Buy TeamLease; target of Rs 3840: Motilal Oswal

Motilal Oswal is bullish on TeamLease has recommended buy rating on the stock with a target price of Rs 3840 in its research report dated January 29, 2021.

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Motilal Oswal’s research report on TeamLease

TeamLease (TEAM) delivered strong recovery in 3QFY21 – after three quarters of contraction – with total revenues increasing 13% QoQ, in-line with our expectation. Improvement was led by the General Staffing business (+14% QoQ) – the general staffing and NETAP trainee headcount increased by 16k (+8% QoQ). 3Q margins were stable despite impressive improvement in FTE productivity (334 v/s 300 in 2QFY21), driven by continued customer discounts. It reported PAT of INR231m in 3Q (down 9% YoY). With the management optimistic on the prospect of growth recovery, we expect a good rebound in the General Staffing headcount in FY22/FY23. This should lead to a 15% revenue CAGR over FY20–23E. Moreover, the normalization of discounts, along with high-margin replacements in the IT Staffing business, should help improve margins by 50bp from FY21 levels in FY23. This, in turn, should result in an adj. PAT CAGR of 32% over FY20–23E. Over the medium term, as both the central and state governments look forward to liberalizing and formalizing the labor markets, TeamLease should be among the biggest direct beneficiaries. Our estimates remain largely unchanged. Our TP of INR3,840 implies 34x FY23E EPS. Reiterate Buy.

Outlook

We keep our estimates largely stable. Our TP of INR3,840 implies 34x FY23E EPS. Reiterate Buy.

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