TeamLease Services - Expect healthy growth and margin expansion - ICICI Securities

Reported headcount / revenue growth (5% / 14% QoQ) in general staffing was strong and ahead of our estimates. Revenue also witnessed tailwinds due to pass-through component (e.g. festive bonus). However, margins were below expectations led by continued impact of one-off provisions / expenses in Other HR services segment. Near-term outlook remains strong with the company expecting to close FY21 at a similar headcount as in FY20. As in the earlier downturns (e.g. GFC), business services firms like TeamLease should be key beneficiaries especially during the recovery leg, which appears to be currently in play. Reduction in compliance cost under the new labour law paradigm should drive medium-term benefits. While provision for bad debts has hitherto been a recurring problem so far, reducing exposure to Government T&D business should limit this issue going ahead. Driven by: 1) full benefits of some cost rationalisation initiatives, and 2) operating leverage, we expect 80bps improvement in EBIT margin to 2.2% over FY20-FY23E. Maintain BUY as we expect TeamLease to be the best proxy play on workforce formalisation.

- Revenue beat, margin miss. Headcount in general staffing increased by ~5% on a sequential basis. Revenue growth (+14%) was much higher also aided by some tailwinds like pass-through revenue (e.g. ad hoc festive bonuses for associates). While general staffing reported strong growth, performance in specialised staffing was muted (+3%). EBITDA margins (1.9%) were lower than our expectations, primarily due to: 1) higher pass-through revenue in general staffing, and 2) one-off provisions / expenses in 'other HR services'. Sequentially, specialised staffing is the only segment that reported margin expansion (+150bps to 10.6%). It should be noted that provisions in Other HR services' have become a recurring issue impacting margins. While realisations remained largely stable, productivity in general staffing reported a good increase (from 300 in Sep-20 to 334).

- Strong near-term as well as long-term outlook. Reduction in compliance cost under the new labour law paradigm should be a key driver of medium-term growth. While provision for bad debts has been a recurring problem so far, reducing exposure to Government T&D business should limit this problem going ahead. Driven by: 1) full benefits of some cost rationalisation initiatives, and 2) operating leverage, we expect 80bps improvement in EBIT margin to 2.2% over FY20-FY23E. Maintain BUY as we expect TeamLease to be the best proxy play on workforce formalisation.

Shares of TeamLease Services Ltd was last trading in BSE at Rs.2831.45 as compared to the previous close of Rs. 2769.6. The total number of shares traded during the day was 3206 in over 682 trades.

The stock hit an intraday high of Rs. 2864.45 and intraday low of 2697.45. The net turnover during the day was Rs. 8965649.

Source : Equity Bulls

Keywords