Maintain BUY on Teamlease Services - Future bright - HDFC Securities

Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities and Mr. Mohit Motwani, Institutional Research Analyst, HDFC Securities

We maintain BUY on Teamlease, following a better-than-expected revenue (+2.7% QoQ) and margin performance. The core staffing revenue growth was soft (+1.3% QoQ), impacted by the second wave, but an uptick in the IT sector hiring led to strong growth in specialised staffing (+17% QoQ). Gradual improvements in hiring activity across key verticals (e-commerce, telecom, consumer, healthcare, BFSI and industrial) and addition of 47 new logos will aid growth in the core staffing segment (90% of revenue). The specialised staffing (8% of revenue) will continue to grow, led by 27 new client additions, an increase in open positions/hiring across domains, and improvement in realisations. Margin performance was better than expected (2.1%, +20bps QoQ). We expect gradual margin expansion with recovery in growth (2HFY22E), higher productivity, improving business mix (higher-margin specialised staffing), and lower cost of hiring. We increase our EPS estimate by 7.4/3.9% for FY22/23E to factor in margin expansion. Our target price of INR 4,240 is based on 38x June-23E EPS (five-year average PE of ~35x). The stock is trading at a PE of 51/36x FY22/23E.

Q1FY22 highlights: Revenue stood at INR 13.77bn, up 2.7% QoQ, vs. our estimate of INR 13.48bn. Core/specialised/HR services revenue was up +1.3/+17.0/+22.2% QoQ. The mark-up remained flat at INR 690 and the associate to core ratio declined marginally to 345 (-2.0% QoQ). EBITDA margin for core staffing/specialised staffing/HR services stood at 1.9/9.1/- 3.1%. Provision of INR 15mn in the government training business was collected in Q1. The company has a free cash balance of INR 2bn, which it may use for M&A activity. The cash collections continue to be robust (OCF/EBITDA at 130%). NETAP associates declined by 4.8% but the addition of 24 new logos indicate growth revival.

Outlook: We expect revenue growth of 24.6/26.9% in FY22/23E and EBITDA margin of 2.2/2.4% respectively, leading to revenue and EPS CAGRs of 24% and 40% over FY21-24E.

Shares of TeamLease Services Ltd was last trading in BSE at Rs. 4256.05 as compared to the previous close of Rs. 3930.6. The total number of shares traded during the day was 12295 in over 3772 trades.

The stock hit an intraday high of Rs. 4493.95 and intraday low of 3951.75. The net turnover during the day was Rs. 52375233.

Source : Equity Bulls

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