TeamLease Services Ltd. share price target

Maintain BUY with a TP of Rs 3,125 based on 40x FY20E EPS. Teamlease reported muted set of numbers for 1QFY19 with marginal miss on revenue and margins. Revenue stood at Rs 10.21bn up 4.5% QoQ vs our est. of Rs 10.30bn. Growth was led by high growth in HR Services (+38% QoQ) while Core staffing (90% of rev) was up 3.7 QoQ and Specialised staffing (7% of rev) was up 3.0% QoQ.

ICICI Securities Ltd | Retail Equity Research Revenues grew 4.5% QoQ to | 1021.3 crore, largely in line with our 5.3% growth and | 1029.5 crore estimate. Revenues from general staffing grew 3.7% QoQ to | 916 crore, specialised staffing grew 3% QoQ to | 75 crore while HR services grew 39.3% to | 30 crore EBITDA margins fell 30 bps QoQ to 2.0% and were slightly below our 2.3% estimate mainly on account of higher-than-expected proportion of other expenses (3.2% of revenues in Q1FY19 vs. 2.4% in Q4FY18)...

24 July 2018 TeamLeases (TEAM) revenue grew 20% YoY to INR10.2b, (in-line), with strength seen across segments (12% YoY growth in General Staffing, 205% YoY in Specialized Staffing and 156% YoY in Other HR Services). Coming out of a soft FY18, headcount growth revived sharply in 1QFY19 net addition of 5,400 sequentially was close to the 5,900 added for full-year FY18. The disappointment came on two incremental revenue from lower-realization contracts and (ii) margin pressure in Evolve because of additional hiring. Post a soft year, associate headcount addition has been strong for the quarter; momentum is expected to continue/accelerate, going forward. However, growth from lower-realization contracts in General Staffing and added expenses in Evolve are expected to cap potential profitability expansion in the near term. Although we have revised our margin assumption downward by 10bp for FY19 to factor in the near-term headwinds (and EPS by 5%), our estimates beyond that remain unchanged.

However, trainee growth at 84% YoY although very strong does not get reflected in 15% revenue growth in Staffing and Allied Services, as revenue recognition for this business differs only part of it gets reported in TEAM. If we were to assume that gross (and not net) revenue for the trainee business got added, revenue growth for the segment (associates + trainees), according to our estimate, would stand at 20% YoY for headcount growth of 17%. For 15% revenue growth in Staffing and Allied Services, EBITDA grew by 48% our margin expectations for FY20 (at initiation) were achieved this year itself. The trainee business has EBITDA margin of 25%, but we estimate its contribution to the 40bp margin expansion in Staffing and Allied Services was to the tune of 10bp. While associate headcount growth was soft this year, it was compensated by growth in trainees.

ICICI Securities Ltd | Retail Equity Research Revenues grew 6.5% QoQ to | 977.5 crore, above our 5.1% growth estimate of | 965.3 crore estimate. Revenues from general staffing grew 5.1% QoQ to | 883 crore, specialised staffing grew 24% QoQ to | 73 crore while HR services grew 14.4% to | 22 crore EBITDA margins expanded 40 bps QoQ to 2.3% and were above our 10 bps expansion and 2.0% estimate mainly due to revenue growth PAT of | 21.2 crore was in line with our | 20.2 crore estimate led by...

TeamLease Services (TEAM) reported robust set of numbers wherein Net sales grew by 19.6% in line with our estimates. EBITDA for the quarter grew by 70% yoy on the back of 63bps margin improvement. However, PAT de-grew by 35.6% yoy mainly on account tax reversals in Q4FY17.

We maintain BUY with a TP of Rs 3,300 based on 40x FY20E EPS. Teamlease reported good set of numbers for 4QFY18 with beat on both revenue and margins. Revenue stood at Rs 9.78bn up 6.5% QoQ vs our est. of Rs 9.68bn. Growth was led by staffing segment (+5.1% QoQ, 90.3% of rev) and specialised staffing (+24.0% QoQ, 7.3% of rev, led by full quarter impact of Evolve acquisition). EBITDA margin expansion (+38bps QoQ to 2.3%) was encouraging and stood higher than our estimate of 2.0% led by richer mix. Growth in higher-margin specialised staffing business, rising associate/core ratio (+8.4% YoY in FY18) and higher mark-ups (+7.5% QoQ for FY18) are driving margins (+66bps to 1.9% in FY18).

Established in 2002, Team Lease Services (TEAM) is one of India's leading human resource services company in the organized segment. It has presence in all 29 states with a network of partnerships delivering in over 6000 locations with 2500 clients and 1600 core employees.

We met the management of TeamLease Services to get an insight into its business and future plans. TeamLease was established in 2002. It is the largest staffing company in India and leading provider of human resource services to various industries. TeamLease operates across three service lines with staffing & allied services contributing 95.4% to revenues in Q2FY18, IT staffing 3.1% and other HR services contributing 1.6% to revenues. During the last five years, revenues has grown at a healthy rate of ~27% to | 3041.9 crore with EBITDA turning positive from -| 20.7 crore...

We maintain BUY with a TP of Rs 2,610, giving 40x multiple to normalised FY20E EPS (excluding 80JJAA benefit), and again adding the NPV (Rs 70/share) of the tax benefits availed. TeamLease reported good set of numbers with in-line revenue and margin beat (+1.9% vs our est. of 1.7%). Revenue stood at Rs 9.18bn up 4.8% QoQ vs est. of Rs 9.28bn. Growth was led by IT staffing (+118.8% QoQ, 6.4% of rev, organic +9.6% QoQ). IT staffing includes two month integration of Evolve acquisition (Telecom staffing, 4.1K associates, Rs 1.76bn annual run-rate, 7.1% margin). Core staffing growth (+0.6% QoQ) was soft but margin expansion (+37bps to 2.1%) was encouraging. Growth in higher-margin IT staffing business, rising associate/core ratio (+4.3% QoQ) and higher mark-ups (+2.7% QoQ) are driving margin.