TeamLease Services Ltd- Telecom should be back in 4-6% profit range from Q1FY20

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Excerpts from an interview with Mr. Ravi Vishwanath, the Chief Financial Officer of TeamLease Services. The interview was published in Livemint dated 27^th November 2019.

• According to Mr Vishwanath, things are looking better. While they expected the previous quarter to come in at the same 20% range as the usual growth is, they came in a tad short at 16%.
• He believes that between Q3 and Q4 they should be able to get to their targets. They will also try and see if they can claw back some of the deficit that they had in H1.
• The current pipeline is looking pretty strong and they have no reason to believe that Q3 should be a soft quarter. In fact, Q3 should be a reasonably strong quarter and so should Q4.
• In the IT sector, they deal with service companies, product companies, and captives.
• As they provide staff to all these three different kinds of IT companies, their growth in product and captives, though small in percentage terms, is reasonably good for the first half of the year.
• They got slightly impacted in the service sector on account of higher absorption by these companies of their staff onto their payroll, something that has never happened before.
• He believes that the growth in Q3 and Q4 should come back, and more than Q3 it will come back for them in IT in Q4.
• Telecom has been a little soft for the whole of last year and for the first two quarters of the current year as well. It is primarily on account of certain projects that they undertook in Q1 of FY19, which continue to linger. They hope to come out of it by Q4 and telecom should be back in the 4-6% profit range from Q1 of next year.
• They believe that their associate growth in telecom for next year would certainly be 10-15% which would translate to 15-20% growth year-on-year.
• Outside IT and telecom, the sectors that they have been seeing hiring pickup is BFSI, fin-tech, e-commerce, logistics, and warehousing.
• The other sectors are warming up to it because from the existing clients, their growth is coming back, which is all the other sectors put together.

Consensus Estimate (Source: market screener website)

• The closing price of TeamLease Services Ltd was ₹ 2,515/- as of 28-November-19. It traded at 45x/ 30x/ 22x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 56.3/ 85.2/ 116.0 respectively.
• Consensus target price of ₹ 2,983/- implies a PE multiple of 26x on FY22E EPS of ₹ 116/-