Yet to get any hint of hiring in IT, expect improvement in H2: Ramani Dathi, Teamlease

“The current 1.4% margins will continue plus/minus maybe 5-10 basis points for next one or two quarters and only by the second half of next year, can we demonstrate improvement in margins because that is when we believe the recovery in IT will start picking up. Also we will get more clarity in terms of transitioning the NETAP trainees into other programmes or either converting them into staffing options,” says Ramani Dathi, CFO, Teamlease Services

Today we are seeing a huge selloff and we have seen the Teamlease stock also come under pressure. The market is perhaps disappointed, not just about the missing numbers, but also with the commentary on what we have seen in the last couple of weeks as well. More layoffs are taking place in the startup world. It has been nearly 25,000 since this year started. As earnings have been coming in the IT services companies, headcounts are also not going up. When are you going to bounce back?
Let me cover segment wise. In general, for the staffing business, for the months of October and November, we have seen decent demand and we think the same kind of hiring trend will continue into December because if we take our prior trends in the past years, Q3 contributes to our highest headcount in terms of growth and the layoffs or iteration will start picking up maybe end of Jan or mid of Feb.

This time we have seen a very weak festive demand by the middle of November and the layoffs have started by the end of November. In December, we did not have much growth in terms of headcount in general staffing and this came as a surprise to us. In terms of festive hiring, this is the weakest we had in years. So that is on the general staffing front.

Coming to IT, as we rightly pointed out, overall there is a hiring freeze. On top of that, typically in November and December, many companies apply brakes and there is lower billing for the resources who are on consultant rolls. So that has also impacted us and as of now, we are not seeing any pickup even for Q4 in terms of IT staffing.

We are seeing some momentum in terms of consolidation of numbers across vendors but we are yet to get an initial hint of the new hiring in IT.

The other business which is again a surprise to us is a degree apprenticeship business. On January 3, we received a notification that the NEEM Programme under which currently we have 26,000 trainees, the government is withdrawing the programme and we may have to release these apprentices in the coming quarters.

As of December, we already released 20,000 trainees and so that has also impacted our quarterly performance both in terms of growth as well as profitability.

I see how the segmental-wise businesses have done but is there any large message from Teamlease to the market that given the uncertainty that we are seeing in the larger world of staffing and employment, which is of being seen by all of us, when one is expecting a turnaround, should that be used to your margins now being around 1.4%? Should they be used to revenues staying flattish, if not seeing a downtick for the second half of the financial year and maybe even the first few quarters of the new financial year?
In terms of top line growth, and revenue growth even for the current year, we will maintain a 20% growth because we already have the pipeline for that to get to those estimates even for next year. Even if the current softer outlook continues, we can maintain a 20% growth. But the problem is in terms of margin expansion because for us, the main margin contributors are IT staffing and there we have close to 8% to 9% of net margins and the degree apprenticeship business.

With these two businesses going under pressure, we may not have any improvement in our overall margins for the next few quarters. Otherwise in terms of top line growth, headcount growth 15% to 18% can be maintained for next year as well.

It is good to know that you are maintaining your revenue growth at about 20%, but what about the share buyback? I understand that that is being considered next week? What exactly is the rationale for this?
So I cannot disclose details because the meeting is yet to happen, but the fact is that we did not do any M&A acquisition for the last three years and currently we do not have any other alternative investment opportunities. The board wants to revisit this discussion in terms of capital planning and allocation, how we should think about it and that is the main agenda for the February 3 meeting.

I understand that you were confident of that margin recovery timeline and that had been extended by another two to three quarters due to the NETAP incident. HR services and specialised staffing margins are at about 8% to 9%. What is the outlook now when it comes to your overall margin picture given that you are confident about your revenue targets?
The current 1.4% margins will continue plus/minus maybe 5-10 basis points for next one or two quarters and only by the second half of next year, can we demonstrate improvement in margins because that is when we believe the recovery in IT will start picking up. Also we will get more clarity in terms of transitioning the NETAP trainees into other programmes or either converting them into staffing options. For next two quarters, we may continue at the current margin levels.