on-year, while the domestic technology sector is anticipated to exceed USD 54 billion, achieving 5.9% year-on-year growth. Despite the tough market conditions, the industry continues to be a net hirer, adding 60K employees, taking the total employee base to 5.43 million (1.1% y-o-y growth). Europe, APAC, Manufacturing, Retail and Healthcare emerge as the key growth markets for the industry. Nasscom Annual Enterprise & Tech Services CXO Survey 2024 indicates stronger growth momentum for CY2024 with under-stressed sectors of BFSI, telecom, media and entertainment and hi-tech leading digital spending. Generative AI remains a key priority for over 95% of organizations over the next 6-12 months.

Moreover, the demand for IT hiring is extending beyond the traditional IT sector. Non-IT sectors are increasingly seeking IT professionals, resulting in rising costs for companies and global capability centers (GCCs). To manage these costs and access new talent pools, many organizations are expanding to Tier II cities. Cities such as Coimbatore, Visakhapatnam, Jaipur, Vadodara, Kochi, and Chandigarh are gaining popularity due to their improving infrastructure, digital penetration, favorable state policies, lower real estate costs, and availability of talent. This strategic expansion into Tier II cities not only alleviates cost pressures but also leverages the growing infrastructure and supportive local policies to harness a broader talent base. These cities are emerging as new IT hubs, contributing to the broader growth and diversification of Indias technology industry. As the industry evolves, the emphasis on acquiring specialized skills and adaptable talent will be critical for sustaining growth, fostering innovation, and maintaining a competitive edge in the global market.

For technology providers, FY2025 growth expectations look stronger, as 79% of the providers expect higher growth compared to last year. Hiring growth is expected to be positive, with 80% of the providers planning a higher level of hiring compared to FY2024.

Global Technology Solutions

Business Process Management (BPM): The Information Technology - Business Process Management (IT-BPM) sector is the largest private sector employer in India, with a workforce of 5.4 million employees, contributing 7.5% to Indias GDP in FY23, which is projected to increase to 10% in the next 2-3 years. With the potential to leverage new technologies and Indias leading position in process management globally, the industry is poised to create substantial employment and revenue opportunities.

The IT-BPM sector is well-diversified across verticals such as BFSI, telecom, and retail. Indias strategic position in the global market is strengthened by its extensive internet user base and the worlds lowest internet rates, enhancing its attractiveness as a digital hub. The nations digital infrastructure has been significantly enhanced by internet penetration, digital payments, rise and penetration of e-commerce, further fuelled by governmental initiatives like the Digital India Programme, which aims to maximize economic value and empower citizens through improved digital access.

Furthermore, Indias innovation landscape is advancing, as demonstrated by its improved ranking in the 2022 Global Innovation Index, where it rose six places to the 40th position. This progress is driven by a combination of government initiatives, innovation, and the rapid adoption of new digital applications, which are transforming various sectors and enhancing the daily lives of the people.

Payroll Outsourcing:

The global payroll outsourcing market was valued at USD 10.0 billion in 2021 and is projected to reach USD 18.7 billion by 2032, at a CAGR of 5.8%. Outsourcing payroll functions allows organizations to allocate their time and resources more efficiently, enabling them to concentrate on their core business activities. North America and Europe are major adopters of payroll outsourcing services. The increasing need for payroll cost visibility, escalating demand to reduce payroll-related costs, and increasing demand to standardize processes, technology, and governance are likely to drive market growth. Payroll outsourcing services are gaining traction across different industry verticals, such as Services, Manufacturing, BFSI, Healthcare, and Retail.

Additionally, the trend towards multi-country payroll outsourcing and cloud-based payroll solutions is anticipated to significantly boost market growth. The market is also benefiting from technological advancements and the integration of artificial intelligence and digital platforms, which enhance payroll processes. However, regulatory developments across geographies as well as cybersecurity threats could slow down adoption.

IT Services:

In CY 2023, the global IT services industry faced a slowdown, with growth rate moderating to 3-4% from 7-8% in the previous year. However, while the broader sector faced challenges, newer-age technologies in the domain of cloud services saw encouraging growth, with cloud-related expenditures increasing at an annual rate of 15%. The Indian IT services industry is quickly adopting the cloud and artificial intelligence markets, including multi-country payroll outsourcing and the integration of cloud-based solutions. The implementation of artificial intelligence (AI) has emerged as a pivotal area, with generative AI anticipated to drive substantial expenditures ranging from USD 150 billion to USD 200 billion on new AI-native services.

Technological advancements and the increased adoption of digital platforms substantially improve payroll processes and there is considerable potential for growth in technology spending, with a focus on enhancing productivity and integrating new technological solutions across business operations.

Operating Asset Management

Integrated Facilities Management:

The global Integrated Facilities Management (IFM) sector includes the comprehensive management of buildings and properties through the outsourcing of non-core activities. It includes soft services such as housekeeping and disinfection, hard services like HVAC and pest control, and other services that include catering and warehouse management. The entire facility management market is witnessing material transformations driven by technological advancements, new business models, disruptive competition and newer offerings. Value propositions have seen a shift towards service outcomes, user experience and business productivity.

The global IFM market is projected to reach USD 1,236 billion by 2027, growing at a CAGR of 6.0% from 2023 to 2027, a sharp growth compared to 2018-22 CAGR growth of 2.1%. The Asian market, particularly India and China, holds a 33% share as of 2022, and is slated to outperform global IFM market growth. In India, the IFM market was valued at USD 23 billion in FY2023, with ~51% of it being outsourced. The outsourced segment had a CAGR of 8.1% from FY2018 to FY2023, with the government sector growing at a 10.4% CAGR, outpacing the private sectors 6.0% growth. The governments Smart Cities Mission and UDAN programme promise a growing need for outsourced IFM. Privatization of airports as well as growth in commercial real estate are also boosting the demand for outsourced airport management services. The competitive landscape in IFM in India is highly fragmented, with a large part being small-scale and regional players. The players differentiate on various factors, including local region knowledge, workforce retention, compliance, goodwill, financial stability, technology adoption and value-added services. However, as global best practices are being adopted, there is a rising influence and value-add in emerging technologies like IoT and machine learning, which are enhancing operational efficiency, robust inventory management and enabling predictive maintenance. Additionally, there is a rising focus on sustainability and health & safety practices by organizations. These trends present substantial opportunities for larger service providers to invest in this space and deliver enhanced value to clients, while also fostering efficient, compliant and sustainable facility spaces.

Security Services:

The Indian security services, primarily the manned guarding services market, is valued at USD 23 billion as of FY2023. The private security industry is amongst the largest employers in India, employing close to 9 million people. The manned guarding services market currently has widespread usage as it not only protects a nations property and critical infrastructure systems, but is also used for protecting sensitive information and intellectual property. Despite a Covid-led decline, the industry grew at a healthy 12% CAGR between FY2018-23. In the next five years, during FY2023-28, the industry is expected to further accelerate at a growth rate of 20%.

Market segmentation by end-users indicates strong demand from the manufacturing and industrial sectors, with significant contributions from BFSI, IT/ITeS, hospitality, retail, and public infrastructure. The private sector holds 70% of the market share, while government entities are key clients, particularly for museums, monuments, and infrastructural assets. Key drivers include the prioritization of employee safety, escalating security concerns, and government initiatives such as the Smart Cities Mission and Make-in-India.

Technological integration has been pivotal in the sectors evolution, enhancing service efficiency and client satisfaction. Standard technologies now include access control systems, surveillance cameras, and alarm systems, along with advanced biometric solutions and remote monitoring capabilities. These innovations ensure comprehensive security coverage and streamline operations for maximum effectiveness. Organized companies are leveraging their scale and expertise to offer integrated security solutions encompassing manned guarding, electronic security, cybersecurity, and risk management services.

Telecom services:

Globally, India ranks second in terms of telecom subscriptions and internet subscribers, with 1.2 billion and 924 million subscribers respectively, as of FY2024. The accelerated growth in internet penetration is attributable to affordable smartphones and lower plan rates, coupled with policy support and increasing investments by telcos. The networking infrastructure in India has seen tremendous growth with increasing telecom penetration and 4G, 5G implementation. Growth in the sector is driven by consolidations, the addition of new sites, network upgrades & roll-out of data technology. The industry is highly unorganized, with moderate competition and dependent on telcos and OEMs. As the industry has shifted from connectivity service providers to digital service providers, the network service market is expected to be Rs. 700 billion market by 2025, with accelerated 5G network deployment, optical fiber roll-out, increasing demand for tower infrastructure and enterprise managed services. Between the 4 telcos (3 private and 1 government-owned), a cumulative capex in the range of USD 18-20 billion is expected to be invested untill FY26 for 4G and 5G roll-out.

Product Led Business

Online Recruitment:

The global online recruitment market is projected to grow from USD 32 billion in 2022 to USD 58 billion by 2030, with a CAGR of 7%. The anticipated expansion will be driven by advancements in internet infrastructure, the growing adoption of cloud technologies, and the widespread use of social networking platforms.

Digital adoption is increasing at a rapid pace, especially in rural India, with a spurt in smartphone usage, as the total active internet population is likely to touch 900 million by 2025 from 622 million in 2020. The rapid digitalization of corporate functions, including recruitment, is leading businesses to invest in platforms that not only provide recruitment services but also includes end-to-end talent acquisition solutions such as applicant tracking systems, digital interviewing platforms and learning platforms. There is also a growing prevalence of AI-enabled online recruitment with benefits like smart searching, personalized recruiter-led messages, thereby enhancing the user experience and improving operational efficiency. The next advancement for companies will involve the digital integration of additional processes within the recruitment lifecycle, such as skilling, assessments, and pre-screening, to ensure a seamless experience. Regionally, after North America, Asia Pacific is expected to hold a substantial market share, propelled by the swift adoption of AI technologies in major economies like China, Japan, and India. According to the World Economic Forum, significant changes are anticipated in the Indian job market over the next five years, driven by emerging technologies in AI, machine learning, and data science.

Financial Performance

Particulars	Consolidated		Standalone
	FY 2024	FY 2023	FY 2024	FY 2023
Revenue	1,91,001.33	1,71,583.87	1,55,711.84	1,36,379.33
Less: Cost of Materials and Stores and Spare Parts	4,771.95	4,794.39	1,877.91	1,807.64
Consumed
Less: Employee Expenses	1,65,567.73	1,46,595.61	1,39,014.18	1,20,386.62
Less: Other Expenses	13,726.55	14,337.25	9,999.99	9,899.18
EBITDA	6,935.10	5,856.62	4,819.76	4,285.89
EBITDA Margin	3.63%	3.41%	3.10%	3.14%
Add: Other Income	294.53	263.35	1,611.69	780.86
Less: Finance Costs	1,173.23	1,066.08	911.04	880.63
Less: Depreciation & Amortisation Expense	2,831.95	2,746.12	1,852.32	1,784.10
Add: Share of Loss in Associates	-0.69	0.84	0.00	0.00
Less: Exceptional Item	271.59	-535.03	506.24	8.90
Profit Before Tax	2,952.17	2,843.64	3,161.85	2,393.12
Profit Before Tax Margin	1.55%	1.66%	2.03%	1.75%
Less: Tax Expense	148.13	614.55	-267.36	314.53
Profit After Tax	2,804.04	2,229.09	3,429.21	2,078.59
Profit After Tax Margin	1.47%	1.30%	2.20%	1.52%
Add: Other Comprehensive Income/ (Losses)	-255.61	554.54	-212.69	73.61
Total Comprehensive income for the year	2,548.43	2,783.62	3,216.52	2,152.20
Diluted EPS (in Rs.)	18.61	15.04	22.97	13.93

Key Highlights for FY24

Revenue from operations

The companys consolidated revenue registered a growth of 11% during the year to reach Rs.191.00 billion as compared to Rs.171.58 billion in FY23. All platforms registered a healthy growth in revenue with our headcount net- addition of 56k (11% YoY growth) in FY24.

EBITDA

Consolidated EBITDA for the year saw a growth of 18% to Rs. 6.94 billion from Rs. 5.86 billion in FY23.

The focus during the year was on profitable growth; EBITDA margin increased from 3.41% in FY23 to 3.63% in FY24. Increase YOY attributable to margin expansion in GTS platform due to change in geographical mix, Food margin expansion in OAM platform & reduction of burn in Foundit in FY24 compared to last year.

Cost of Materials and Stores and Spare Parts consumed remained flat during the year as we saw a ramp down in our divested break-fix business due to low demand for spare services

Other Expenses

Other expenses decreased during the year due to cost initiatives in Travel and Conveyance, Consulting costs coming down and largely also due to reduction in Business Promotion spend in the foundit business. Our SG&A cost has decreased to 5.3% of revenue in comparison to 5.7% in FY23. This decrease is driven by a reduction in spend on business promotion and marketing expenses in our product led platform & continuous focus on cost initiatives driven during the year.

Finance Cost

Finance cost for the year was

Rs. 1.17 billion against Rs. 1.07 billion for the previous year, an increase of 10%. Increase in finance cost is due to exercise of non-controlling put option by non controlling shareholder of Vedang Cellular Services Private Limited during the year at Fair value, as well as interest component under IND AS 116 for new leases signed during the year. Finance Cost- The reduction in gross debt to Rs. 3.70 billion in FY24 from Rs. 5.31 billion in FY23, a reduction of Rs. 1.62 billion, reflects continued efficiencies in our cash conversion and resultant de-leveraging.

Depreciation and Amortization Expenses

The Consolidated Depreciation & Amortization (D&A) Expenses increased nominally by 3% to Rs. 2.83 billion in FY24 from Rs. 2.75 billion in FY23 on account of amortisation cost of new leases in line with business growth.

Share of Loss in Associates

Share of loss in Associates during the Balance Sheet Analysis year was at Rs. 0.69 million against profit of Rs. 0.84 million for FY23.

This is on account of losses in Quess recruit inc during the year as against profit in FY23

Exceptional Items

During the year, the Company divested its break-fix business, Qdigi Services Limited and recorded a net gain of Rs. 387.50 million.

The group recorded an Expected Credit Loss (ECL) amounting to Rs. 305.3 million relating to receivables from in its subsidiaries pursuant to discontinuation of some of these projects.

Income Taxes

Tax expenses during the year were Rs. 0.15 billion against Rs. 0.61 billion in FY23.

The effective tax rate for the year was 5% compared to 22% in FY23. The reduction in the effective tax rate is primarily due to merger of Conneqt Business Solutions Ltd.

Balance sheet analysis	FY 2024	FY 2023
Leverage Metrics
Debt: Equity	0.12x	0.20x
Working Capital Metrics
Receivable DSO	53 days	57 days
ReturnMetrics
ROCE (pre-tax)	15.18%	11.89%
ROE (post-tax)	9.85%	8.41%
Credit Rating
Long Term	ICRA AA [Placed on rating Watch with developing implications]	ICRA AA [Stable]
Short Term	ICRA A1+[Placed on rating Watch with developing implications]	ICRA A1+

Goodwill: Decrease in goodwill due to divestment in Qdigi Services Limited, impairment in Stellarslog Technovation Private Limited and Heptagon Technologies Private Limited.

Property, Plant and Equipment:

The net decrease in Property, Plant and Equipment during the year is due to depreciation.

Right of use assets: Right of use assets are lower during the year due to depreciation.

Financial Ratios

Investments: Investments increased during the year on account of subscriptions towards preference shares in Onsite Electro Services Private Limited.

Receivable DSO: Receivable DSO decreased by 4 days to 53 days vs. FY23, robust cash conversion , working capital management and collection drive

Cash and Cash Equivalents: The cash and cash equivalent balance including bank balances and current investments stood at Rs. 6.01 billion as of 31st March 2024 in comparison to

Rs. 6.12 billion as of 31st March 2023.

Borrowings: Long term Debt reduced to Rs. 17.58 million as of 31st March 2024. Short term Debt decreased by Rs. 1.54 billion to reach

Rs. 3.68 billion as on 31st March 2024. Debt-Equity ratio reduced year on year.

Non-Controlling Interest: increased during the year on account of profit in Allsec Technologies and reduction of losses at Foundit.

Cash Flow from Operations

Cash flow from operations increased by 14% from Rs. 4.66 billion in FY23 to Rs. 5.29 billion in FY24.

Ratios	FY 2023-24	FY 2022-23
DSO days	53 days	57 days
Interest Coverage Ratio	6x	5x
Current Ratio	1.36x	1.27x
Debt Equity Ratio	0.12x	0.20x
EBITDA Margin	3.63%	3.41%
Net Profit Margin	1.47%	1.30%
Return on Net Worth	9.85%	8.41%
Debtor Turnover Ratio	12.63	12.45
Working Capital Turnover Ratio	22.58	22.22

1. There is an improvement in the Debt equity ratio due to reduction in debt by Rs. 161 crores