Staffing firm TeamLease Services initial public offer (IPO) hit primary market on Tuesday (February 2). The company has fixed Rs 785-850 per share as the price band for its IPO. The company is expected to garner Rs 424 crore at the upper end of the price band. The issue will close on February 4.
Here are 10 key points you should know about TeamLease Services
About the company: Teamlease Services is one of India’s leading providers of human resource services in the organised segment delivering a broad range of human resource services to various industries with a vision of putting India to work. Its services span the entire supply chain of human resources in India, covering aspects of employment, employability and education. Its core business is providing staffing solutions across industry sectors and diverse functional areas. The majority of Associate Employees are engaged in sales, logistics and customer service functions.
Objective of the issue: The company plans to use the net proceeds out of estimated fresh issue of Rs 150 crores for funding existing and incremental working capital requirements (Rs 80 crore), acquisitions and other strategic initiatives (Rs 25 Crore), upgradation of the existing IT infrastructure (Rs 15 Crore) and general corporate purposes.
Clients and competitors: Some of the clients of the company include Vodafone, Dupont, Godrej Industries and PNB Housing Finance. Top 5 clients contribute 17.6 per cent to the revenue and top-10 clients contribute 24.6 per cent to the revenue. TeamLease’s competitors include Adecco SA, Manpower Inc, Randstad Holding NV, and Kelly services among global peers and Quesscorp among Indian peers. There are no listed entities similar to its line of business and comparable to its scale of operations.
Financials: TeamLease’s revenue has grown at 30 per cent CAGR over the past 4 years. With an asset-light & zero debt structure, the company plans to use the issue proceeds towards working capital, upgradation of IT infrastructure and towards inorganic opportunities.
Strengths, opportunities and concerns: According to Reliance Securities, market leadership, strong client engagements and high industry growth rate are some of the positives for TeamLease. On ther other hand, highly price competitive industry, lower contract duration, high fungibility of vendors and high attrition and absorption of the temporary personnel are some of the major risks and concerns for the company.
Valuation: According to Reliance Securities, at the upper price band, TeamLease issue is priced at P/E of 49x FY15 EPS. Assuming 30 per cent EPS CAGR over FY15-17E, it’s priced at 30x FY17 EPS. Global listed peers (including Randstad, Adecco) of TeamLease trade at 15.5x P/E with a median RoE%/OP%/PAT% profile of 15%/5%/3%, respectively as compared to TeamLease’s RoE%(post issue)/OP%/PAT% at 16%/1.2%/1.5%, respectively.
Outlook: According to SMC Investments and Advisors, the company is looking to increase its value- added business by playing more active role in candidate selections and trainings, but the company faces risk from low entry barriers, resulting in high competition. The industry is highly fragmented with no significant differentiation between staffing services offered by various players. However, this issue is likely to create fancy being first mover IPO in the Staffing segment. A long term investor can opt the issue.
IPO Grading: The offer has been graded by CRISIL Research and has been assigned a CRISIL IPO grade of ‘4/5’.
Lead Managers: IDFC Securities, Credit Suisse and ICICI Securities are the lead managers of the issue.
About Industry: India is the world’s second largest labour market. Only around 10 per cent of its labour force works in formal employment. According to Sharekhan, the overall workforce is expected to grow at a CAGR of 2-3 per cent during 2011-12 to 2018-2019. The formal workplace is expected to grow at a CAGR of 9-10 per cent during 2011-2012 to 2018-2019. Sectors such as manufacturing, financial, real estate and business services and retail will continue to have a relatively higher proportion of the workforce. Sectors such as IT enabled services and banking, financial services and insurance are expected to have relatively higher growth in overall employment as compared to other sectors.