Analyst corner: Retain ‘buy’ on TeamLease, target price Rs 2,801

By: |
Published: November 13, 2018 2:06:49 AM

Post a slow FY18, it is becoming evident that TeamLease Services (TeamLease) is making a strong comeback to growth in H1FY19 as it has added 18,000 associates (11% addition over FY18-end).

We reiterate TeamLease as a unique pure-play on the high-growth Indian flexi-staffing segment.

Post a slow FY18, it is becoming evident that TeamLease Services (TeamLease) is making a strong comeback to growth in H1FY19 as it has added 18,000 associates (11% addition over FY18-end). We are also impressed with margin improvement that has accompanied headcount spurt, implying sustained high quality of earnings growth.
We reiterate TeamLease as a unique pure-play on the high-growth Indian flexi-staffing segment. In Q2FY19, its sales, EBITDA and PAT jumped 25%, 58% and 44% YoY, respectively, which beat estimates, reinforcing our confidence that 35%-plus EPS growth in FY19E and FY20E is achievable. This should help the stock sustain current valuations in our view. Retain ‘buy’
with target price of  Rs 2,801.

Post a slow FY18, TeamLease has made a strong com132k at FY18-end) and 5k associates in general staffing and NETAP, respectively. EBITDA margin has been 2% plus for the third consecutive quarter.
The management has indicated that the business has witnessed growth across key client verticals and growth outlook going into the festive season remains robust. Specialised staffing’s sales and margin were flat Q-o-Q, but the management has guided for improvement in FY20, which should boost group margin. Overall, we estimate EPS growth of 37% each for FY19 and FY20.

In our initiation note, the buzz is getting louder, we had laid out a positive case for Indian flexi staffing. Staffing companies such as TeamLease have delivered robust growth in past few quarters, which reinstates our thesis. We like TeamLease as: i) led by its top-tier market share & large scale, which are critical for market share gains over the next six–seven years; and ii) the high-growth backdrop with India’s flexi-staffing sector likely to jump 3x to $30 billion by FY25E along with improving pricing dynamics. We retain ‘buy’ on TeamLease and our DCF-based TP of `2,801. We estimate 37% EPS CAGR over FY18–20 and this should sustain the stock’s current valuation in our view.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.