MOSL: THEMATIC | Staffing-Well placed! Multiple opportunities ensure sustenance of superior growth

​THEMATIC | Staffing: Well placed! Multiple opportunities ensure sustenance of superior growth

Over 2009-14, the staffing industry has grown at a CAGR of 20%. Estimates for the next five years maintain the high historical growth rate seen by the industry, which is possible with the confluence of favorable macroeconomic conditions and supportive policy changes.

The factors that compound the growth story are [1] India’s adoption of temporary staffing stands at a third of the global average and [2] Shift of the market to the organized segment post GST implementation and other upcoming labor reforms.

The industry is faced with several other growth avenues, including forays into other businesses and HR services. This could lead to a sustained period of high growth. We expect revenue CAGR of 25%+ for both Quess Corp and TeamLease over FY17-20.

The staffing industry requires minimal capital expenditure and sees disproportionate increase in profitability and return ratios on gaining scale. We expect TeamLease to be the key beneficiary of an improving Associate/Core Employee ratio because of its dominance in general staffing.

For Quess, we see value emerging out of its aggressive inorganic foray that has opened multiple avenues of growth and profitability expansion. Its track record on integration of acquisitions has been impeccable since inception.

Recent listings of Quess Corp and TeamLease provide little history to cement the sustenance of high valuations of 40x FY18E EPS and 30x FY19E EPS. However, globally, the performance of staffing companies has been highly correlated with economic activity and the industry has seen a PEG of 1 through cycles.