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Buy TeamLease Services; target of Rs 1580: HDFC Securities

August 12
01:41 2017

HDFC Securities’ research report on TeamLease Services

TeamLease reported good numbers in 1QFY18. Revenue stood at Rs 8.53bn up 4.4% QoQ vs est. of Rs 8.50bn. Growth was led by core staffing (+4.6% QoQ, 96% of rev) and IT staffing (+5.2% QoQ, 3% of rev). Core staffing margin came in at 1.5%, up 14bps QoQ, while IT staffing margin dipped 334bps QoQ to 11.0%, led by salary hikes (~9%).  Growth in the higher-margin IT staffing business, rising associate/core ratio and higher mark-ups will drive margins.  We  believe  macro  tailwinds,  such  as  (1)  GST  and labour reforms, (2) Expansion of organised businesses to Tier 2/3 cities, (3) Rising preference for organised staffing providers, and (4) Government-driven  skill development initiatives will drive ~20-30% CAGR in organised flexi-staffing in  the  next  four  to  five  years.  Team Lease, being the leader in the flexi-staffing market, is well poised to reap the benefits of the shift from the unorganised to the organised market.

Outlook

We expect Team Lease’s revenue/EBITDA/PAT to grow at 21/45/29% CAGR over FY17-20E.  We maintain BUY with a TP of Rs 1,580, giving 30x multiple to normalised June-19 EPS (excluding 80JJAA benefit), and again adding the NPV of the tax benefits availed over the next three years.

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