TeamLease Services Ltd. share price target

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.

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...

In the backdrop of a limited listed history, lack of comparables to take cues from and the yet-developing understanding of underlying business dynamics, we add context and perspective to existing valuation metrics. The exercise leads us to believe that an extension of the time horizon coupled with a natural evolution of the business make a case for significant valuation triggers from current levels -in line with the benefits of a long-term growth story unfolding. Sustained superiority of financial performance because of industry trends, business model and operational excellence continue strengthening our positive long-term view on the stock

TeamLease Services Ltd. (TEAM), India's largest organised flexi-staffer, is at the cusp of redefining its long-term growth trajectory with several favourable factors likely to play out over the next decade. Market leadership (5-7% share) with an established track record of operational excellence (associate-to-core employee ratio - 203x) gives it pole position to reap the benefits of the flexi-staffing industry's imminent formalisation. Entry in the high-margin IT staffing business will further aid profitability. We estimate operating profit to triple in the next three years, with margin expanding 85bps. A strong balance sheet (net cash-to-equity of 0.4x, strong cash conversion) and stable management strengthen TEAM's ability to expand...

We maintain BUY with a TP of Rs 2,150, giving 40x multiple to normalised Sep-19 EPS (excluding 80JJAA benefit), and again adding the NPV (Rs 38/share) of the tax benefits that will be availed of over the next three years. TeamLease reported a good set of numbers in 2QFY18, with in-line revenue and margin beat (+1.7% vs our estimate of 1.6%). Revenue stood at Rs 8.76bn, up 2.7% QoQ vs est. of Rs 8.85bn. Growth was led by core staffing (+2.3% QoQ, 95.4% of rev) and IT staffing (+9.0% QoQ, 3.1% of rev). The core staffing margin came in at 1.6%, up 10bps QoQ, while the IT staffing margin expanded 425bps QoQ to 15.3%. Growth in the higher-margin IT staffing business, rising associate/core ratio (+2.9% QoQ), and higher mark-ups (+5.5% YoY) are driving margin expansion.

Margin improvement, tax benefits boost PAT: Revenue grew 21.2% YoY to INR8.8b (4pp miss). Slowdown in hiring, led by an inward focus of customers post GST, led to 18% YoY growth in general staffing (v/s 20% in the previous quarter), which is also visible from the QoQ decline in headcount of ~2,000. However, EBITDA margin expansion of 20bp YoY to 1.7% and a near-zero tax rate drove 94% YoY growth in PAT to INR176m (21% beat). Up on profitability, cash generation: We deem scale-related margin benefits and high cash generation to be the key positives of the staffing...

We maintain BUY with a TP of Rs 1,580, giving 30x multiple to normalised June-19 EPS (excluding 80JJAA benefit), and again adding the NPV of the tax benefits availed over the next three years. TeamLease reported good numbers in 1QFY18. Revenue stood at Rs 8.53bn up 4.4% QoQ vs est. of Rs 8.50bn. Growth was led by core staffing (+4.6% QoQ, 96% of rev) and IT staffing (+5.2% QoQ, 3% of rev). Core staffing margin came in at 1.5%, up 14bps QoQ, while IT staffing margin dipped 334bps QoQ to 11.0%, led by salary hikes (~9%). Growth in the higher-margin IT staffing business, rising associate/core ratio and higher mark-ups will drive margins.

TeamLease reported a soft quarter, with revenue at Rs 8.17bn (up 0.3% QoQ), owing to flattish core staffing (0.1% QoQ, 96% of revenue), and supported by the integration of Keystone (IT staffing). Core staffing EBITDA margin came in at 1.7%, up 11bps QoQ. Consolidated margin stood at 1.8%, slightly below expectations (1.9%).

We expect TeamLease?s revenue/EBITDA/PAT to grow at 22/45/39% CAGR over FY17-19E. We like TeamLease because (1) Macro tailwinds are driving growth for flexi-staffing, (2) Focussed management team with strong execution capabilities, (3) Scope for margin expansion, (4) Low capital requirements and (5) Market leadership position. The stock is down ~19% in the last six months, and currently trades at P/E of 26.2/20.1x FY18-19E.

One of India's leading providers of human resource services in the organized segment. It's staffing business accounts for 98% of the revenues while HR services accounts for the balance. Top-line growth will come from both the general staffing and the IT staffing vertical. But obviously the volume play is in the general staffing side. Look at margins the general staffing margin improvement is there is because of economies of scale and IT staffing vertical will overall because of a higher margin play improve the margin realization even with lower number. Sector converting into organized sector Lower penetration levels suggest huge growth potential Penetration level of flexi-staffing industry is lower in India as compared to developed regions like UK,...