TeamLease Services' Q3FY18 results (Outperformer) - Growth rebound round the corner…
Q3FY18 result highlights
- Broadly in line performance: Revenue at Rs9.18bn (IDFCe Rs9.17bn) was up 12.7% yoy led by ~7.7% growth in general staffing (Rs8.4bn vs IDFCe Rs8.57bn) and consolidation of ‘Evolve Technologies’ for two months in this quarter. Adjusting for Evolve, growth stood at 9.1% yoy; however, the base quarter had one-off bonus payouts of Rs700-800m and adjusting for that and ‘Evolve’, organic growth stood at ~20% yoy. Reported EBITDA of Rs179m marginally missed estimate (Rs191m) on weakness in Specialized staffing margins on account of integration of lower margin ‘Evolve Technologies’. Cons. margin at 1.95% was up 22bp qoq and 43bp yoy. Organic staffing business margin improved from 1.4% yoy to 1.8% led by productivity gains. PAT at Rs184m was marginally below est. of Rs201m on account of EBITDA miss and tax rate of 2.5% vs exp. of nil tax.
- Outlook improving: Management highlighted that open positions have started coming in as overall demand is improving across industries. Moreover, bulk of the associate addition in general staffing happened in December and that would have a positive bearing on revenue growth in Q4. From a medium-term perspective the endeavor is to grow volumes at 15%+ driven by formalization of outsourced labour. On the margin front, focus continues to be on improving productivity which should have a positive bearing on general staffing and cons. margins going forward.
Key positives: Improvement in avg. mark-up and productivity
Key negatives: Weaker margin in specialized staffing segment
Impact on financials: FY18E earnings decreased by 13.5% to adjust tax rate while FY19/20E increased by 3.2%/5%.
Valuations & view
While TeamLease’s medium-term commentary was always positive, GST implementation led to disruptions for a couple of quarters, but management commentary has turned positive again even for the near-term. Its diversified client portfolio and strong brand positioning coupled with formalization of enterprises and thus employment bodes well for the company to sustain strong growth over the medium term. Maintain Outperformer with DCF-based price target of Rs2,436 (implied 30x FY20E P/E).
Teamlease Services Ltd. Teamlease Services Limited is an India-based company engaged in employment activities. The Company operates as a temporary staffing company and provides human resource services to various industries. Its segments include Staffing Operations, Recruitment Operations and Training Operations. Its services include Temporary Staffing or Temping, Recruitment Services, Regulatory Compliance Services, Retail Learning Solutions (RLS), Institutional Learning Solutions (ILS), Apprenticeship Program (NETAP), TeamLease Skills University and Payroll Processing. It works across industry verticals, including consumer durables, retail, telecom, chemical, e-commerce, pharmaceuticals and healthcare sectors. Its permanent recruitment business is supported by its Candidate Lifecycle System technology platform. It offers training programs in information technology (IT), finance and retail. Its institutional learning solutions business provides skill development services under various Government schemes.
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