Shares of TeamLease Services Ltd jumped over 4 percent after brokerage firm Motilal Oswal Securities has upgraded the stock and increased its target price.
At 9.30am, the stock was trading at Rs 2242 on BSE, up 4.3 percent from its previous close.
Motilal has upgraded TeamLease Services Ltd with a buy rating from neutral earlier and increased its target price to Rs 2,890 a share, up 34 percent from its current market price.
The upgrade came amid factors such as easing inflation, an expected increase in specialised staffing, and the presence of structural tailwinds. This along with increasing contribution from HR services (both high margin) should boost margins going forward, Motilal report said.
Motilal expects TeamLease to deliver a strong 17 percent revenue CAGR over FY23-25. The firm has seen 60 basis points drop in its profitability to 1.6 percent in FY23 due to wage increases in its general staffing vertical.
" We view the current margin (1.6% for FY23) as the trough margin for TeamLease and expect the company to gradually improve profitability over next few years (+50bp over FY23 by FY25)," the brokerage firm said.
Motilal also expects that the staffing industry, characterised by low market penetration, is poised to experience continuous growth in the foreseeable future. This can be attributed to the ongoing process of formalisation within the industry and the implementation of labour law reforms, which are expected to have a positive impact over the medium term.
"As both the central and state governments look to liberalise and formalise the labour market, TeamLease should be among the biggest direct beneficiaries in the medium term," Motilal Oswal said in its recent note.
The stock is down nearly 44 percent from its 52 week high of Rs 3,816.35 which hit on 27 July 2022 this has made stock attractive. The correction in the stock was due to concerns about growth moderation, especially in the specialised staffing vertical, and margin pressure. The staffing industry encountered challenges in terms of growth during FY23, primarily due to high inflation.
However, Motilal predicts a potential slowdown in technology staffing (specialised staffing) and certain segments of general staffing. Despite these short-term concerns, the long-term outlook for the sector remains strong and promising.
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