We upgrade TeamLease to ‘Buy’ from ‘Add’ with an unchanged DCF-based target price of R1,200.
We believe the recent correction and under-performance of the stock price present a good buying opportunity into TeamLease’s long-term structural growth story of organised staffing, underpinned by GST implementation and simplification of labour laws. We upgrade our EPS estimates by 16-22% as we bake in change in accounting policy related to amortization of goodwill. The TeamLease stock has underperformed and corrected recently on account of heightened concerns on business momentum post demonisation as well as a technical overhang of share sale post the expiry of the IPO lock-in.
At our target price, implied P/E multiple stands at 30X FY2019E earnings TeamLease’s core temporary staffing business seems to be on a solid footing, with practically no demonetisation impact. Post the strong employee addition in Q3FY17, current run-rate suggests that TeamLease will still be able to end Q4FY17 with a sequentially flat employee count of ~125,000, despite Q4 being seasonally weak.