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05 Feb

TeamLease CFO: Confident to reach target margin of 3.5% in 4 years.

Update on the Indian Equity Market:

On Monday, NIFTY closed positive (+0.5%), recovering slightly from the post-budget decline seen on Saturday. Consumer stocks were the top gainers across NIFTY50 led by ASIANPAINT (+6.3%), NESTLEIND (+5.0%) and HINDUNILVR (+4.8%). INFRATEL (-6.1%), YESBANK (-4.6%) and ITC (-4.6%) were the top NIFTY losers. MEDIA (+1.7%), REALTY (+1.6%) and AUTO (+1.5%) were the top gaining sectors. PSU BANK (-2.5%), IT (-1.3%) and PHARMA (-0.5%) were the sectors that ended negatively.

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TeamLease CFO: Confident to reach target margin of 3.5% in 4 years.

Excerpts from an interview with Mr N Ravi Vishwanath, CFO, TeamLease that aired on CNBC-TV18 on 29th January 2020:

  • In 3QFY20, TeamLease’s revenue growth slowed down to ~15% from the range of 20% that the company used to deliver. The slow growth is largely reflective of the general economic slowdown. There is also impact of some large deals getting shifted from 3QFY20 to 4QFY20.
  • Over the long term should be able to maintain the growth of 20% as always committed.
  • The revenue for 9MFY20 has grown by up 18%. Management does not expect the full-year growth for FY20 to reach 20%. In FY21E, the topline growth could get back to 20%.
  • The specialized staffing business which included the IT, telecom and infra staffing is expected to grow over 20% in FY21E (IT, telecom, infra).
  • As far as telecom sector staffing is concerned, the worst is over for TeamLease. In FY19, they got into certain telecom, infra, and radiofrequency projects which resulted in lower profitability. The company has exited some of those mandates and will exit the 1 or 2 that are left as and when they get completed.
  • TeamLease has exited some lower profit mandates, especially in telecom. This should lead to better profitability going into FY21E. On the flip side, the company is in talks and has almost signed some better margin mandates in telecom now. The management expects the situation to only get better from here.
  • The per associate per month (realization in general staffing) has grown 5% YoY. Mr Vishwanath thinks that this growth will continue.
  • The management is targeting a margin of 3.5% over the next 4 years.

Consensus Estimate: (Source: market screener website)

  • The closing price of TEAMLEASE was ₹ 2,472/- as on 3-February 2020. It traded at 40.5x/ 31.8x/ 24.7x the consensus earnings estimate of ₹ 61.1/ 77.8/ 100.0 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 2,762/- which implies a PE multiple of 27.6x on FY22E EPS of ₹ 100.0/-

 

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10 Jan

‘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 31st 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/-
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