Quess Corp — Q3 FY25 earnings call

Call held 30 Jan 2025

Management summary

Quess Corp reported a mixed Q3 FY25, with strong revenue growth but margin contraction primarily due to festive season bonus pass-throughs and demerger-related investments. While macroeconomic headwinds impacted sectors like BFSI and IT/ITeS, the company remains confident in an economic rebound and its long-term growth strategy, including verticalization and GCC-as-a-service offerings. The demerger process is on track for completion by Q1 FY26, aiming to unlock shareholder value.

Highlights

  • Q3 FY25 Revenue: ₹5,519 crores, up 14% YoY and 7% QoQ.

  • Q3 FY25 EBITDA: ₹197 crores, up 6% YoY, with margins at 3.6% (contracted 20bps QoQ, 27bps YoY).

  • Q3 FY25 PAT: ₹85 crores, down 9% QoQ but up 34% YoY, impacted by ₹22 crores demerger costs.

  • Q3 FY25 EPS: ₹5.4 per share, down 12% QoQ but up 26% YoY.

  • Workforce Management revenue: ₹4,047 crores, up 18% YoY, with EBITDA margin at 2.3% due to festive bonuses.

  • foundit business: Revenue ₹26 crores (down 29% YoY), EBITDA negative ₹9 crores, but cash burn improved to ₹25 crores (9M FY25) from ₹63 crores (prior year).

  • Interim dividend of ₹4 per share declared, translating to a cash outflow of approximately ₹60 crores.

  • Demerger plans are progressing, with NCLT approval expected in Q4 FY25 for Q1 FY26 listing.

Key financials

  1. Revenue ₹5,519 Cr +14%YoY
  2. EBITDA ₹197 Cr +6%YoY
  3. EBITDA Margin 3.6% -0.27%YoY
  4. PAT ₹85 Cr +34%YoY
  5. EPS ₹5.4 +26%YoY
  6. Gross Debt ₹224 Cr

What they filed

Q1 FY27: revenue up 14.5%, net profit up 60.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,705 4,019 3,656 3,651 3,832 +3%3,930 −2%3,892 +6%4,182 +15%
EBITDA69 62 67 70 77 +12%80 +29%86 +28%85 +21%
Net profit51 42 -95 51 52 +2%55 +31%64 +167%82 +61%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹5,519 Cr Total
  • Workforce Management ₹4,047 Cr 73.3%
  • Operating Asset Management ₹800 Cr 14.5%
  • Global Technology Solutions ₹646 Cr 11.7%
  • Product-led Business (foundit) ₹26 Cr 0.5%

Guidance & targets

Profitability

  • Workforce Management EBITDA Margin Profitability · year-end · Medium confidence 2.5%
    To that point, our target is to first from current 2.3%, inch back to about 2.4% and see how we can stabilize by year-end for this particular platform around 2.5%.

    — Guruprasad Srinivasan

  • Workforce Management EBITDA Margin (North Star) Profitability · Medium confidence 3%
    In terms of margin guidance, 3% for WFM is a North Star.

    — Kamal Pal Hoda

  • foundit Breakeven Revenue Profitability · per quarter · High confidence ₹45 crores
    Currently, we clock a revenue of INR26 crores per quarter. And just to put the perspective, at around INR45 we will be breakeven.

    — Guruprasad Srinivasan

  • foundit Breakeven Timeline Profitability · Medium confidence next 3 quarters
    With market opening up a bit and our renewal rate being almost 83%, plus product 2.0 which has been launched, the recruiter outreach program that we are working on gives us the confidence to get, maybe in the next 3 quarters we'll be nearly to the breakeven.

    — Guruprasad Srinivasan

Revenue

  • foundit Revenue Trajectory Revenue · near term · High confidence 20%+ YoY
    We are confident that foundit will resume its revenue trajectory of 20-plus percent year-on-year in near term.

    — Guruprasad Srinivasan

  • OAM Food & Beverage Exit Run Rate Revenue · High confidence INR300 crores
    Food and Beverage post integration with Archer will be a INR300 crores exit run rate business.

    — Guruprasad Srinivasan

  • OAM Telecom Infra Annual Run Rate Revenue · by exit of FY25 · High confidence INR300 crores
    Telecom Infra business continued its solid run with a 30-plus percent year-on-year growth and is on track to achieve annual run rate of INR300 crores by exit of FY25.

    — Guruprasad Srinivasan

Other

  • Demerger Completion & Listing Other · High confidence Q1 FY26
    So we are hopeful that we should be able to see all 3 companies demerged and listed by Q1 of next financial year.

    — Kamal Pal Hoda

Market context

  • Overall Business Growth Revenue · Medium confidence double digit
    While overall business will carry a growth target of double digit, each of the vertical may have much sharper target the way the market is reacting to that particular vertical and the opportunities existing for them.

    — Guruprasad Srinivasan

Risks & concerns

  • Macroeconomic slowdown impacting consumer and business spending

    medium

    Moderation in private consumption and investments, coupled with high inflation and elevated interest rates, negatively impacted consumer and business spending, visible in sectors where Quess operates.

    Management acknowledged

  • RBI tightening regulations impacting BFSI and collections business

    medium

    BFSI headcount growth remained flattish due to slowdown in unsecured lending and RBI tightening, with collections business also weak.

    Management acknowledged

  • Demerger-related costs impacting PAT

    medium

    Demerger-related expenses of ₹22 crores were recognized in Q3, leading to a sequential PAT decline, with some spillover expected in Q4.

    Management acknowledged

  • Visa restrictions impacting overseas staffing growth (Singapore)

    medium

    Singapore has not resumed growth due to visa restrictions, impacting overall overseas sales performance.

    Management acknowledged

  • Seasonal weak hiring and IT/ITeS sector headwinds impacting foundit business

    medium

    foundit registered a weak quarter primarily due to seasonal weak hiring and headwinds in the IT/ITeS sector, which accounts for 65% of its platform usage.

    Management acknowledged

Q&A highlights

3 direct
EBITDA margin contraction and demerger investments Direct
Q3 is a season around, we'll be coming out of the season post July to October. So this time, Diwali was somewhere on 2nd of November, and we actually saw immediately de-hiring as well, massive de-hiring after Diwali season. And of course, the specific segments such as retail and a few segments which are sales-led with the incentives and other commissions and bonuses that gets paid in the subsequent month, which is November and December, which typically is a kind of pass-through, and that's roughly about INR160 crores, which is a pass-through on which there won't be any revenue for us. So that's one of the reasons why the margin is slightly low. Second, macroeconomic, specifically in Singapore, our ramp-up is not happening currently...

Management provided clear, multi-faceted reasons for margin contraction, including seasonal bonuses, macroeconomic factors, and strategic investments, which helps investors understand the temporary vs. structural impacts.

Asked by Balaji Subramanian

Workforce management slowdown (BFSI, manufacturing, overseas staffing) and verticalization strategy Direct
there are broadly 2 things which are happening in the market. One is that there is an overall slight consumer sentiment reduction, which is visible in the economy itself... The second thing you spoke about verticalization... One is that we need to get depth in the service offerings that we give to customers. We are a large organization with 500,000 associates... The second point is that while we have seasonal factors, we have to, as an organization, look at the medium to the long term as well. We are in the midst of a demerger process for which we have to strengthen across the platform, leadership as well as the control functions for technology and others.

Management acknowledged the slowdown in specific sectors and explained their strategic response through verticalization and strengthening platforms for the demerger, providing insight into both challenges and long-term solutions.

Asked by Amit Chandra

Impact of new labour code and minimum wage changes on financials Direct
The ELI schemes, primarily rule drafting has been completed. Lots of stakeholder consultations have happened in the last couple of months... We feel wages eventually will go up because at the bottom of the pyramid, wages have to also go up as well. It will impact by 2 ways. Immediately, it will increase our revenues. On a margin percentage basis, it may show some stress. But on the actual earning of the rupee value, it doesn't because our contracts are hedged in such a way that any minimum rate change, and that's the same for the last 18 years, is automatically passed on to the consumer...

Management provided a detailed explanation of the labour code's status and its financial implications, clarifying that while revenue would increase and percentage margins might see stress, absolute rupee earnings would be protected due to contract structures.

Asked by Aniket Kulkarni

3 min read 7 chapters

Detailed narrative

Consolidated Financial Performance and Demerger Impact

Quess Corp reported Q3 FY25 revenue of ₹5,519 crores, marking a 14% YoY and 7% QoQ growth. EBITDA stood at ₹197 crores, growing 6% YoY, but margins contracted to 3.6% (down 20bps QoQ and 27bps YoY) primarily due to festive season bonus pass-throughs and demerger investments. PAT decreased 9% sequentially to ₹85 crores, influenced by ₹22 crores in demerger-related costs, but was up 34% YoY. The company declared an interim dividend of ₹4 per share.

Workforce Management: Margin Pressures and Strategic Verticalization

The Workforce Management platform generated ₹4,047 crores in revenue, an 18% YoY and 8% QoQ increase. However, its EBITDA margin dipped to 2.3% (contracting 17bps QoQ and 34bps YoY) due to seasonal bonus payouts (approx. ₹160 crores) and macroeconomic headwinds, particularly in Singapore due to visa restrictions. Management aims to stabilize margins at 2.5% by year-end, with a long-term 'North Star' target of 3%. The segment added 5,100 associates in Q3, led by consumer, retail, and telecom, and secured 124 new contracts with an ACV exceeding ₹150 crores. The company is focusing on verticalization to deepen service offerings and improve outcomes.

Operating Asset Management (OAM) Growth and Acquisitions

The OAM platform delivered ₹800 crores in revenue, growing 15% YoY and 4% QoQ, with EBITDA at ₹38 crores (up 4% YoY). Growth was driven by telecom and industrial verticals, which grew over 30% YoY. The acquisition of Archer Industrial Services' food and catering business is expected to establish a ₹300 crores exit run rate for the F&B segment. The telecom infra business (Vedang) is on track to achieve an annual run rate of ₹300 crores by FY25 exit, demonstrating robust performance.

Global Technology Solutions (GTS) Performance and Digital Focus

GTS reported revenue of ₹646 crores, an increase of 10% YoY and 3% QoQ. The Tech and Digital business grew 5% sequentially, with platform-based services growing 11% sequentially. EBITDA margin was 17.1%, slightly lower by 40bps QoQ due to investments in sales and leadership. The segment secured 61 new logos with ACV up 26% sequentially to ₹147 crores, with BFSI and media being key growth drivers. The focus remains on high-value offerings in digital and large, long-term deals.

foundit Business: Headwinds and Path to Breakeven

The product-led foundit business registered a weak quarter with revenue of ₹26 crores, a 29% YoY decline, and a negative EBITDA of ₹9 crores. This was attributed to seasonal weak hiring, IT/ITeS sector headwinds, and leadership transition. Despite the challenges, cash burn for the 9-month period significantly improved to ₹25 crores from ₹63 crores in the prior year. Management is confident that foundit will resume a 20%+ YoY revenue trajectory in the near term and aims for breakeven at ₹45 crores revenue per quarter, targeting this within the next 3 quarters.

Demerger Progress and Shareholder Value Creation

Quess Corp's 3-way demerger plans are progressing on track, having received NCLT approval and shareholder/creditor consent in December. The company expects final NCLT approval during Q4 FY25, with the demerged entities anticipated to be listed by Q1 FY26. This transition is viewed as a critical step to unlock shareholder value and position each entity for sustainable long-term growth, despite incurring demerger-related costs of ₹22 crores in Q3.

Impact of New Labour Code and Minimum Wage

Management discussed the new labour code, noting that rule drafting is largely complete and implementation is expected to aid formalization and ease of doing business. While a national living wage concept could lead to an increase in minimum wages, Quess's contracts are structured to pass on such changes to consumers, ensuring that absolute rupee earnings are protected. This means revenue would increase, though percentage margins might show some temporary stress.

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