HDFC Securities recommended buy rating on TeamLease Services with a target price of Rs 1580 in its research report dated August 09, 2017.
HDFC Securities' research report on TeamLease Services
TeamLease reported good numbers in 1QFY18. Revenue stood at Rs 8.53bn up 4.4% QoQ vs est. of Rs 8.50bn. Growth was led by core staffing (+4.6% QoQ, 96% of rev) and IT staffing (+5.2% QoQ, 3% of rev). Core staffing margin came in at 1.5%, up 14bps QoQ, while IT staffing margin dipped 334bps QoQ to 11.0%, led by salary hikes (~9%). Growth in the higher-margin IT staffing business, rising associate/core ratio and higher mark-ups will drive margins. We believe macro tailwinds, such as (1) GST and labour reforms, (2) Expansion of organised businesses to Tier 2/3 cities, (3) Rising preference for organised staffing providers, and (4) Government-driven skill development initiatives will drive ~20-30% CAGR in organised flexi-staffing in the next four to five years. Team Lease, being the leader in the flexi-staffing market, is well poised to reap the benefits of the shift from the unorganised to the organised market.
OutlookWe expect Team Lease’s revenue/EBITDA/PAT to grow at 21/45/29% CAGR over FY17-20E. We maintain BUY with a TP of Rs 1,580, giving 30x multiple to normalised June-19 EPS (excluding 80JJAA benefit), and again adding the NPV of the tax benefits availed over the next three years.
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