HDFC Securities is bullish on Teamlease Services has recommended buy rating on the stock with a target price of Rs 3520 in its research report dated July 29, 2019.
HDFC Securities' research report on Teamlease Services
Revenue stood at Rs 12.51bn up 7.6% QoQ (organic +6.2%) vs est. of Rs 12.30bn. Growth was led by Core staffing +7.0% QoQ) offset by HR services (~2% of rev, - 18.5% QoQ). Specialised staffing (~8% of rev) grew 23.7% QoQ led by Ecentric integration. EBITDA margin was down 36bps QoQ to 1.9% (vs. est. of 2.1%) due to loss in HR services (delay in collections). Core staffing margins contracted 27bps QoQ to 2.1%, impacted by wage hike offset by higher associate/core ratio (+2.6/19.4% QoQ/YoY). Depreciation and interest cost spiked due to Ind AS impact, net impact on P&L is negligible. Growth in mark-up was heartening (highest in five qtrs), +2.2% QoQ to Rs 730. Salary funding exposure remained flat QoQ at 14% (lowest in the industry). Associate addition in core staffing revived (+4.2% QoQ) and demand continues to be broad based. Specilaised staffing organic growth was 3.5% QoQ and EBITDA margin expanded 25bps QoQ to 6.4%. Growth will be led by IT staffing (Ecentric) while Telecom (Evolve) will take some time to recover.
We maintain BUY on Teamlease based on in-line 1QFY20. Positives include (1) Acceleration in core staffing growth, (2) Improving core productivity and (3) Growth in mark-up. Our TP Rs 3,520 is based on 40x June 21E EPS.
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