‘Pricing is not an issue because we have hit rock bottom and it can only get better from here. It cannot get worse than this’ – Ravi Vishwanath, CFO, Teamlease

Update on the Indian Equity Market:

There was optimism in the global markets after US President Donald Trump’s comments on the Iran conflict eased worries. On Thursday, Nifty50 ended 1.6% higher at 12,216. Nifty Realty (+2.7%), Nifty Auto (+2.7%) and Nifty PSU Bank (+2.4%) were the top gainers among sectoral indices. Nifty IT (-0.2%) was the only sector that ended the day in the red. Among the stocks, JSW Steel (+5.9%), Infratel (5.4%) and Tata Motors (+5.4%) were the biggest gainers while TCS (-1.6%), Coal India (-1.1%) and HCL Tech (-0.8%) ended in the red.

‘Pricing is not an issue because we have hit rock bottom and it can only get better from here. It cannot get worse than this’ – Ravi Vishwanath, CFO, Teamlease

Excerpts from an interview with Ravi Vishwanath, CFO, Teamlease with ETNOW on January 8, 2020:

• Talking about the outlook on the staffing business, he says they expected a better offtake in the general staffing business but some amount of slowness has percolated into Q4 from Q3.
• The pipeline continues to be strong and they are hopeful on the deals they are pursuing.
• There is still nervousness in the market. Temporary staffing is still okay as people expect things will be getting back to normal sooner rather than later.
• On the productivity front, they are working on multiple projects on the tech backend. Their focus is on these backend IT projects, which are expected to contribute to productivity soon.
• Some one-time charges had impacted the company’s margins in H1. They do not expect those charges in H2, so margins will be on similar lines as seen in the past.
• When asked how has the acquisition of IMSI, a company focussed on infrastructure management, he said that they basically complete the portfolio of services that Team Lease has to offer in the IT staffing space. With the acquisition complete, they are now focussed on integrating all the services under a common leadership at the backend.
• They have exited 75-80% of the margin dilutive projects they entered into last year and are hopeful of exiting from the others before 31^st March. Then, they expect telecom margins to be back to 4-5% like what they were in the past.
• There is some interest with companies for telecom staffing, which is a good sign for the telecom staffing business.
• Since there are no entry barriers in the highly fragmented industry, there has been a lot of new entrants. However, there are huge barriers to scale in this industry. That is why there aren’t many companies with more than a 50,000 headcount. TeamLease operates with all organised players and there aren’t many smaller companies that have been able to reach that scale.
• Since they work with recognised names, pricing does not seem to be an issue and he is hopeful that it can only get better from here.

Consensus Estimate (Source: market screener website)

• The closing price of TeamLease Services was ₹ 2,590/- as on 09-January-20. It traded at 45x/ 31x/ 24x the consensus EPS of ₹ 57.8 / 83.3 / 110 for FY20E/ FY21E/ FY22E respectively.
• Consensus target price is ₹ 2,900/- which implies a PE multiple of 26x on FY22E EPS of ₹ 110/-