Good evening, ladies and gentlemen. Thank you for joining us today for Q1 FY22 earnings call of TeamLease Services. On behalf of ICICI Securities, I would like to thank the management team of TeamLease for giving us this opportunity to host this call. On the call we have with us Mr. Ashok Reddy, MD and CEO, Ms. Rituparna Chakraborty, Executive Vice President, General Staffing, Mr. Sunil Chemmankotil, Senior Vice President, Specialized Staffing, and Ms. Ramani Dathi, Deputy Chief Financial Officer. We'll start off with opening remarks from the management team. Thereafter, we can open the floor for Q&A session. Over to you, Ashok. Thank you, Sudhir. Good evening, and thank you all for joining the call. Hope all of you and your near ones are healthy and safe. I hope that I would not have to repeat that again after last year, but obviously we've had the wave two and everyone's kind of recovering from that. We entered Q1 on a very positive note on the back of growth in the prior two quarters and also the industry sentiment. Corporates had made aggressive plans for growth and rebuilding the workforce for the opportunities ahead. COVID wave two and lockdowns were a surprise and a sentiment dampener at that point in time. I think the industry this time around responded very well. Last year we did see a lot of knee-jerk reactions and laying off of workforce and cutting costs in multiple areas. This round there was no knee-jerk reaction and there was a deferral, not a cancellation of growth plans that the corporates had. Attrition and deferral have impacted growth in associate numbers in Q1. We have stayed broadly flat to the previous quarter with a marginal growth in general staffing, a very positive growth in specialized staffing, and a negative impact in the trainees on the NETAP front. We've shown a healthy improvement of over 20% in headcount, revenues, and EBITDA on a YoY basis, and our EBITDA and PAT margins have also stayed healthy. We've added a good number of new client logos across businesses in Q1 and are confident of this addition of client logos and overall sentiment improvement post the end of the lockdowns driving growth going forward. We continue to stay focused on productivity, financial discipline, and digitalization to the future. This has played out with positive metrics on most variables we measure, like PAPM, the FTE ratio and so on. We will continue to improve over the coming quarters. We believe with the end of the wave two of the pandemic, the industry sentiment is coming back and will aid growth in the coming quarters. We are seeing a lot of demand across clients and industry segments to which we are geared to delivering and enabling more employment in the coming months. I think overall, as we enter the second quarter, there is a lot of demand from across industry segments that is kind of coming in, and corporates seem more positive and are not really factoring or planning for a wave three at this point in time. We have also been thinking about the board and building more diversity in capability and direction for the future. Towards this, we have a new non-executive chairman and an addition of three independent directors to complement the existing board. We believe this would further improve the foundations of governance and long-term sustainability of the company. We are entering Q2 with a lot of positivity given feedback from the corporate sector on demand growth and plans for employment generation. This should drive further growth in the coming quarters. I would like to ask my colleagues to give a brief update before we move to the questions. Ritu will cover on the general staffing, Sunil on specialized staffing, and Ramani, a brief on the finance side. Good evening, everyone. Hope all of you are staying safe. In spite of the all-around disaster caused by the second wave, I would say as a business we withstood the storm resolutely. While companies were better prepared, however, no one was prepared for the agonizing social impact of the second wave, especially on the supply side. In spite of encouraging positive headwinds running into Q1, we got hit in April and May quite hard, however, managed recovery in June. Net of which we had a marginal growth in associate headcount and were able to compensate for the significant associate exits in three ways. A, with a net growth in associates in three of the businesses where there was momentum. B, m aintaining aggressive hiring fulfillment ratios wherever there was hiring demand, however nominal. Thirdly, aggressive new logo sign-up across all businesses. Diversified product portfolio and I think disciplined optimization helped us maintain our PBT margin expectation. We witnessed net positive headcount growth in e-commerce, telecom, and consumer and healthcare. We had 47 new logo sign-ups during the course of the quarter. Most number of logos signed up are in industrial, largely we believe led by a need felt to move to a more credible and compliant staffing partner and e-commerce with a sheer need to scale up and headcount across the country. The impact of reorganizing the staffing business into the six business units are showing up in our sales aggression with new sign-ups, hiring contribution to gross additions improving by about 6% quarter-on-quarter in spite of the ground challenges during the second wave. Growing client intimacy with 43% of our customers showing net growth in associates over the previous quarter. Last quarter it was about 33%. Contribution of hiring done through teamlease.com to our gross additions went up to 24% as against 19% in the previous quarter. On rate discounts, I'm confident while there have been a few instances of COVID discount, both temporary and permanent, per customer during the quarter, going forward, we shall have minimal impact of such discounts. The trend diminished significantly between the first wave and the second wave. I just wanted to add that in spite of the discount pressure, we were able to maintain our PAPM realization at par with Q4 at INR 690. Our FT ratio did dip marginally during the quarter, and that's on account of planned headcount additions in sales and hiring right at the beginning of Q1, in line with the planned associate additions. However, April and May exodus of associates pulled us back. I'm quite confident with the pipeline for the quarter. We shall keep improving on this. Side by side, with continued progress on optimization, I think we would see the FTE going down. Also from cost per associate perspective, I think we are seeing an improvement. Talking about the Q2 pipeline. For Q2, we are seeing improved hiring sentiments across most of the six businesses. I'm quite confident about how the pipeline is looking for the current quarter. Aggressive hiring shall play a significant role across all verticals. A bit on the regulatory environment. Based on recent announcements and discussions with the Ministry of Labour, it seems that a fresh attempt is being made to get the rules ratified and implemented well around October. However, key to the success of the four labour codes would be the cooperation shown by the state governments. Industry engagement with the various stakeholders are on with Karnataka, U.P., Haryana, Assam, Maharashtra, and Telangana as we speak. Given the political climate, we shall see a division between the early adopters and the naysayers. Hence, 12- 18 months after the rules ratifications and notification would need our perseverance till it actually starts showing the visible difference on ground. A mixed climate of compliance would have to be endured around labor laws till that time. Focus now for staffing is to maximize upon the emerging positive momentum, ramp up hiring, keep improving our productivity through digitization and automation, and ensure net positive headcount growth across the six businesses. Thanks so much. Sunil, over to you. Good evening, everyone. From the specialized staffing point of view, it's a very good first quarter with robust year-on-year growth of 13% and sequential growth of 17% on the revenue front. Associate base grew by 10% as we continue to gain significant market share in this space. The PBT remained flat mainly on account of wage bill increase owing to increments and increase in capacity to support the future growth. The investments we made will pay off in the subsequent quarters, however. IT infra, and telecom staffing, the three main verticals where we operate, has seen significant hiring activity. We have continued to focus on high-margin business, mainly in the digital skills, cloud, cybersecurity, design engineers, full stack developers, and 5G technologies, which is kind of pushing our average bill rate and the realization thereby. We continue to improve our product portfolio mix by adding new customers across the gaming, MobiTech, HealthTech, energy, and engineering verticals, which we have constituted a few quarters back, and they're kind of paying us, apart from growing the existing industry verticals. Overall, we had 27 new deal wins. These additions will further foster growth in the coming quarters. We have a healthy pipeline of demands while we notice a demand-supply gap in many skills. We are addressing this gap with our hire, train, deploy, and manage product, which has kind of taken off very well with all our customers, and we are currently sitting on a good order book in this space. The strong momentum in the quarter, new deal wins, improved product portfolio mix, and strong pipeline of demands indicates a great Q2 and a year ahead. Overall, we are pretty confident that Specialized Staffing will perform very well in the coming quarter as well as the rest of the quarters this year. Thank you. Thanks, Sunil. Good evening, all. We improved our operating margins both on sequential basis and year-on-year basis through continued productivity enhancement and product. This is despite the flattish headcount and revenue that we have for the quarter. During Q4 of last year, we had a one-time non-operating income of about INR 3 crore, which is on account of interest on tax refunds, which didn't recur in Q1 of this year, because of which there is a marginal dip in PBT on sequential basis. In this quarter, we have two exceptional items with a net impact of about INR 2.6 crore, which is one item on fair value gain on the investment made in Avantis RegTech, which is about INR 4.4 crore and write-off of old tax receivable of about INR 1.8 crore. Barring these two exceptional items, the rest of the PBT is recurring in nature. During this quarter, in garment training business, we collected about INR 1.5 crore of provisions that we made last year. We are expecting more collections to come in Q2 and Q3. Operating cash flow conversion stayed strong on account of improved DSO and tighter control on our financial controls and hygiene. The overall outstanding TDS receivable is currently at about INR 140 crore, out of which we expect about INR 50 crore-INR 60 crore of refunds to come during this year. Our current free cash balance stands at about INR 200 crore, which we are planning to utilize for M&As and organic investments. There are a couple of active discussions on M&A, again, in staffing businesses, which would contribute to scale and expansion of our product offering. Thank you. Yeah. I think that broadly, we've had a mixed bag, given the COVID impact on the associate growth. I think the foundations that were laid last year have held good around delivering to the EBITDA, the PBT, the element of the metrics around FTE, PAPM and so on. In specialized staffing, we are clearly seeing good traction on demand, which effectively should enable further growth as we go forward. I think, as a company, we are geared and gearing ourselves to deliver better and stronger into the coming quarters. With that, Sudhir, we are open for questions. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Sudhir. Please go ahead. First question to you, Ashok and Ritu. Compared to your outlook and commentary during the last quarter, the commentary now seems to be significantly upbeat in terms of the demand outlook, so on and so forth. Apart from the COVID second wave as a variable, is there any other variable which is driving this confidence? Or just that COVID second wave related uncertainty is behind, so we are seeing a much better visibility of growth ahead. There are two elements, Sudhir. One was obviously when we made the last commentary, we were going through the second wave, there was an element of uncertainty about how long it would continue. I think we were a little cautious, like we had said, industry was deferring their plans, not canceling their plans. I think as we have started to see the lockdowns ending from June onwards, we have started seeing the industry coming back with demands and a need to hire and drive employment. I think just the element that wave two is behind us and the lockdowns have ended is bringing back the element of demand and sentiment. Coupled with that, as Ritu had mentioned earlier, there has been a lot of focus on adding new client logos. I think onboarding of the client logos is also going to drive demand for growth into the future. I think complementing that, as Ritu had mentioned, whatever demand has come in, we've geared ourselves up to a higher fulfillment ratio. I think what we are looking at is saying that irrespective of which industry, which company, which sector, and some of them are more positive than others, we stay geared for delivering to them, and that delivery is also something that is foundationally in place to be able to drive growth into the future. I think on the back of all of these, we are quite positive into the future as we look at it around the ability to drive growth on the associate count. Sudhir, in addition, essentially the decision and the choice that we made at the beginning of last quarter in terms of reorganizing the business across the key high-growth six clusters. Also, we have seen during the course of Q1 that in spite of the challenges of the second wave, some of the expected outcomes of client intimacy, our ability to gear our hiring specifically for those segments paying off for us. Like Ashok said, that for us, the fact that the logo signup momentum remains. A lot of these customers who had earlier intended to grow and add headcount during the 1st quarter, they just temporarily postponed their plans, and we are seeing headwinds of open positions going up. Our approach also has been now that given that the COVID uncertainty remains, we don't know, and hence the organization has to build capability to maximize the present opportunities. I think we have demonstrated that, which helps us be confident that as long as the opportunity exists, we'll be able to maximize our gains through it. I think that's pretty much the reason why we feel confident running into this quarter and the months to come. Sure. Thanks, Ritu. Just as a follow-up, on the onboarding of these new clients, any further color on these client industries, sizes of these companies, and what has driven such strong new client sign-ups after a period of time? That is first part of my question. On RPAPM, Ritu, last time when you spoke, you seem to have indicated that some of the COVID-led discounts on the RPAPM front may become permanent, and we may see pressure on RPAPMs, let's say, for the next one year. Now you seem to be suggesting that incrementally you expect very minimal pressure. Is it fair to assume that RPAPMs may stabilize at the INR 690, INR 700 number? I confidently can say that the PAPMs for sure will stabilize. However, we feel that if we are able to improve upon the product mix, we might just be able to improve upon it as well, Sudhir. I think those opportunities and those discussions exist for me to be confident about it. On your first question on the new logo sign-ups. I think the entire focus around creating these six segments, which is actually having distinct capabilities of customer acquisition, hiring, actually has led to us having greater intimacy of these domains, and hence the response that we've gotten from customers has been quite encouraging. That also has led to the spike in terms of our ability to sign up new logos. I think we are trying to give solutions which are very specific to the clusters and the businesses and their needs. To give you a little more color on which industry is maximum, I think two industries where the quantum of sign-ups were maximum were E-commerce, food tech, and the industrial staffing segment. I think just to add to the PAPM question, Sudhir. A lot of the discounts that were given last year have either been reversed or factored into a permanent rate structure at this point in time. In the wave two aspect, there have not been as many discount requests or repricing requests. There have been a few, and they have been implemented and factored for. There are a few large RFPs that we are bidding for. Typically, large RFPs do come at a lower price point. Should those come about as the companies decide, it might have some marginal effect on the element of the PAPM. I think largely, we should be able to hold the PAPM as we go forward. Sure, Ashok. One last question on margins. Your RPAPM, you are very confident either they'll remain stable or improve. Actually, both in general staffing and at overall level also, the margin improvement in this quarter seems to be impressive. We have given some wage hikes, and there are some upfront investments which we are expecting to give some back-ended benefits. Is it fair to expect, Ramani, that the margin expansion for this year, FY 2022, is it fair to expect a strong margin expansion in FY 2022 over FY 2021? Definitely, Sudhir. Again, with the combination of productivity enhancement in staffing and contribution from other high-margin businesses like Specialized Staffing and HR Services, we expect further margin expansion during the year. HR Services this quarter, there is a slight tick on their expected numbers because of delay in billings for a few of the businesses on account of second wave of COVID. Starting Q2, we expect HR Services also to start contributing meaningfully at the bottom line. Sure, Ramani. Why is this contribution increasing from other HR services? Ideally, we would have expected it to decrease because we exited some of these businesses. The profit contribution would go up because the businesses that we have exited used to give us losses. Since those businesses are completely exited and the EdTech and RegTech businesses have turned positive, we expect profit contribution to pick up from HR services. The businesses we exited, Sudhir, permanent recruitment didn't have much revenue. The decision was taken last year. It was just some element of a carry-forward revenue that was there in Q1, but thereafter, we haven't had revenue recognition there. The government business is in a sunset period. We didn't have much training happening last year and currently also because of the pandemic. There'll be some revenue bookings out there. I think as Ramani was indicating, we are looking at the investment phase in these businesses having been completed, and with the revenue ramp-up that they have in the focus segment, we expect to be more profitable there. Sure. Thanks, Ashok. That's it from my side. Thanks, and all the best. Thank you. The next question is from the line of Susmit Patodia from Motilal Oswal Asset Management. Please go ahead. Hi, good evening, everyone. Thank you for the opportunity, and congratulations, Ramani, again. My first question is, you had mentioned that you had done some investment in specialized staffing. I just wanted to check if the higher skill fulfillment is at least giving TeamLease higher gross margin while EBITDA margins may not show up currently because of the investment. Is that understanding correct? Yeah. I think, before I hand it over to Sunil, the investments made are primarily in terms of certain vertical focus and people deployment. A lot of the element of hiring for different verticals is dependent on having skill sets at our end to be able to identify and hire the resources. We've actually made investments in Q1. One is obviously the revisions and the salary corrections done, given the fact that we hadn't done any last year. The second element is just ramping up on the hiring team and some element of the vertical leads to give direction and focus for the open positions that seem to be coming up quite aggressively from the client side. These investments are really what will pay off for us as we go forward in terms of higher fulfillment. Even in Specialized Staffing, we have had good client logo acquisitions in Q1 that will further aid the element of open positions. Sunil will also add, yes. Just to add on the margin front, if you look at the three large industries where we operate, IT staffing, IT infra, and telecom. In the IT staffing space obviously because of the digitalization wave across our customers and the deals which they have won, most of the requirements what are coming to us are on a high-end business. We have already decided not to take the low-end margins a few quarters back, and that's the result. We are seeing an improvement in our overall margin. Adding to that, all the new requirements which are coming with around 15%-20% up on the bill rate. The realization also to that extent will increase in the IT staffing space. In IT infra space, we were operating on the IT infra and network support for quite some time. Now we have moved up the value chain into cloud, cybersecurity, and data storage space where the bill rates are high. Again, there we are pushing the margins up. In the telecom space, we have predominantly a large workforce in the network and distribution space. With the 5G adoption happening in many countries across, we have back offices in India, GCCs where we provide lot of 5G support and 5G technology-related fulfillment there, which come at a higher margin. Along with that, as I mentioned in my earlier address that we have expanded our verticals in gaming, OTT, energy sector and we also have now a presence in HealthTech and MobiTech. These all are positions where staffing is just kicking up and the requirements are mostly digital in nature and with a technology bent, so where we again get a high-margin business. If I look at overall portfolio, there is definitely an increase in the average realization and thereby since we work on a model where the bill rate goes up and we also get a better realization. We see a strong improvement in the margins and as Ashok explained, because of the investments, what we have done in Q1, obviously it may not reflect in the EBITDA, but I think this is an investment which will pay off in the subsequent quarters. Overall, the product portfolio mix will help us to push the margins higher. Thank you. I hope I answered your question. Yeah. Thank you. Thank you for that. Ritu, may I ask you, I have a couple of questions for you. The first one is, are there any new sectors that are opening up, like maybe real estate? That is first. Second is, when you talk about 47 additional logos, what is the base? So that it just gives us a better perspective of this number 47. We currently have about, in staffing alone, around 2,000 odd customers. That's what we're talking about. I think this particular growth in this quarter is significant, of course, in comparison to the previous quarter, and hence for us, that's a good sign. The other question that you asked was on, is there any sectors like in real estate and so on and so forth? I don't think there are any new sectors right now which are emerging amidst all the scarcity that is there in the environment. However, what we are banking on are the sectors which are having more resilient and the sectors that Have had that growth track record. They are the ones who will be contributing towards the future growth. I think real estate construction remains quite affected and very highly fragmented at this point of time. If you were to ask me that in the immediate future, am I looking at it as a sector to kind of give us large volumes? Not likely to be. What we will focus on, Susmit, is what we call emerging sectors as a key focus area to keep identifying any industry or company that is coming into play for staffing and kind of work on getting them on board so that we can initiate and kind of build for growth along with their growth. Sorry. Yes. Absolutely. EV being one of those sectors. Okay, interesting. Last question for Ramani. I'll get back on this provisioning thing. Did you make any provisions this quarter? Susmit, this specific quarter, we don't have any provisions, and in HR Services, as I said, we reversed about one and a half crore of provision. That shows up in other income, right? Since it's in the same year, in less than 12 months since we reversed the provision, it's been taken in EBITDA. It's been taken in EBITDA. Okay. Thank you very much and all the best. Thank you so much. Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead. If you look at the pre-pandemic period, our consistent belief has been with the scale and the formalization is a persisting theme. Margins would inch up period after period, and we will not only grow the business, but profits will grow at a rate much faster. Where are we in that journey from the margins today? If we have to take a three to five year view, what kind of improvements can we realistically expect? Bharat, from our perspective, we really looked at margin improvement coming in two fold. One is volume growth and scale, and the second element is the product portfolio mix that we have been working on and building up to. I think, obviously, relatively speaking, last year was quite flat. Quarter one has been flat, but as we had made investments in cost optimization and productivity and other aspects over the last five quarters, it has played to margin improvement, irrespective or despite the fact that overall numbers were rather flat. I think as we go forward and we look at the element of growth, the costs and headcounts are not going to be linear. By virtue of that, we do see the element of a margin improvement coming in by virtue of volume growth. As Ramani mentioned earlier, besides the element of growth and the margin from the general staffing business, specialized staffing has seen a very good traction on growth. It is a higher margin business which is also going to be complemented by the HR Services businesses that have turned positive and are quite optimistic to the coming quarters around growth and margin contribution. I think a combination of growth leading to productivity and the play up of the product mix will contribute to the margin improvement as we go forward, and we're quite confident about that. Would it be fair to say at least a 25 basis points, if not higher, on a three to five year basis per annum, that kind of an improvement can be envisaged? I don't want to give a guidance around that, but I think we have shown that there can be a clear margin improvement by virtue of the combination of these two variables, and our strong belief is that, that will play out as we go forward. The reason why I'm asking is in the pre-pandemic era, we were not shy about saying this, and rather we were pretty confident that should occur is a logical outcome, which is why I'm asking this question. No, no. We are still confident that the margin improvement story still plays out for TeamLease. I'm not being specific to 0.25 basis points is really what I'm saying. Okay. Secondly, clearly pandemic has been a rude interruption and a shock for everyone. Prior to that, also some of the strategic choices we made probably were less than ideal. Government business, HR Services which were loss leaders, and then the write-offs. To add to all of these, the challenge induced by the pandemic. Can we say structurally today, we are far more resilient, far more robust? Strategic and other issues are behind. Some of those non-defined items which can hit up its provisions and erode away profits. That kind of a picture of difficulties occur time to time and challenges time to time are behind, and we can now look at assuming no more rude surprises on pandemic. Next three to five years, we look at our business in a far more structurally stronger shape than before. I think structurally being focused around what we believe is the future has been the course for TeamLease, and we have not ever made unrelated diversification as a strategic choice. There are some businesses that did not work out, and we have chosen to exit them. Certain experiences come only from bad choices. I think at this point in time, the clusters and the P&Ls and businesses that we have chosen to play, we believe have the market opportunity, believe we have made the investments, have the team to deliver on the outcomes for them given what the market holds on that front. Going forward, I think it would be right for us to continue to experiment. Like we have said, we are from a staffing perspective, looking at industry verticals. From the specialized staffing perspective, we are verticalizing and looking to build additional verticals. None of these are large investment areas, but these are investments that we make to explore opportunities that could play out to growth in the future. I think incremental choices to make around opportunities that could become large will be made and tried out. Some of them will play out and some of them might not. I think none of these choices that we make will be a make or break kind of a thing for TeamLease. They will complement and supplement our existing business. To the point on unplanned provisions that hit our profits in the past. Those provisions are mainly on account of two businesses, permanent recruitment and government training business. Permanent recruitment, we already shut it down. Government training is in sunset mode. All our current businesses, continuing businesses are annuity revenues with recurring billing month on month. They're all asset light with minimal working capital, high cash conversion and high ROCE. Yes to your question. Now our structure and portfolio is more resilient with very minimal surprise elements on any kind of one-off provisions and other events. One last question. Thank you, Ramani, for that. One last question. In this journey of the next five years, apart from potential improvement in the character and the strength of the business, not just by way of addition of more clients, but diversity and conscious choices made, and deployment of greater technology to improve the strength and the character of our own business. Will the return on capital employed also, we should expect similar or more than proportionate improvement in the journey of five years ahead? Bharat, if we exclude the free cash that we have on our balance sheet, our return on actual working capital deployed is currently at about 35%-36%. This would remain at this rate because we are increasing our growth in Specialized Staffing and HR services, which has an average of 60-75 days of DSO. While staffing the DSO is very minimal, it's only one to seven days. With growth in other businesses, non-staffing businesses, the overall DSO at company level will slightly go up. Our next five year ROCE target is also to remain upwards of 30%. We will witness growth and cash flows improving, but capital efficiency probably will remain in the current range. Yes. Capital efficiency, we would target to sustain at the current range of 35%. Thank you. Thank you. The next question is from the line of Abhijit Akella from IIFL Securities. Please go ahead. Good evening, everyone. Yeah, thanks so much for taking my questions. First one, just a quick query on the P&L. This quarter, it seems like the other expenses have gone up quite significantly, sequentially, from INR 36 crores to INR 34 crores. Offsetting that, it seems like the employee cost to sales ratio has fallen significantly quarter-on-quarter. Just wondering if there's been some reclassification or something like that in the expense lines. Abhijit, this quarter, HR Services had a higher revenue growth even sequentially. The other expenses growth is corresponding to the HR Services line of businesses like our EdTech business and a few other operating expenses of other businesses. These are all directly linear to the growth in revenue that we had. There was no abnormal increase. These were expenses directly related to certain P&L revenue increases that we had. Okay, got it. Second, just if I may, on the margin improvement outlook for this year, for both specialized staffing as well as general staffing, are there any numbers that we could sort of put out as a target for this full year for these two segments? No, Abhijit, we don't give any guidance. Both the businesses have a clear plan on their margin expansion. We will expand our margins quarter-on-quarter. I think it's also largely driven by the aspect that the investment in people and cost has been upfront factored in Q1. We don't expect much more cost increases as we go forward. As we look at growth, the non-linearity of the cost should work on the margin improvement. On specialized staffing margins, we are already at the optimum levels of 10%-10.5%. While our absolute profits in rupee terms would go up substantially, in terms of margin percentage, we believe sustaining this 10%. Will be the key focus. Yeah. Got it. Thank you. One last quick thing. There was this recent news in the press about one of your peers having to face income tax kind of surveys, et cetera, relating to their tax deductions and all that. Is our accounting treatment and accounting practices broadly similar to what's being followed there? Do you see this as somewhat of a risk to the 80JJAA benefits for the overall sector? You think that's not really an issue going forward? Abhijit, firstly, what we came to know is this is more of interpretational difference. While the income tax department has taken a quite different interpretation of some of the clauses under Section 80JJAA. At the same time, at TeamLease, we have taken a more conservative approach while claiming for Section 80JJAA benefits. That's also because our profitability in the past years is relatively lower compared to our competition. We have evaluated our numbers in detail and took legal opinions and other consultations on this matter over the last two weeks after getting this news out. We are confident that we are fully protected, even with the far extreme interpretation which the department has taken. I think the relatively conservative approach to arriving at the benefit value and adjusting it to our profit, even with the element of the opinion and approach that the income tax department has, our workings done over the last two, three weeks show that we are protected to what we have claimed. Okay, understood. Thank you so much. I wish you all the best. Thank you. Thank you. The next question is from the line of Jonas Bhutta from PhillipCapital. Please go ahead. Good evening, everyone. Congratulations on a great set of numbers. A couple of questions. Ramani, if you can help us with the bump up that we've seen in the HR services revenue, particularly in the subsidiaries. Is that largely on account of the merger of Avantis coming in as you're accounting for the revenues of Avantis? Whether this INR 15 crore, INR 16 crore kind of quarterly run rate is something that we should work with for the year, or do you expect that to sort of progressively increase? Also noticed that the implied EBIT on that INR 15 crore, INR 16 crore is -INR 1.7 crore roughly, while you mentioned that both RegTech and EdTech have turned positive. Just wanted to understand this disconnect. That's my first question. Yes, Jonas. Firstly, on the sequential bump up in HR services revenue, Avantis contribution is very minimal. Their quarterly revenue is about INR 2 crores for this quarter, and the rest is purely on account of growth in our EdTech business, both in corporate training and SchoolGuru, university billing. The quarterly run rate of INR 15 crores-INR 16 crores that you see in Q1 is recurring in nature and can be sustained. In fact, because of second phase and delay in admissions for the universities and even postponement of class or examinations, some of the billings that are supposed to happen in Q1 got deferred to Q2. We are expecting this kind of sequential growth to continue for next two quarters as well in HR services. I think this element of deferred, delayed invoicing on account of the second wave is really what has hit the bottom line of HR services. As we go into Q2 and the sequential growth in revenues, we should be able to cover that going forward. I think when she mentioned that we are at profitability in these businesses on an annualized basis, we are. There's an element of a seasonality and also the wave two impact in Q1, which we believe will get corrected as we go forward. Sure. That's helpful. My second question is to Ritu. I missed out on the comment that you made on FTE productivity, which sort of sequentially has gone down, which I think is more on an investment or if it's more long-term in nature. Generally, when we started the year, the indication was that we will trend closer to 380, 400 by the end of FY 2022 in terms of FTE productivity, whether that still stands or there's a change in that. Added to that again, the growth when we started the year, or at least when before the second wave hit us, was likely to come in NETAP, primarily because you were seeing a transition happening in the manufacturing base where clients were focused more on taking on apprentices rather than the general staffing business associates. Whether that trend is again coming back or not. That's my second question, and then I have one more. Yeah. Let me just answer before Ritu takes over. I think on the NETAP front, given the impact of lockdowns in the manufacturing and auto sector, we did see a large impact in the Q1 of last year. Similarly, we have seen an impact for NETAP in the Q1 of this year also. However, what we have seen as has played out last year is that the rebound thereafter is faster for NETAP. We have started kind of seeing that starting June in terms of the demand that is kind of coming in on that front. I think as we go forward with no more lockdowns and waves, we should see healthy growth coming in on that front. I think the marginal reduction in the FTE is a function of certain hires having happened as an investment towards sales and customer relations to drive growth into the future. Obviously, because of second wave, we have kind of been flat on numbers, and that has marginally reduced the FTE. As we go forward and growth comes in, we don't have plans for large headcount growth internally, and that should effectively ensure that we have incremental growth on the FTE front. I'll ask Ritu to answer. I think pretty much it's that we made some upfront investments in sales, customer engagement, hiring at the beginning of the quarter. On account of the impact that we saw of the second wave, headcount did not play out. We are very confident that the way we have been focused around optimization of our internal productivity, the kind of automation and digitalization projects that we are constantly taking live for our internal employees as well as for customers, that we will be able to significantly improve the FTE productivity ratio by the end of the year. Sure, ma'am. Quickly on the acquisition strategy, because there again, we mentioned that we are actively looking at options in both staffing and specialized staffing. Just wanted to understand if you can elaborate on the gaps that we are actually evaluating these opportunities in. As we are incubating these niche verticals in gaming, OTT in-house, whether those are now off the table in terms of acquisition. Just wanted to understand where are the gaps if you are incubating most of these businesses in-house with verticals such as OTT, et cetera. If you can just touch upon that will be great. That's my final question. Thank you. Incubation will be a continued focus for us to enter into new industries or new verticals. We will also continue to focus on the organic growth. What we have seen is that an M&A inorganic opening balance enables the platform for a faster growth thereafter. I think that is really where we are looking at M&A in two buckets. One is either just scale, which will give us certain clients and volume, along with some element of a managerial bandwidth that can be driven for higher growth in our hands. The second element is what we call transformation, which could be new verticals or products that we will be able to hit the market running with, so that we are able to build on that. What we have seen as a reality is that when you're starting from scratch, irrespective of your pedigree and how big the company is, the opening runway is always slow. When we are able to hit the ground running with certain numbers and clients, we are able to drive that faster to growth. I think that's really where we are looking at the M&A strategy from. Sure. That is helpful. Thank you. Just one minute, sir. Leadership Sunil as well. Sunil will just add. Yeah, just to add to what Ashok said, when we look at a M&A strategy, one is of course scale, second is transformation, and third, we also look at leadership because it comes with lot of expertise, people who have been running those new verticals or products in the transformation space. That adds to our overall team. If you look at specialized staffing, we do have a good set of leadership which has come through M&A, and they are organically growing the verticals which they were managing as well. That's again, one of the key focuses when we look at M&A. Thank you. Thank you. The next question is from the line of Yogesh from BNK Securities. Please go ahead. Yeah. Thanks a lot for the opportunity. I have a question for Ashok. What are your thoughts regarding our strategy in this specialized staffing? Use of staffing firms for the specialized staffing requirement is relatively newer category or we are still in nascent stage. Why not go for the entire spectrum of revenue opportunity, rather than just focusing on the high margin one? In general staffing, you operate at such a low margin, but it's still a very good business. What stops us from going down the margins, as far as this specialized staffing is concerned? I think in a sense, that is really what we are doing even today, in saying that the same client might have a requirement for certain specialized skills at a rate card model, which will be addressed by the specialized staffing business. They might have certain volume requirements at a low margin, which will be addressed by the general staffing business. What we are really trying to focus on between specialized staffing and general staffing is the kind of profiles, the level of candidates, and the wage bracket at which people are deployed. We'd like to address the entire spectrum of requirements for the customers. In the process, we don't believe we have to cannibalize the high-margin business towards the low margin. I think there is a continued focus to deliver to volumes at the lower margin. We would love to get those margins up, clients are very price sensitive around that. In the Specialized Staffing business, the margins are higher, but the volumes are low. Having said that, it is not to say that it's not a good business to be in. We entered the year with about 7,000 odd associates in the Specialized Staffing space. We've added 10% associate base in Q1. We are seeing a healthy demand on that side, just given the facts of work from home, the cognitive skills of the higher end of the workforce in Specialized Staffing, and so on. I think for us, it is not to cannibalize that we've created the two separate focuses. We believe that we will address the entire spectrum of needs for the customer, as they have it. Just a follow-up on this. Regarding the specialized staffing, what has been the trends in the working capital cycle? Has that been stable or any comments regarding the receivables in that sector of the business? Two years back, the working capital cycle used to be at 90 days when we were trying to integrate all the acquisitions under Specialized Staffing cluster. That working capital cycle has been consistently brought down quarter on quarter, and we are currently at about 65 days. We believe that this cycle is something which we can sustain on a long term. I think the discipline around working capital cycles, payments, and collections has been quite rigorous from our end. I think that element of rigor will continue in all businesses. While clearly Specialized Staffing needs more focus, just given that it's 100% funding business. I think we are at an optimal, 60+ days around the DSO, and we should be able to sustain that as we go forward. Sure. Thanks a lot for the responses. Wish you all the best. Thank you. Thank you very much. Ladies and gentlemen, that was our last question for today. I will now hand the conference over to management for closing comments. Thank you. In closing, thank you all for participating in the call. It has really been a difficult quarter for the industries, employees, and families in this second wave of the pandemic. We at TeamLease had over 25% of our core employees testing positive and we having to help them through this period. I think the mutual support, resilience, and hard work has seen us through this period. We believe the end of wave two will be very positive to industry sentiment. We will build on that for growth and continued focus on productivity, financial discipline, and investments for the future. Look to your continued support as we forge ahead to putting India to work. Thank you very much. Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.