TeamLease investors won't get a respite from weak margins soon
Premium- Pricing competition and pushback from large clients on price hikes weighed on the company's segmental margins in the recent quarters, said analysts.
The stock of temporary staffing company TeamLease Services Ltd has been under pressure, falling nearly 28% so far in this calendar year. In comparison, benchmark index the Nifty500 has fallen only by 3%. Currently, at ₹3,021, the TeamLease stock is languishing near its 52-week low of ₹2,910 seen in June 2022.
This subdued stock performance can be attributed to a couple of concerns.
Lately, the company's margin growth has been lackluster. Pricing competition and pushback from large clients on price hikes weighed on the company's segmental margins in the recent quarters, said analysts.
According to analysts at Kotak Institutional Equities, TeamLease also invested in its own sales team as well as towards employee sourcing; while the former may drive better sales momentum in the next three-four quarters, the latter is an added cost with no material benefits in the near term.
"We cut FY2024-25 margin estimates on account of ongoing pressure in the temporary staffing margins as well as lower margin expectations in specialized staffing segment," said the Kotak report dated 29 September.
While the company's margins are unlikely to turn around in a hurry, another worry relating to income tax exemption is fading. Remember, there was uncertainty relating to the 80JJ tax exemption claimed by the company in past years.
Since the company has received TDS refunds for FY2018, FY2020 and clean assessment orders for FY2021, analysts at Kotak are of the view that the company has a strong case to continue to avail these section 80JJAA tax benefits.
In a report dated 26 September, analysts at Edelweiss Securities Ltd note that TeamLease is on track to add 35-40k associates during
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FY23, which is a significant uptick versus previous years. Rising headcount momentum is likely to aid sentiments towards the TeamLease stock. "In our staffing coverage, we reiterate our preference for TeamLease over Quess Corp Ltd, given the positive triggers in place. A 20% return on equity profile should make the case stronger," said the domestic brokerage house in a report dated 26 September.
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