Broker's call: TeamLease Services

CMP: ₹2,173.50

Target: ₹2,450

TeamLease is the leader in flexi staffing business in India and competes neck-to-neck with Quess Corp. TeamLease’s associate count in general staffing stands at 1.71 lakh as on Q3FY18 (v/s Quess’ general staffing headcount at about 1.5 lakh).

Led by market share gains in favour of organised players, we expect TeamLease to deliver 16/36/22 per cent Revenues/EBITDA/PAT CAGR over FY17-FY20E. We estimate EBITDA margins at 1.8/2.1/2.3 per cent for FY18/FY19/FY20E.

Productivity improvement (Associate/Core employee ratio) and improving mix of business would drive margins. Margin improvement over FY18-FY20E would be the key driver for earnings trajectory. Our EPS estimates are at ₹42/55/70 share for FY18/FY19/FY20E. Owing to higher share of business from general staffing, TeamLease’s business remains asset-light.

Debtors (including unbilled revenue) for TeamLease stand at 28 days for FY17 (v/s 73 days for Quess Corp and 68 days for SIS India). Hence, despite lower margins (v/s Quess and SIS), TeamLease has a similar ROE profile as its peers owing to lower WC cycle. We value TeamLease at 35x FY20E EPS (v/s 31x Sep 19E EPS earlier). Our TP has been increased by 30 per cent to ₹2450/share led by P/E upgrade.