Huda says: “We have a plan to break even in Foundit business by the end of this year, and we are very much on track. Foundit has had a 35% sales growth quarter on quarter and year on year. And there are a lot of initiatives that have been taken in Foundit to look at our cost base, our marketing costs. The development cost of the new product has been largely through so we expect Foundit to break even by the end of this year.”
What is leading to this high EBITDA growth? Has the cash burn in Foundit reduced?
Kamal Pal Hoda: Yes, the cash burn in Foundit also reduced, but that is not the only reason for EBITDA to go up. There have been a lot of operational synergies. As you can see, the EBITDA in all four of our platforms have gone up. So the WFM EBITDA has gone up by 5%. GTS the EBITDA has gone up 4% quarter on quarter. OAM, the facility management business, the EBITDA has gone up 14% quarter on quarter. So, yes, there is a reduction in cash burn in Foundit, but that is not the only reason, we had good growth from all our four platforms.
Okay, point taken. You are also expecting break-even in the Foundit business by the end of this financial year and that at least was the stated goal earlier. Are you on track?
Kamal Pal Hoda: Yes, so we have a plan to break even by the end of this year, and we are very much on track. Foundit has had a 35% sales growth quarter on quarter and year on year. And there are a lot of initiatives that have been taken in Foundit to look at our cost base, our marketing costs. The development cost of the new product has been largely through so we expect Foundit to break even by the end of this year.
Right. The other thing I wanted to talk about was that similar to the previous quarter, BFSI, retail, manufacturing has been leading the growth. Do you spot any green shoots when it comes to IT hiring?
Guruprasad Srinivasan: If you look back specifically for Q2, most of the hiring mandates have come specifically from manufacturing, retail and e-commerce. A substantial quantum of mandate has come from these four segments. We are seeing a similar kind of trend continuing even in Q3. But just to bring back the conversation, Q2 has been really a good quarter for us. Our revenues year on year has grown by 11%. Our PAT has grown by 79% year on year. A clear call out here is our higher margin businesses which are GTS and OAM platforms have started delivering good results.
In a sense, the kind of EBITDA growth that you see year on year between these two platforms are about 23% and 26% with regard to the EBITDA growth. It also brings in a kind of nonlinear contribution to EBITDA as they command a higher margin and good international revenue mix that comes into these two platforms. That has led us to where our PAT and EBITDA growth of 21% year on year for Q2.
How has the North American market performance been? Are you confident of a break-even at least in the second half of the year?
Guruprasad Srinivasan: In North America, we started our operations in Q2 of FY23. And there are some headwinds there in terms of market reach and reaction. However, by Q4, we anticipate be in a break-even stage. We have taken a lot of action in terms of the size of customer that we are onboarding and the kind of delivery structures that is required. And we have done some optimisation to keep it lean so that we do not burn too much cash. At the same time, we focus to be breakeven by Q4.
Earlier, the WFM segment was negatively impacted by a slowdown in permanent hiring. Has that improved?
Guruprasad Srinivasan: With regard to permanent hiring, I would say slightly better than what it was in Q1. But it is still not as even expected where it is supposed to be. But we will not be in a negative zone there. We will be in a break-even zone as far as our revenues and costs are concerned. Again, we have taken drastic action in terms of optimising costs there and ensuring the business performs to its level of revenue and cost at breakeven zone.
Coming back to IT, most of the demand is coming from GCCs, as you rightly said. Specifically IT services are still not hiring. We did anticipate some level of mandate was supposed to come in by Q3. We are still not seeing that moment yet. It is fair to say that most of the IT staffing growth would come from GCCs and other non-tech platforms.
How has the growth been and the trends been in the facility management business because there seems to be a bit of uptick in the competition there as well?
Guruprasad Srinivasan: So, facility management – if you look at it by EBITDA contribution – we have been able to grow about 26% year on year. It is also a high-margin business that delivers about 5%, close to about 5% EBITDA for us.
The food business which is almost over 10% of our overall OAM platform is doing substantially well with return to campus and open universities. The back-to-campus programme is online. And hence, we are able to realise much better bottom-line realisation in terms of the food business. Overall facility and security businesses we have done in terms of restructuring the customer portfolio mix.
So, with action on both cost sides as well as the new set of revenue accounts that we have signed, we have almost signed about 22 new logos in quarter two which will now start and will add much value for Q3 and Q4 and onwards. Overall, good to see this particular segment coming back to its kind of expected growth after a few quarters have passed by.
Right. So, any plans of taking a price hike in the near term?
Guruprasad Srinivasan: See, price hike is something we work with every contract because contracts across platforms are signed between one to three years, depending upon the type of platform that we are into. Whenever there is an extension of contract, those conversations would happen in line with inflation. Of course, the customer share, wallet share, the way business quantum that we operate into, it depends on all of that. But, we strive to have those discussions with our customers.
Lastly, there were some concerns on the Street regarding some income tax litigations, etc., that were underway as well. Any update on that front?
Kamal Pal Hoda: Yes. no significant change from the previous quarter. For two years now, we are in tribunal and for one year, we are in the DRP with the submissions. There have been no change of ground from either our side or the department’s position. And we will continue to take the right advice from our councils and we are very confident that these are legitimate claims and we will continue to defend our claims at all levels, wherever it is being heard upon right now.