TeamLease Services Ltd. share price target

NETAP addition to see better trajectory in coming quarters Revenues from general staffing (including NETAP) grew 6.8% QoQ (14.5% YoY) driven by a mix of associate growth (1.5% QoQ) and average realisation. Lower number at associate addition on a QoQ basis is due to weakness in addition in NETAP headcount (led by slowdown in manufacturing) and attrition in associates (in FMCG and retail) in December, which was usually a February phenomenon. As per the management, weakness in NETAP has bottomed out and would gradually see an...

The company's general staffing revenues increased at a lower-thanexpected rate at 16.6% YoY mainly led by mere increase of 5.4% YoY (average growth of 40% YoY in last five quarters) in NETAP headcount in this quarter. This was mainly on the back of weakness in manufacturing and auto segments. In the near term, any significant improvement in NETAP business is unlikely. However, continued growth in general staffing associate headcount (ex-NETAP) prompts us to believe the company could clock growth of 20.2% over FY19-21E in general staffing. This accompanied by acquisition of eCentric in IT staffing, led us to estimate 23.3% growth in...

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 ~20% organically, focus on driving productivity through automation, lower funding exposure, domestic exposure and high management pedigree commands premium valuations vs. peers. We expect revenue/EBIT/PAT to grow at 19/24/19% CAGR over FY19-22E. Risks include adverse macros, discontinuation of Sec 80JJAA tax incentive and delay in tax refunds. We maintain BUY on Teamlease despite slight miss on revenue and margin in 2QFY20. NETAP trainees addition was impacted due by core sector slowdown. However, general staffing (~75% of total associates) is on growth track and will have a strong 2HFY20. Our TP Rs 3,415 is based on 40x Sep-21E EPS.

2QFY20 revenue at INR12.7b grew 16.2% YoY (v/s est. 23.5%) while EBITDA at INR245m grew 2% YoY (v/s est. PAT at INR202m declined 20.1% YoY (v/s est. 10 November 2019 General staffing associates grew by 4,415 QoQ (14% YoY) to 165,029, below our est. Specialized staffing saw a decline of 309 associates QoQ to 6,549 (+8% YoY), below our est. The decline in specialized staffing headcount was led by reduction in Telecom sub-segment associates from ~3,700 to 3,500.Revenue from Other HR services declined 25% YoY due to planned reduction in exposure to government mandates.

Healthy demand pipeline to keep general staffing robust The company's general staffing revenues increased 23.4% YoY mainly led by associate addition of 7642 QoQ and 32678 YoY. This quarter saw a higher addition of medium and small clients, which led to an increase in mark up QoQ to | 730 per employee per month (PEPM) from | 714 in Q4FY19. The company has 12,000 open position in general staffing, which reflects that the company has good pipeline in this segment. This coupled with healthy traction from manufacturing consumer and BFSI prompt us believe that the...

Teamlease is witnessing steady demand across sectors. Rise in open positions (~12K vs. 8K) reflects robust demand while platforms like Freshersworld.com are helping to attract talent. We like company's low risk business model (non outcome based), focus on scaling Core+NETAP associates and diversified client base. There is scope for further margin expansion through productivity benefits and better business mix. Teamlease's ability to grow ~20% organically, focus on driving productivity through automation, lower funding exposure, domestic exposure and high management pedigree commands premium valuations vs. peers. We expect revenue/EBIT/PAT to grow at 21/27/23% CAGR over FY19-22E. Risks include adverse macros, discontinuation of Sec 80JJAA tax incentive and delay in collection of tax refunds (Rs 2.3bn). We maintain BUY on Teamlease based on in-line 1QFY20. Positives include (1) Acceleration in core staffing growth, (2) Improving core productivity and (3) Growth in mark-up. Our TP Rs 3,520 is based on 40x June 21E EPS.

EBIT and PAT were impacted by profitability in Other HR Services', where the company created a provision for INR60m due to delay in collections. These are expected to reverse in 2Q-3QFY20. Adjusted for the provision, TEAM's EBIT would have grown 32% to INR231m...

General staffing to drive overall revenue growth In FY19, overall revenues grew 22.7% YoY led by 19.2% growth in total associate headcount. Total associate headcount increased 34888 YoY to 2.16 lakh in FY19, of which entire addition came from general staffing business. General staffing is mainly a volume play business. Hence, it is expected to be a major driver of revenue growth. With the management indicating ~17-18% volume growth in FY20E, we expect general staffing &...

Teamlease is witnessing traction across BFSI, e-commerce and Manufacturing sectors. Portals like Schoolguru and Fresher's world are helping in talent acquisition. Macro tailwinds, such as (1) Labour reforms, (2) Focus on higher compliance, (3) Rising preference for organised staffing, and (4) Govt-driven skill development initiatives (NETAP) will drive ~20% CAGR in organised flexi-staffing. We like company's low risk business model (non outcome based), lower dependence on funding model, focus on scaling Core+NETAP associates, scope for margin expansion through productivity benefits and better business mix. The stock trades at a premium valuation of 35x FY21E, which will remain considering the structural growth story, focus on organic growth and domestic exposure. We expect revenue/EBITDA/PAT to grow at 20/26/24% CAGR over FY19-21E. Risks include macro slowdown, drop in mark-up and competition from unorganised players. We maintain BUY on Teamlease based on in-line 4QFY19. Core staffing segment (~91% of rev) growth drivers are on track and margin performance is encouraging. Our TP of Rs 3,500 is based on 40x FY21E EPS.

Teamlease (TEAM) reported a tepid quarter with gross revenues declining by Change in Estimates | Target | Reco ~1% QoQ & specialized staffing and other HR service verticals pulled down overall performance. Specialized staffing growth in Q4FY19 was mild at 9.1%...