january 11, 2018 teamlease services...

ICICI Securities Ltd | Retail Equity Research

January 11, 2018

Focused play on general staffing…

We met the management of TeamLease Services to get an insight into its

business and future plans. TeamLease was established in 2002. It is the

largest staffing company in India and leading provider of human resource

services to various industries. TeamLease operates across three service

lines with staffing & allied services contributing 95.4% to revenues in

Q2FY18, IT staffing 3.1% and other HR services contributing 1.6% to

revenues. During the last five years, revenues has grown at a healthy rate

of ~27% to | 3041.9 crore with EBITDA turning positive from -| 20.7 crore

in FY12 to | 44.3 crore in FY17.

Leadership position in general staffing…

TeamLease is a market leader in the organised staffing industry with ~6%

market share in terms of number of associate employees as per 2016

data. The company’s associate headcount is at ~132,000 with the

associate to core ratio at 210 in Q2FY18. It aims to take it to the 300-400

range in a span of five to six years. With its core expertise in general

staffing and primarily focus in India, the company is ready to grab the

opportunity of rising penetration of temporary staffing in India.

Furthermore, TeamLease has started to venture into the high margin IT

staffing business (3.1% to revenues in Q2FY18 vs. 0.7% in Q2FY17).

Structural play on staffing industry…

India is among the least penetrated flexi staffing markets globally. Flexible

staffing is estimated at just 0.5% of overall employment in India vs. global

average of 1.6% in 2015. Domestic penetration of flexi staffing is

expected to rise from current levels of 0.5% owing to ready access to a

large pool of skilled workforce and labour law reforms. Furthermore,

unorganised players still hold a major pie of 70-80% in the staffing

industry. With reforms like GST and other regulatory regimes coming into

the picture, a gradual shift is expected towards organised players.

To utilise opportunity in general staffing business…

The management sounded optimistic on the immense opportunity in flexi

staffing. Although the unorganised segment still has a major portion of

70-80% in the industry, with the requirement of skill development, labour

law reforms and GST coming into light, it is anticipated to drive demand

for organised players thereby leading to opportunity for players like

TeamLease. With scalability and expertise in staffing, the company is

expected to reap the benefits of an under-penetrated flexi staffing

industry and grow at a healthy rate, going ahead. Moreover, the benefits

of Section 80JJAA of the Income Tax Act are expected to play out

significantly leading to a positive impact on earnings.

Exhibit 1: Financial Summary

(| Crore) FY14 FY15 FY16 FY17

Net Sales 1,529.6 2,007.1 2,504.9 3,041.9

EBITDA 12.0 24.1 25.8 44.3

Net Profit 17.9 29.7 24.8 66.3

EPS (|) 10.4 17.4 15.9 38.8

P/E (x) 219.0 131.7 144.5 59.3

RoCE (%) 13.0 19.1 10.5 14.7

RoE (%) 15.0 20.0 7.9 17.4

Source: Company, ICICIdirect.com Research

TeamLease Services (TEASER)

| 2300

Rating matrix

Rating : Unrated

Target : NA

Target Period : NA

Potential Upside : NA

Key Financials

| Crore FY14 FY15 FY16 FY17

Net Sales 1,530 2,007 2,505 3,042

EBITDA 12 24 26 44

Net Profit 18 30 25 66

EPS (|) 10.4 17.4 15.9 38.8

Valuation summary

FY14 FY15 FY16 FY17

P/E 219.0 131.7 144.5 59.3

EV / EBITDA 319.6 158.7 143.2 85.2

P/BV 32.9 26.3 11.5 10.3

RoNW (%) 15.0 20.0 7.9 17.4

RoCE (%) 13.0 19.1 10.5 14.7

Stock data

Particular Amount

Market Capitalization (| Crore) 3,932.7

Total Debt (| Crore) 1.1

Cash and Investments (| Crore) 169.6

EV (| Crore) 3,774.6

52 week H/L 2537 / 850

Equity capital 17.1

Face value 10.0

Price Performance

5,000

6,000

7,000

8,000

9,000

10,000

11,000

Feb-16

Apr-16

Jun-16

Aug-16

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Dec-17

500

1,000

1,500

2,000

2,500

Nifty (L.H.S) Price (R.H.S)

'

* Limited History Available

Research Analyst

Deepak Purswani, CFA

[email protected]

Deepti Tayal

[email protected]

Management Meet Note


Management meet highlights…

The management indicated that its services focus on 3Es covering

the aspects of employment, employability and education.

Employment services include staffing (temporary and permanent)

while employability includes training solutions

TeamLease works on the cost to company model in general staffing

with either fixed or variable markup and ~28% of associates on

variable markup. Average variable markup per associate per month

is at | 735 in Q2FY18, an increase of 5% YoY

The management indicated that it expects its margins to inch

upwards owing to levers of operating leverage, diversification into

verticals, providing other HR services and its NETAP initiative

As of September 30, 2017, the company’s associate headcount is at

~132,000 with the associate to core ratio at 210. It aims to take it to

the 300-400 range in five to six years

The company has a training programme called National

Employability Through Apprenticeship Programme (NETAP) that

has ~40000 trainees currently vs. ~11,574 trainees in FY16. NETAP

is a public private partnership of the Ministry of Skill Development &

Entrepreneurship, TeamLease Skills University, CII and NSDC under

the National Employability Enhancement Mission of the Ministry of

HRD (AICTE)

The management indicated that business did get impacted post

GST implementation mainly on the back of uncertainty among

clients. However, they expect GST to play out in favour of

organised players and create a level playing field. They see an

improvement post Q4FY18 on that front

The management expects the benefits of Section 80JJAA of the

Income Tax Act on net incremental employee addition to flow in for

the company for three years. This could lead to a zero tax rate for

the company for the described period resulting in increasing

profitability

The management pointed that it does not have plans to enter the

managed services area in the near future

Top 10 clients contribute 21% to net revenues, implying a

diversified client portfolio and less concentration risk from a client

mix perspective

The company indicated that it does 10% sourcing of associates

while 90% are through clients. It aspires to increase the proportion

of sourcing in coming years as the industry becomes formalised

The attrition rate is at ~45%. This can mainly be attributed to its

associate employee getting on the rolls of the company where it

was placed as a flexi staffer


Exhibit 2: Segmental break-up of revenues

1973

2468

678

706

780

781

2945

817

835

5 22

23

51

25

27

34

37

10

11

12

13

46

12

14

0

500

1000

1500

2000

2500

3000

3500

FY15 FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 FY17 Q1FY18 Q2FY18

Staffing & Allied Services IT Staffing services Other HR services


Exhibit 3: Revenue trend…

686.8

925.8

1,250.7

1,529.6

2,007.1

2,504.9

3,041.9

-

500

1,000

1,500

2,000

2,500

3,000

3,500

FY11 FY12 FY13 FY14 FY15 FY16 FY17

| c

rore

Revenue from operations

28.1%


Exhibit 4: PAT trend…

(39.5)

(16.5)

17.9

29.724.8

66.3

(3.7)

(60)

(40)

(20)

-

20

40

60

80

FY11 FY12 FY13 FY14 FY15 FY16 FY17| c

rore

PAT after exceptional items


Exhibit 5: EBITDA margin trend…

(39.0)

(20.7)

(11.1)

12.0

24.1 25.8

44.3

-5.7%

-2.2%

1.2%

-0.9%0.8%

1.0%

1.5%

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

FY11 FY12 FY13 FY14 FY15 FY16 FY17

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

EBITDA EBITDA Margin


Exhibit 6: RoCE & RoE trend...

13.0

10.5

14.7

19.1

20.0

7.9

17.4

15.0

-

5

10

15

20

25

FY14 FY15 FY16 FY17

%

RoCE RoE



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january 11, 2018 teamlease services...

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