TeamLease Services Ltd. share price target

Teamlease (TEAM) reported slight miss on revenue, +5% QoQ (Ple: 6.5% QoQ) due to impact of covid in March 21. Growth was led by strong General Staffing and NETAP trainees' headcount, +8% QoQ, 4% YoY surpassing precovid levels. Specialized staffing declined by 3.3% QoQ due to reduction of...

Formalisation, market share gains key long term drivers We believe the introduction of labour laws and e-invoicing could boost formalisation of the economy. We believe Teamlease will be a key beneficiary of the same. In addition, increase in temp staffing, consolidation of market and market share gains are other long term revenue drivers for the company. Further, gradual recovery in economy and improved traction in healthcare, education, ecommerce, manufacturing, essential retail and IT will further boost company's revenues. This, coupled with addition of new...

The company added ~7000 employees in NETAP, which means there are green shoots in manufacturing and auto. TLS expects improved demand from these two sectors, going forward. In addition, the company is seeing improved traction in consumer goods, e-commerce, telecom and some financials. This, coupled with addition of 24 new logos in the quarter, addition of large ticket customer and TLS' commentary of exiting FY21E headcount at higher levels than FY20, reversal of discounts keeps us positive on general staffing revenue growth (11% CAGR in FY20-23E). In specialised...

The General Staffing headcount remained flat on a sequential basis and was better than our expectation. Impressively, realizations remained stable despite the pressure on markups in the industry. Furthermore, FTE...

TeamLease reported revenue/EBIT/PAT growth of -9%/-4%/-9% YoY v/s our General Staffing headcount decline (10% QoQ) in 1QFY21 came in lower than initially expected (1620% QoQ). Even as the management is cautiously optimistic on prospects of growth recovery, we expect a good rebound in General Staffing headcount over the next two quarters. Our DCF-based TP of INR2,700 implies 32x FY22E Overall revenue was below our estimates as decline in Other HR Services In General Staffing, headcount declined just 10% QoQ (v/s ~15% for Quess) and revenue ~14% QoQ (v/s 22% for Quess). Across segments, margin expansion during the quarter was Realizations in General Staffing remained stable despite the markup pressure in the industry. Over the medium term, as both the central and state governments look forward to liberalizing and formalizing the labor markets, TeamLease should be among Stable realizations and aggressive cost rationalization should enable the company to report robust margin expansion in FY21E.

Despite challenging times, the company gained market share in general staffing business (added 78 accounts) in Q1FY21, helping TLS to register 14.5% fall in volumes vs. expected 18-20% dip. Going forward, we expect an economic recovery and market share gains to boost the topline. This coupled with traction in NETAP due to some improvement in manufacturing & auto will further give impetus to general staffing revenues. Also, we expect a revival in demand from BFSI, logistic, healthcare and FMCG to lead to healthy growth in general staffing. Hence, we assume 10.5% CAGR in FY2022E in general staffing. In specialised staffing, we expect revenues to...

Aggressive cost rationalization measures, full-year consolidation of a higher margin entity (IMSI), and shift in mix toward apprentices provides strong headroom for margin expansion during FY21E (50bp/40bp v/s For FY21-22E, we upgrade our EPS estimate by 15% and expect ~31% PAT CAGR. However, margins in General Staffing and Specialized Staffing segments specialized staffing and other HR services (INR62m), (b) provision write-back from the previous quarters in other HR services (INR45m), (c) MAT credit write-off (INR496m), as the company is moving to the new tax regime, and (d) 80JJAA driven quarterly tax aberrations. Recovery in some verticals like logistics and manufacturing is expected to take scope for further rationalization of ~300 employees, translating into cost savings In 4QFY20, TEAMs revenue/adj.

The spread of Covid-19 has led to lockdowns in many countries globally and could have adverse economic implications. In addition, the recent fall in crude prices could also have an adverse impact of fiscal health of oil producing countries. As a result, IT companies, which have considerable exposure to verticals such as oil, energy & utilities; banking & capital markets; manufacturing and travel & transport could see an adverse impact from the ongoing crisis. Companies like Wipro, Infosys in large cap and MindTree, NIIT Tech, Sonata software, Cyient, Accelya Solutions among...

30 January 2020 Robust organic revenue growth (+31% YoY) was almost entirely driven by general staffing. However, this has not translated into equally strong growth in EBITDA/PAT. Lower mark-ups in the recent contracts have been driving a secular decline in general staffing margins over the past few quarters. P/E multiples at a steep discount to Teamlease (57%), coupled with some of the recent positive developments, have led to a sharp re-rating (22%) over the past three months. Organic/overall revenue increased 31%/36% YoY, largely led by general staffing segment, while most other key segments remained modest at best Excluding the impact of Ind-AS 116 and the inorganic contribution from Allsec Technologies, EBITDA growth was weak at 5% YoY. Margin contraction within general staffing was the key overhang on overall margins. This could have been driven by lower mark-ups in large deals. Loss run-rate at Monster came down QoQ (EBITDA margin of -10% v/s -18% in 2Q).

We like company's low risk business model (non outcome based), focus on scaling core associates and diversified client base across sectors. There is scope for margin expansion through productivity benefits and better business mix. Teamlease's ability to grow ~15-20% organically, focus on driving productivity through automation, lower funding exposure, domestic focus and high management pedigree commands premium valuations vs. peers. We expect revenue/EBIT/PAT to grow at 19/21/17% CAGR over FY19-22E. Risks include adverse macros, discontinuation of Sec 80JJAA tax incentive and delay in tax refunds. We maintain BUY on Teamlease based better than expected revenue growth in 3QFY20. Growth in core business will continue based on higher open positions and recovery in NETAP. Margin expansion was lower than estimate but cost cutting initiatives, improving productivity and change in business mix will lead to margin expansion. Our TP Rs 3,444 is based on 40x (5Y average 1-y forward P/E of 35x) Dec-21E EPS.