MOSL: TEAMLEASE SERVICES (Buy)-More ups than downs-Valuation support vectors surmount risks
​TEAMLEASE SERVICES: More ups than downs; Valuation support vectors surmount risks; reiterate Buy
(TEAM IN, Mkt Cap USD0.5b, CMP INR2014, TP INR2500, 24% Upside, Buy)
- In the backdrop of a limited listed history, lack of comparables to take cues from and the yet-developing understanding of underlying business dynamics, we add context and perspective to existing valuation metrics.
- The exercise leads us to believe that an extension of the time horizon coupled with a natural evolution of the business make a case for significant valuation triggers from current levels - in line with the benefits of a long-term growth story unfolding.
- Sustained superiority of financial performance because of industry trends, business model and operational excellence continue strengthening our positive long-term view on the stock.
PEGging to growth: TEAM is currently trading at 31x FY19E and 23x FY20E earnings, which when observed contextually does not appear steep. At 40% earnings CAGR over FY18-20, a PEG of 0.7x is lower than that observed globally across cycles. A PEG of 1x may be deemed par-for-the-course given the multi-year-high-growth opportunity, and that translates to a 40% upside.
A short-lived discord: While the stock seems undervalued on P/E, the fact that it is trading at an EV of 37x FY19E and 27x FY20E EBITDA gives the impression of it being rightly-priced, adjusted for growth (33% CAGR). However, when the time horizon is extended longer, and we consider the possibility of cash deployment (through acquisitions or dividends) and a gradual increase of tax rates five years hence, this disconnect will disappear, as EBITDA growth will exceed PAT growth.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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