ICICI Securities Ltd | Retail Equity Research
January 11, 2018
Focused play on general staffing…
We met the management of TeamLease Services to get an insight into its
business and future plans. TeamLease was established in 2002. It is the
largest staffing company in India and leading provider of human resource
services to various industries. TeamLease operates across three service
lines with staffing & allied services contributing 95.4% to revenues in
Q2FY18, IT staffing 3.1% and other HR services contributing 1.6% to
revenues. During the last five years, revenues has grown at a healthy rate
of ~27% to | 3041.9 crore with EBITDA turning positive from -| 20.7 crore
in FY12 to | 44.3 crore in FY17.
Leadership position in general staffing…
TeamLease is a market leader in the organised staffing industry with ~6%
market share in terms of number of associate employees as per 2016
data. The company’s associate headcount is at ~132,000 with the
associate to core ratio at 210 in Q2FY18. It aims to take it to the 300-400
range in a span of five to six years. With its core expertise in general
staffing and primarily focus in India, the company is ready to grab the
opportunity of rising penetration of temporary staffing in India.
Furthermore, TeamLease has started to venture into the high margin IT
staffing business (3.1% to revenues in Q2FY18 vs. 0.7% in Q2FY17).
Structural play on staffing industry…
India is among the least penetrated flexi staffing markets globally. Flexible
staffing is estimated at just 0.5% of overall employment in India vs. global
average of 1.6% in 2015. Domestic penetration of flexi staffing is
expected to rise from current levels of 0.5% owing to ready access to a
large pool of skilled workforce and labour law reforms. Furthermore,
unorganised players still hold a major pie of 70-80% in the staffing
industry. With reforms like GST and other regulatory regimes coming into
the picture, a gradual shift is expected towards organised players.
To utilise opportunity in general staffing business…
The management sounded optimistic on the immense opportunity in flexi
staffing. Although the unorganised segment still has a major portion of
70-80% in the industry, with the requirement of skill development, labour
law reforms and GST coming into light, it is anticipated to drive demand
for organised players thereby leading to opportunity for players like
TeamLease. With scalability and expertise in staffing, the company is
expected to reap the benefits of an under-penetrated flexi staffing
industry and grow at a healthy rate, going ahead. Moreover, the benefits
of Section 80JJAA of the Income Tax Act are expected to play out
significantly leading to a positive impact on earnings.
Exhibit 1: Financial Summary
(| Crore) FY14 FY15 FY16 FY17
Net Sales 1,529.6 2,007.1 2,504.9 3,041.9
EBITDA 12.0 24.1 25.8 44.3
Net Profit 17.9 29.7 24.8 66.3
EPS (|) 10.4 17.4 15.9 38.8
P/E (x) 219.0 131.7 144.5 59.3
RoCE (%) 13.0 19.1 10.5 14.7
RoE (%) 15.0 20.0 7.9 17.4
Source: Company, ICICIdirect.com Research
TeamLease Services (TEASER)
| 2300
Rating matrix
Rating : Unrated
Target : NA
Target Period : NA
Potential Upside : NA
Key Financials
| Crore FY14 FY15 FY16 FY17
Net Sales 1,530 2,007 2,505 3,042
EBITDA 12 24 26 44
Net Profit 18 30 25 66
EPS (|) 10.4 17.4 15.9 38.8
Valuation summary
FY14 FY15 FY16 FY17
P/E 219.0 131.7 144.5 59.3
EV / EBITDA 319.6 158.7 143.2 85.2
P/BV 32.9 26.3 11.5 10.3
RoNW (%) 15.0 20.0 7.9 17.4
RoCE (%) 13.0 19.1 10.5 14.7
Stock data
Particular Amount
Market Capitalization (| Crore) 3,932.7
Total Debt (| Crore) 1.1
Cash and Investments (| Crore) 169.6
EV (| Crore) 3,774.6
52 week H/L 2537 / 850
Equity capital 17.1
Face value 10.0
Price Performance
5,000
6,000
7,000
8,000
9,000
10,000
11,000
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
500
1,000
1,500
2,000
2,500
Nifty (L.H.S) Price (R.H.S)
'
* Limited History Available
Research Analyst
Deepak Purswani, CFA
Deepti Tayal
Management Meet Note
Page 2 ICICI Securities Ltd | Retail Equity Research
Management meet highlights…
The management indicated that its services focus on 3Es covering
the aspects of employment, employability and education.
Employment services include staffing (temporary and permanent)
while employability includes training solutions
TeamLease works on the cost to company model in general staffing
with either fixed or variable markup and ~28% of associates on
variable markup. Average variable markup per associate per month
is at | 735 in Q2FY18, an increase of 5% YoY
The management indicated that it expects its margins to inch
upwards owing to levers of operating leverage, diversification into
verticals, providing other HR services and its NETAP initiative
As of September 30, 2017, the company’s associate headcount is at
~132,000 with the associate to core ratio at 210. It aims to take it to
the 300-400 range in five to six years
The company has a training programme called National
Employability Through Apprenticeship Programme (NETAP) that
has ~40000 trainees currently vs. ~11,574 trainees in FY16. NETAP
is a public private partnership of the Ministry of Skill Development &
Entrepreneurship, TeamLease Skills University, CII and NSDC under
the National Employability Enhancement Mission of the Ministry of
HRD (AICTE)
The management indicated that business did get impacted post
GST implementation mainly on the back of uncertainty among
clients. However, they expect GST to play out in favour of
organised players and create a level playing field. They see an
improvement post Q4FY18 on that front
The management expects the benefits of Section 80JJAA of the
Income Tax Act on net incremental employee addition to flow in for
the company for three years. This could lead to a zero tax rate for
the company for the described period resulting in increasing
profitability
The management pointed that it does not have plans to enter the
managed services area in the near future
Top 10 clients contribute 21% to net revenues, implying a
diversified client portfolio and less concentration risk from a client
mix perspective
The company indicated that it does 10% sourcing of associates
while 90% are through clients. It aspires to increase the proportion
of sourcing in coming years as the industry becomes formalised
The attrition rate is at ~45%. This can mainly be attributed to its
associate employee getting on the rolls of the company where it
was placed as a flexi staffer
Page 3 ICICI Securities Ltd | Retail Equity Research
Exhibit 2: Segmental break-up of revenues
1973
2468
678
706
780
781
2945
817
835
5 22
23
51
25
27
34
37
10
11
12
13
46
12
14
0
500
1000
1500
2000
2500
3000
3500
FY15 FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 FY17 Q1FY18 Q2FY18
Staffing & Allied Services IT Staffing services Other HR services
Source: Company, ICICIdirect.com Research
Exhibit 3: Revenue trend…
686.8
925.8
1,250.7
1,529.6
2,007.1
2,504.9
3,041.9
-
500
1,000
1,500
2,000
2,500
3,000
3,500
FY11 FY12 FY13 FY14 FY15 FY16 FY17
| c
rore
Revenue from operations
28.1%
Source: Company, ICICIdirect.com Research
Exhibit 4: PAT trend…
(39.5)
(16.5)
17.9
29.724.8
66.3
(3.7)
(60)
(40)
(20)
-
20
40
60
80
FY11 FY12 FY13 FY14 FY15 FY16 FY17| c
rore
PAT after exceptional items
Source: Company, ICICIdirect.com Research
Exhibit 5: EBITDA margin trend…
(39.0)
(20.7)
(11.1)
12.0
24.1 25.8
44.3
-5.7%
-2.2%
1.2%
-0.9%0.8%
1.0%
1.5%
(60.0)
(40.0)
(20.0)
-
20.0
40.0
60.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
EBITDA EBITDA Margin
Source: Company, ICICIdirect.com Research
Exhibit 6: RoCE & RoE trend...
13.0
10.5
14.7
19.1
20.0
7.9
17.4
15.0
-
5
10
15
20
25
FY14 FY15 FY16 FY17
%
RoCE RoE
Source: Company, ICICIdirect.com Research
Page 4 ICICI Securities Ltd | Retail Equity Research
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Buy: >10%/15% for large caps/midcaps, respectively;
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ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
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Andheri (East)
Mumbai – 400 093
Page 5 ICICI Securities Ltd | Retail Equity Research
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