CEO Kartik Narayan told CNBC-TV18 that sectors like quick commerce, e-commerce, retail, and automotive are fueling industry growth, while logistics, electric vehicles (EVs), and agrochemicals are driving job creation within companies.
The Indian recruitment and HR services company has a market value of about ₹4,838.58 crore, and its shares have risen nearly 15% over the past year.
This is the verbatim transcript of the interview.
Q: Give us the highlights of the sectors that could be driving this growth. I briefly went through it, and you did mention all the heightened activity in quick commerce, for instance, that could also be contributing positively. So, tell us more if manufacturing and quick commerce are the driving forces.
A: We do this survey twice a year. To give a sense, we do this across 1,300 odd enterprises across 23 different industries to get a full view across 20 odd cities. What has come out is one, like you correctly pointed out, the H2 part of this year that is expected a 7.1% net employment increase and if you compare it with last year’s same time, it’s about 6.3%. So, it’s a good 12% increase.
The important question you ask is, which are the drivers, who are getting to it? There are two statistics on this entire thing. If you look at a large part of the companies, which are part of a particular industry, which is growing. In that sense, it is largely quick commerce, e-commerce, retail and automotive. But if you look at the sheer number of works which is expanding within a particular company, it’s largely coming across in logistics, electric vehicle (EV) and EV infra, agriculture and agrochemicals.
Q: That is very interesting because one would have thought that maybe some sort of improvement in the IT space; the traditional guys, banking, financial services, and insurance (BFSI), etc., which are underwhelming. And I also read that you are expecting the food processing industry to lead hiring in the second half as well. If you could give us a sense of these traditional industries and the outlook for the second half?
A: You are right. BFSI has been subdued for a while and that is since November last year across fintech largely led by some of the strictures by the Reserve Bank of India (RBI) on loans, especially unsecured loans. So that is one aspect of it and we are expecting it to remain like that, at least for some time. There were better monsoons this year as compared to what it was earlier. So, we expect some sort of a rebound in agriculture and agrochemicals, largely around seeds, fertiliser companies, etc., and all that. So that is the other aspect that we are expecting, to grow.
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Q: What does this mean for your business? I mean, as we look at trends going forward, what is your exposure to some of these sectors which are seeing higher workforce addition? Give us some contours of how business is going to be in the second half for you.
A: The most important part for us, as we look at some of this data, is that India continues to grow and that is the more important part. Therefore, in the first half, if you look at the Employees’ Provident Fund Organisation (EPFO) data, there was a 7% net employment increase. We are expecting similar numbers going into next year from an overall macro perspective.
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For us, we are net beneficiaries when there is an overall formalisation of workflows, which continues to happen. What we have seen this year as well is that while there are some sectors which are under stress, for example, fast-moving consumer goods (FMCG) and fast-moving consumer durables (FMCD) due to high input costs, etc., all that, is also driving some of these businesses to formalise more, and as formalisation increases for various reasons; for reasons that they want to eliminate ghost employees, improve their retention, productivity, I think we are net beneficiaries in that particular case. So, we are expecting positive momentum going into the next second half as well because overall, we expect employment to continue, increasing at a steady pace.
Q: What does that mean for your second-half outlook because your overall staffing and allied services grew about 8% in the first half? And in that, the specialised staffing declined by about a percent and a half in the first half. Second half, what kind of guidance can you give us when it comes to this vertical?
A: We do not provide forward guidance, but I can tell you that there is positive momentum across, including our EBITDA margins in terms of growth. Specifically, given that you called out IT, IT has been a dampener for a little longer than we expected it to be, but some sort of an offset is taking place by growth in global capability centre (GCC) businesses. So, we are expecting that to kind of help us out in the second half.
Q: You mentioned that there should be steady growth. Now, just give us, this not a question for only the next two quarters, but going forward, as some of the other businesses also pick up, and maybe generalised staffing picks up, I don’t know. Is that going to be further margin dilutive? You are at around 1-1.2% EBITDA margin as of Q2FY25. So, in terms of margin profile, what should we expect over the next couple of quarters?
A: Volume profits is what we need to be looking at from that particular business in terms of growth. However, having said that the industry that we occupy is functionally dependent on salary increases that some of our employers give our associates. And hence, as a function of that our margins do not grow at the same pace. So, I would say steady state as we speak going into the second half.
Q: And the mix between generalised staffing and specialized. What is that likely to settle at?
A: Difficult to put across specifics for the future at this point. So, it would be difficult for me to comment on that.
Also Read: Employers up 6.6% at 7.66 lakh; members rise 7.6% to 7.37 crore in FY24: EPFO report
Q: How far are you when it comes to your merger and acquisition (M&A) activity you did say that you are actively in discussions. This was about a couple of months ago. Has that moved further, are we likely to hear anything close out in this quarter or the next?
A: Yes, we are in active discussions, especially in what we call the human capital management (HCM) space. So hopefully, within the next six months, we are expecting some closure to happen, which is going to be net profit accretive for us.
Q: What is the broad size that you are looking at here because the net cash that you have, including free cash, stands at around ₹550-560 crore odd?
A: Some of those I am not able to share straight away as to what size we are looking at. But, hopefully, you should get to know as we close it out in this quarter.
Q: Will it be any more than the cash that you already have on the books? Or will you have to raise funds?
A: No, not at this point, we are not looking at raising funds.
