Kotak: Maintain ‘Add’ on Team Lease; target price Rs 1,175

TeamLease announced the acquisition of 100% stake in NichePro’s IT staffing business for a consideration of R295 million.

Written by Kotak

Updated: September 24, 2016 07:42 IST

The consideration paid implies a valuation of 4.3X FY2016 EV/EBITDA, which is reasonable in our view. The acquisition should complement the ASAP acquisition, and provide new client relationships to TeamLease. Maintain add. (Reuters)

TeamLease announced the acquisition of 100% stake in NichePro’s IT staffing business for a consideration of R295 million. This is the second acquisition by TeamLease in the IT staffing space, post the acquisition of ASAP in July 2016.

NichePro currently has 150 associates (mostly experienced software developers) and 30 employees (mostly recruiters). Its current client base includes Google, Motorola, Cisco and Adobe. The acquisition is expected to be completed shortly, and TeamLease’s financials should see contribution from both NichePro and ASAP in 3QFY17.

NichePro reported revenue of R260 million and EBITDA of R68 million in FY2016, implying an EV/EBITDA (FY2016) of 4.3X, based on the consideration of R295 million. We believe this valuation is reasonable, particularly as this acquisition should be earnings accretive for TeamLease from the first year itself.

We remain positive on TeamLease due to its asset light model, stable cash generation, and a strong earnings trajectory. Earnings growth should be boosted by stable core business and consolidation of the recent IT staffing acquisitions. Maintain add with a TP of R1,175.

This article was first uploaded on September twenty-four, twenty sixteen, at eleven minutes past six in the morning.