HDFC Securities is bullish on Teamlease Services has recommended buy rating on the stock with a target price of Rs 3500 in its research report dated May 29, 2019.
HDFC Securities' research report on Teamlease Services
Revenue stood at Rs 11.63bn down 0.8% QoQ (est. of Rs 12.24bn) led by 2.3% volume growth offset by 3.0% drop in realisation. Volume growth for FY19 stood at 19.2%, there are ~10K open positions (vs ~6K YoY) and demand is broadbased. Core staffing growth was soft (-0.5%) in the quarter due to lower realisation (-2.9%) which will recover gradually. Growth will be volume led and core staffing segment can grow at 19-20% organically. HR Services (2% of rev, -12.3%QoQ) will be volatile as it is project based. Specialised staffing (7% of rev) was flat QoQ, IT staffing is performing while Evolve (Telecom staffing) is in recovery mode. Teamlease acquired eCentric, an IT staffing company with ~100 core and~850 associates. Revenue is ~Rs 450mn with EBITDA margin of ~7%. EBITDA margin expanded 12bps QoQ to 2.2% (vs. our est. of 2.2%) led by productivity improvement. Core staffing margins expanded 25bps QoQ to 2.3% led higherassociate/core ratio (+3.8% QoQ). Core staffing margin is at all time high but there is scope for improvement led by automation and non-linearity. Mark-up stood at Rs 714 up 0.6% QoQ and remains a key driver for margin improvement. Salaryfunding exposure dropped to 14% vs 17% YoY, leading to better efficiency and lower working capital requirement.
Outlook
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.
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