TeamLease Services Ltd (TEASER) | 2109content.icicidirect.com/mailimages/IDirect_TeamLease_IC.pdf · This would expand its EBITDA margin profile by 70 bps to 2.5%. Hence, we initiate

March 26, 2018

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Structural growth story...

Incorporated in 2002, TeamLease Services (TLS) is a focused player in

temporary staffing and enjoys ~6% market share in the fragmented

general staffing business. We like TLS given its leadership position in

general staffing and favourable industry dynamics for expanding the

organised pie through structural changes such as GST and other

regulatory reforms. We believe that with scalability and expertise in

staffing, the company is set to reap the benefits of an under-penetrated

flexi staffing industry in India and grow at a healthy rate of 22.1% CAGR

to | 5381.9 crore in FY18-20E. Beside this, the company has expanded its

addressable market in specialised staffing through the inorganic route

prudently. This would expand its EBITDA margin profile by 70 bps to

2.5%. Hence, we initiate coverage on TLS with a BUY recommendation

and a DCF based target price of | 2660/share (implied PE multiple of 29.9x

and PEG multiple of 0.8x).

Focused player on general staffing…

TLS is India’s leading staffing company in the organised space with an

overall market share of ~6%. In terms of associate count, it is also the

largest staffing company in India. With its core expertise in general

staffing and focus on India, the company is ready to grab the opportunity

in the least penetrated temporary staffing market in India (0.5% in 2015

vs. global average of 1.7%). We believe penetration in the temporary

staffing market should rise through favourable industry dynamics like

formalisation of economy, GST & other regulatory reforms. Hence, we

expect revenues to grow at 20.9% CAGR to | 4,917 crore in FY18E-20E.

Expanding into specialised staffing through prudent acquisitions…

TLS has expanded its addressable market to high margin specialised

staffing such as IT and telecom (four out of six targets in the last two

years) through the inorganic route in a prudent manner (4-6x EV/EBITDA

on an LTM basis). These acquisitions should increase specialised revenue

contribution from ~2% in FY17 to ~7% in FY20E resulting in a 70 bps

improvement in overall EBITDA margin to 2.5% in FY18-20E.

Niche play on staffing business; initiate with BUY…

With its leadership position in general staffing, we believe TLS is set to

reap the benefits through structural changes in industry dynamics.

Consequently, we expect TLS’ adjusted earnings to grow robustly at

35.7% during FY18E-20E. Considering the robust growth trajectory and

strong return ratio (RoIC – 28.6% in FY19E), we initiate coverage on TLS

with a BUY recommendation and a DCF based target price of | 2660/share

(implied PE multiple of 29.9x and PEG ratio of 0.8x).

Exhibit 1: Key Financials

(| Crore) FY17 FY18E FY19E FY20E

Net Sales 3,041.9 3,611.9 4,416.8 5,381.9

EBITDA 44.3 65.5 102.2 135.0

Net Profit 66.3 72.7 111.8 152.3

EPS (|) 38.8 42.5 65.4 89.1

P/E (x) 54.4 49.6 32.3 23.7

EV/EBITDA 78.1 53.3 32.9 24.2

RoCE (%) 15.4 15.4 18.9 20.7

RoE (%) 17.4 16.0 19.8 21.7

Source: Company, ICICIdirect.com Research

TeamLease Services Ltd (TEASER) | 2109 Rating Matrix

Rating : Buy

Target : | 2660

Target Period : 12-18 months

Potential Upside : 26%

Key Financials

| Crore FY17 FY18E FY19E FY20E

Net Sales 3,042 3,612 4,417 5,382

EBITDA 44 65 102 135

Net Profit 66 73 112 152

EPS (|) 38.8 42.5 65.4 89.1

Valuation Summary

FY17 FY18E FY19E FY20E

P/E 54.4 49.6 32.3 23.7

Target P/E 68.6 62.5 40.7 29.9

EV / EBITDA 78.1 53.3 32.9 24.2

P/BV 9.5 7.9 6.4 5.1

RoNW (%) 17.4 16.0 19.8 21.7

RoCE (%) 15.4 15.4 18.9 20.7

Stock Data

Particular Amount

Market Capitalization (| Crore) 3,606.2

Total Debt (| Crore) 23.4

Cash and Investments (| Crore) 169.6

EV (| Crore) 3,460.0

52 week H/L 2537 / 928

Equity capital 17.1

Face value 10.0

Price movement

5,000

7,000

9,000

11,000

13,000

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Mar-18

500

1,000

1,500

2,000

2,500

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

Research Analysts

Deepak Purswani, CFA

deepak,[email protected]

Deepti Tayal

[email protected]

mailto:[email protected]

Page 2 ICICI Securities Ltd | Retail Equity Research

Company background

TeamLease (TLS), established in 2002, is one of India’s leading providers

of human resource services in the organised segment with ~6% share in

the flexi staffing industry. It was co-Founded by Manish Sabharwal

(Chairman) and Ashok Kumar Nedurumalli (MD & CEO) wherein Mr

Sabharwal is an alumnus of The Wharton School of the University of

Pennsylvania while Mr Ashok is a first generation entrepreneur with 17

years of experience in the human resource services industry. TLS’

services span the entire human resources supply chain covering

employment, employability and education. Employment services include

temporary staffing solutions, permanent recruitment services and

regulatory consultancy for labour law compliance while employability

offerings include learning and training solutions.

In February 2016, TLS came out with an IPO with an issue size worth

| 424 crore (at | 850 per share). This included a fresh issue (| 150 crore)

and an offer for sale of ~| 273 crore from private equity investors

including Gaja Capital and India Advantage Fund (making a partial exit)

and shares by promoters. Moreover, total money raised in IPO in

February 2016, was utilised up to December 2017 implying TLS’

disciplined approach in capital allocation.

As of December 2017, TLS had an associate and trainee headcount of

177,283 deployed over 2500 clients spread across various verticals and 29

states. Associate employees are people placed with clients while the core

are TLS internal employees. As per FY15, five of top 10 clients by revenue

have been with TLS for more than six years. In line with its strategy, TLS

has expanded its addressable market by foraying into specialised staffing

such as IT and telecom through very selective acquisitions to expand its

margin.

Exhibit 2: Timeline: Focused player in general staffing

2013

Started New Service

Offerings & Makes

Compliance a separate

strategic business unit

Starts permanent

recruitment business

for one client

First round of PE investment by

Gaja Capital.

First inorganic acquisition of

IIJT Education Pvt Ltd

2002

Signs a memorandum of

understanding (MoU) for setting

up the country’s first skills

university with Gujarat

government

Company starts

operations with 20

clients and 40

employees

2004

2005

Strengthened the technology

infrastructure with

centralizing the operations in

head office at Bengaluru

2007-08

2009

20112017

2016

Acquires Keystone Business Solutions to

strengthen IT staffing.

Acquires 30% stake in Freshersworld.com

Acquires Evolve Technologies to enter telecom

staffing business

Aquires 40% stake in education start-up

Schoolguru

Comes out with IPO in February 2016

with IPO oversubscribed 66 times.

Adds IT staffing as a new service

offering, acquires ASAP Info Systems &

Nichepro Technologies


Shareholding pattern (as on December 2017) (%)

Shareholder Holding (%)

Promoter 43.1

DII 14.7

FII 24.6

Others 17.5

Total 100.0

Source: bseindia.com, ICICIdirect.com Research

FII and DII Trend

14.7 14.8

17.1 17.3

24.6

19.9

17.1

14.0

Q3FY18 Q2FY18 Q1FY18 Q4FY17

DII FII

Source: bseindia.com, ICICIdirect.com Research


Segmental snapshot

General staffing - It is the largest business segment both in terms of

associate headcount as well as revenue contribution. The segment

comprises a general staffing business and a training programme called

National Employability Through Apprenticeship Programme (NETAP). The

general staffing business has been the core contributor to revenues and

formed ~95-98% of total revenues in FY11-17. Associate headcount

(including NETAP) has grown 3x to 149,902 in FY11-17. TLS has invested

in developing software applications (Associate Lifecycle System, etc),

which led to productivity improvement for TLS (associate to core

employee ratio improved from 149 in FY11 to 203 in FY17). The topline of

general staffing grew at 28.5% CAGR to | 2945.3 crore in FY11-17. 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). Via this programme, the company has more than 40,000 trainees

in Q3FY18 compared to ~11500 trainees in FY16. This would lead the

company to have a large database proving beneficial for the company.

Specialised staffing - With its core expertise in staffing, TLS has expanded

its addressable market by entering specialised staffing by way of selective

acquisitions. With these acquisitions, IT and telecom staffing was added

to TLS’ portfolio wherein it entered IT staffing in FY17 and telecom in

FY18 (Q3FY18). With currently 5910 associates in the segment, this

segment contributed 6.4% to overall topline in Q3FY18 compared to 1.7%

in FY17. Compared to general staffing, this segment is a high margin

business thereby supporting overall margins, going ahead.

HR services - This segment mainly comprises permanent recruitment,

payroll processing & compliance consulting services and contributes ~1-

3% to consolidated revenues. Its revenues grew ~24% YoY to | 46 crore

in FY17. With the segment being a high margin one, it supports overall

margins.

Exhibit 3: Segment revenue contribution (FY17) (%)

General

Staffing &

Allied Services

97%

Specialised

Staffing

services

2%

Other HR

services

1%


Source: Company, ICICIdirect.com, Research

Exhibit 4: Segment revenue contribution (9MFY18) (%)

General

Staffing &

Allied Services

94%

Specialised

Staffing

services

4%

Other HR

services

2%


Source: Company, ICICIdirect.com, Research


Financial story in charts

Exhibit 5: Overall revenues grow healthy 26.9% in FY12-17

1530

2007

2505

3042

926 1

251

35% 35%

31%

25%

21%22%

500

1500

2500

3500

FY12 FY13 FY14 FY15 FY16 FY17

(|

crore)

10%

20%

30%

40%

(%

)

Revenues Growth, YoY


Exhibit 6: Productivity enhancements lead to turnaround in EBITDA

-21

12

24 26

44

-11

0.8%

1.2%1.0%

1.5%

-2.2%

-0.9%

-50

-25

0

25

50


| c

rore

-4%

-2%

0%

2%

4%

(%

)

EBITDA EBITDA Margin


Exhibit 7: Led by EBITDA turnaround, PAT grows 54.9% in FY14-17

(16)

25

66

(4)

18

31

(40)

(20)

-

20

40

60

80


(|

crore)

CAGR 55%


Exhibit 8: RoE and RoCE trend

-20.0

0.0

20.0

40.0


(%

)

RoE RoCE


Exhibit 9: General staffing: Revenue grows at 26.7% CAGR in FY12-17

1,2

24

1,9

73

2,9

45

901 1,5

03

2,4

68

37.8%35.9%

22.8%

31.3%

25.1%

19.3%

500

1,500

2,500

3,500


| c

rore

10%

20%

30%

40%

50%

Revenue Growth, YoY


Exhibit 10: Specialised staffing*: Revenues grow 165% YoY in Q3FY18

5

2223

51

25 27

59

0

10

20

30

40

50

60

70

Q2FY17 Q3FY17 Q4FY17 FY17 Q1FY18 Q2FY18 Q3FY18

| c

rore

*Source: Company, ICICIdirect.com Research

*Entered in Q2FY17


Flexi staffing industry overview

The flexi staffing industry includes a shared relationship among the

employer, client and an associate wherein a client hires an associate from

an employer for an assignment for a particular period while the associate

is on the payroll of an employer.

Exhibit 11: Shared relationship in tripartite agreement


Flexi-staffing offers companies flexibility in economic, business and

seasonal requirements thereby allowing the company to utilise human

resources more efficiently by not necessary retaining employees who are

surplus to requirements. It also provides companies savings in hiring,

training and integration costs. Moreover, companies outsource their non-

core activities to flexi staffing agencies to focus on the core business.

During 2013-15, the flexi staffing industry size in India has grown at 11%

CAGR to 2.1 million people. With the above-mentioned factors playing

out, it is expected to reach 2.9 million people in 2018.

Exhibit 12: Flexi staffing industry size in India

2013

1.7 million

2015

2.1 million

2018

2.9 million

India ranks fourth globally with 2.1

million flexi staff in 2015

Source: ISF Report, ICICIdirect.com Research

India ranks fourth globally with 2.1 million flexi staff in

2015. Flexibility in manpower planning, lower hiring costs

and focus on core business would enable the flexi staffing

industry to reach 2.9 million people in 2018


Investment Rationale

Leadership position in general staffing industry…

TLS is India’s leading staffing company in the organised space with

overall market share of ~6%. In terms of associate count, it is also the

largest staffing company in India. Revenues in the general staffing

business posted growth at 26.7% CAGR while its associate count has

grown at a CAGR of 19.7% to 149,902 employees (including NETAP

trainees) in FY12-17. As of December, 2017, TLS’ associate employee

count was at 171,373 (including NETAP). With favourable industry

dynamics such as formalisation of the economy, GST and labour reforms,

we anticipate TLS’s associate count and revenues will grow at a CAGR of

19.6% and 20.9% to 253,368 and | 4,917 crore, respectively, in FY18-20E.

We also highlight that TLS’ associate to core employee ratio at 203 in

FY17 is low compared to its peers (Quess Corp: 223 in FY17).

Exhibit 13: Associate growth (in- NETAP) grows 22.8% in FY14-17

81022

94647

120434

149902

177045

222938

253368

81022

94647

108860

126463

134045

152938

173368

60,000

140,000

220,000

300,000

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

(X

)

Associate count (including NETAP) Associate count (excluding NETAP)


Exhibit 14: Staffing associate to core ratio to enhance productivity

154165 166

203

222

273

303

100

200

300

400


(x)

Staffing associate to core ratio


Exhibit 15: Mark-up of general staffing per associate

687702

738

813

892

600

700

800

900

FY16 FY17 FY18E FY19E FY20E

(|)

Mark up per employee p.m. (General Staffing)

Source: Company, ICICIdirect.com ResearchICICIdirect.com, Research

Exhibit 16: General staffing revenue to grow at 21% CAGR in FY18-20E

1,503

1,973

2,468

2,945

3,363

4,033

4,917

22.8%

31.3%

25.1%

19.3%

14.2%

19.9%21.9%

10%

20%

30%

40%

50%

-

1,000

2,000

3,000

4,000

5,000


(%)

(| c

rore)

Revenue Growth, YoY


Foray into specialised staffing through M&A…

In line with its strategy to expand its addressable market to specialised

areas of staffing and improve its EBITDA margins, TLS has forayed into

specialised staffing such as IT and telecom through the inorganic route.

We highlight that the company is very prudent in selecting its acquisition

targets. Most acquisitions are EPS accretive from the year of

consolidation and are mostly done at EV/EBITDA (LTM) of 4-6x. In FY17,

TLS made three acquisitions in the fields of IT staffing - ASAP Info

Systems, NichePro Technologies and Keystone Business Solutions.

Acquisitions of ASAP and NichePro were done at an EV/EBITDA multiple

Largest staffing company in India by associate

count

Rank Company Name

Associate/ Flexi-staff

Count

1 TeamLease 125,207

2 Quess Corp 110,000

3 Adecco 100,000

4 Randstad 60,000

5 Genius Consultants 50,000

6 Global Innovsource 50,000

7 Manpower Group 38,000

Source: Quess IPP document, ICICIdirect.com Research


of 4-6x. In FY18, TLS ventured into telecom staffing through the

acquisition of Evolve Technologies. Evolve with 150 core employees

provides temporary staffing in the telecom sector and reported a revenue

CAGR of 62% to | 108.6 crore in FY15-17. The Evolve acquisition got

consolidated for two months in Q3FY18 and contributed | 29.3 crore of

revenue and | 2.1 crore to the overall EBITDA. With incremental one-

month contribution to come in Q4FY18 and full consolidation in FY19E, it

enhances the revenue visibility for the year ahead.

Going ahead, we expect high margin specialised staffing revenues

contribution in total revenues to increase from 2% in FY17 to 7% in

FY20E on account of recent acquisitions. Consequently, we expect

EBITDA margins to improve from 1.5% in FY17 to 2.5% in FY20E.

Exhibit 17: Entry into high margin business to drive margins

12

24 26

44

65

102

135

0.8%

1.2%

1.0%

1.5%

1.8%

2.3%

2.5%

0.0%

1.0%

2.0%

3.0%

0

40

80

120

160


(%

)

| c

rore


12

24 26

44

65

102

135

0.8%

1.2%

1.0%

1.5%

1.8%

2.3%

2.5%

0.0%

1.0%

2.0%

3.0%

0

40

80

120

160


(%

)

(|

crore)


General Staffing &

Allied Services

97%

Specialised staffing

services

2%

Other HR services

1%

FY17

General staffing &

allied services

91%

Specialised staffing

services

7%

Other HR services

2%

FY20E


Exhibit 18: Acquisitions by TLS to venture into specialised staffing

Date Acquired Company Acquired company Profile SALES EBITDA EBITDA Margin(%) EV EV/SALES EV/EBITDA

Jul-16 ASAP Info Systems IT staffing 63.5 11.1 17.5% 67 1.1 6.0

Sep-16 NichePro Technologies IT staffing 26.0 6.8 26.2% 29.5 1.1 4.3

Jan-17 Keystone Business Solutions IT staffing 7.5 2.0 26.7% 8.2 1.1 4.1

May-17 Cassius Technologies-Freshersworld Hiring strategy 5.1 NA 0.0% 18 3.5 NA

Oct-17 Evolve Technologies Telecom staffing 108.6 10.8 9.9% 36.68 0.3 3.4

Nov-17 Schoolguru Strengthen content library NA NA 0.0% 13.5 NA NA

Source: Media sources, Company, ICICIdirect.com Research


Structural changes in fragmented flexi staffing industry – setting the tone

for growth in next decade…

The flexi staffing industry is highly fragmented with unorganised players

accounting for ~70% of the industry. Secondly, though India is the fourth

largest flexi staffing market in associate count, India is still among the

least penetrated flexi staffing markets globally and accounted for 0.5% (in

2015) in overall employment in India against the global average of 1.7%.

Penetration in developed economies is as high as 3.8% in UK, 2.2% in the

US, 2.4% in Germany and 1.8% in China. With the playout of factors such

as formalisation of the economy, GST, labour law reforms, increasing

number of enterprises shifting to organised flexi-staffing players and

requirement of skill development, we believe the organised flexi staffing

sector is poised for the next leg of growth over the long term.

Exhibit 19: Potential for India's flexi staffing penetration to reach global average

3.8%

2.4%

2.1%2.2%

2.0%1.8% 1.7%

0.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

UK

Germ

any

France

US

Japan

Chin

a

Glo

bal

Average

India

(%

)

Source: CIETT Economic Report 2017, ICICIdirect.com Research

Looking at the industry growth size, the temporary general staffing market

size in India was | 50033 crore in 2016. It is expected to grow at 16.8%

CAGR in 2016-21. The organised flexi staffing industry, which is currently

at ~30% of the total industry, should grow more rapidly than the overall

industry growth.

Exhibit 20: Temporary general staffing market in India expected to grow 16.8% in FY16-21E

50033

57542

66676

78043

91759

108749

40000

60000

80000

100000

120000

2016 2017 2018 2019 2020 2021

(|

crore)

CAGR 16.8%

Source: F&S Research & Analysis, ICICIdirect.com Research


We delve further into the industry growth rate to check whether industry

growth is sustainable or not. Hence, we started looking at industry growth

through the volume growth rate. Looking at the volume component

separately, we believe the flexi staffing industry should grow at 13.3%

CAGR over the next decade and reach 1.0 crore from 0.24 crore

employees in the flexi staffing industry in 2016.

Exhibit 21: Macro opportunity in terms of volume growth

Population Crore % Crore % Crore %

2013 127.9 83.1 65.0 48.6 58.5 0.1 0.3

2015 130.9 86.0 65.7 50.4 58.6 0.2 0.4

2013-15 CAGR(%) 1.2 1.7 1.8 27.1

2018 135.4 89.9 66.4 52.8# 58.7 0.3 0.5

2015-18 CAGR(%) 1.7 2.2 2.4 17.5

2028E 149.0 101.2 67.9 59.4# 58.7 1.0 1.7*

2018-2028 CAGR(%) 1.0 1.2 1.2 13.3

Flexi Staffing

Penetration

Working Age

population

Labour force

Participation

Source: F&S Research & Analysis, ICICIdirect.com Research, #assumed labour participation rate

* assumed penetration level to reach global average of 1.7% over next 10 years

Working age population%: Working age population/Population

Labour force participation%: Labour force participation/Working age population

Flexi staffing penetration%: Flexi staffing penetration/ Labour force participation

GST: Move from unorganised to organised to create level playing field…

The rollout of the Goods and Services Tax (GST) should lead to a

structural shift towards organised players and create a level playing field

between unorganised and organised players. Prior to GST

implementation, clients were getting tax credits for payment made to

unorganised flexi staffing players irrespective of whether the unorganised

players were actually making statutory employee payments or not.

Hence, unorganised players were offering flexi staffing services at ~15-

25% cheaper rates compared to organised players while giving the same

take home salary to employees while evading tax and flouting statutory

requirements (please refer exhibit 22). Post GST, the client would be able

to claim input tax credit only when taxes and statutory payments are

made by flexi staffing players due to the bill matching mechanism in GST

era. Hence, we believe unorganised players would have to comply with

statutory requirements to survive in the industry. These changes would

significantly narrow the pricing difference between unorganised and

organised companies, thereby benefiting organised players like TLS. In

our view, the pricing difference between organised and unorganised

players could narrow down to as low as to 1-3% post GST era vs. 15-25%

earlier.


Exhibit 22: Illustration of GST benefits to organised players

Organised Unorganised Organised Unorganised

To Employees

Gross Salary per employee 20000 15300 20000 20000

Basic Pay @70% 14000 10710 14000 14000

EPF 3360 0 3360 3360

Employer Contribution (12%) 1680 0 1680 1680

Employee Contribution (12%) 1680 0 1680 1680

ESIC 1300 0 1300 1300

Employer Contribution (4.75%) 950 0 950 950

Employee Contribution (1.75%) 350 0 350 350

Take Home for Employee 15340 15300 15340 15340

To Client

Associate cost 20000 15300 20000 20000

Mark up 700 459 700 400

Service Tax/GST 3105 2364 3726 3672

Amount charged to client 23805 18123 24426 24072

Pricing Difference (%) -23.9 -1.4

Pre GST Post GST


Further reforms may raise prospects for organised players…

Beside GST, various laws such as unique enterprise number, online filing

and deposition of statutory requirements along with consolidation of 44

central labour laws are needed to accelerate formal job creation and for

ease of doing business. If adopted, these reforms would raise the

prospects for organised players. Laws like

Unique enterprise number – Currently, organisations have

multiple numbers. Creating a unique identifier at the company

level would be crucial in a digital economy

Consolidation of 44 central labour laws into four labour codes-

India has 44 central labour laws and more than 150 state laws,

which create multiplicity thereby increasing the compliance

permissions and process delays. Consolidation of 44 central

labour laws into four labour codes pertaining to wages, industrial

relations, social security & welfare, safety & working conditions

would simplify the process

Amendments in Contract Labour and Regulation Act- India has

about ~25-30% of its workforce engaged as contract staff.

Various procedures and regulations such as threshold size for

applying license, digitisation of payments and documentation in

the act need to be revisited for the benefit of employers and

contract workers and for ease of doing business

Rationalise period of apprenticeships- The period of

apprenticeships ranges between a minimum of six months to a

maximum of three years. However, the maximum period of three

years remains long for many industries. State Apprenticeship

Councils should be permitted to select the appropriate duration,

rationalising the period based on demand and key sectors in the

state

Further reforms to accelerate formal job creation -

Unique enterprise number

Consolidation of 44 central labour laws into

four labour codes

Amendments in Contract Labour and

Regulation Act

Rationalise period of apprenticeships


Tax benefit of 80JJAA to provide additional boost to bottomline…

In Union Budget 2016, the existing provision of Section 80JJAA was

extended from manufacturing to all other sectors. The section 80JJAA of

Income Tax Act allows a company to claim deduction of 30% of

additional employee cost incurred in the previous year for three

consecutive assessment years, subject to certain prescribed conditions.

Factoring in these benefits into our estimates, we have considered a zero

tax rate in FY18E-20E. The benefits of Section 80JJAA are expected to

play out significantly for TLS and are anticipated to positively impact

earnings estimates to the tune of 49% in FY18E and FY19E.

Exhibit 23: Illustration of tax benefit

FY18E FY19E FY18E FY19E

Reported PBT 72.7 111.8 72.7 111.8

Tax rate @33% 24.0 36.9 0.0 0.0

PAT 48.7 74.9 72.7 111.8

Earnings Difference (%)

Pre Tax Benefit Post Tax Benefit

49%


Benefits of section 80JJAA of the Income-tax act are

anticipated to positively impact earnings to the tune of 49%

in FY18E and FY19E

Conditions with respect to additional employees:

1. New employees should be employed during the previous year

leading to increase in employee count.

2. Compensation to additional employees should not exceed

| 25,000 per month.

3. Employment for a period of 240 days or more during the relevant

previous year. In the recent Budget, there was a modification by

allowing the benefit for a new employee who is employed for less

than the minimum period during the first year but continues to

remain employed for the minimum period in the subsequent year.

4. However, these deduction would not be applicable to cost incurred

on those employees who does not participate in recognised

provident fund or whose entire contribution is paid by the

government under the National Pension Scheme.


Lower working capital, healthy balance sheet lends comfort…

We also like TLS as it enjoys best in class working capital days (in the

range of 15-27 historically). This is far lower and efficient compared to its

industry peers like Quess Corp (Quess), where debtor days (including

unbilled) are in the range of 70-75 days. This is mainly on the back of

Quess’ sizeable presence in IT staffing wherein debtor days are higher.

TLS also enjoys a healthy balance sheet position with cash & cash

equivalent of | 159 crore (as on FY17), which is ~4.5% of market cap.

This bodes well for the company as the cash can be deployed for further

investments in expanding to newer verticals and geographies. Moreover,

total money raised in IPO in February 2016, was utilised up to December

2017 depicting TLS’ disciplined approach in capital allocation.

Exhibit 24: Best in class working capital cycle

Days FY14 FY15 FY16 FY17

TeamLease 16 17 25 27

Quess Corp 73 52 67 68

SIS 52 55 53 63

*Working Capital: Inventory days+ Debtor days+ Unbilled days- Creditor days


Diversified client portfolio…

TLS, with its presence in 150 locations, has 2500+ corporate clients

across sectors. Besides this, contribution mix of top five/10 clients implies

a diversified client portfolio and less concentration risk from a client mix

perspective. During FY17 and Q3FY18, top five clients contributed 11%

and 12% to revenues, respectively, while top 10 clients contributed 17%

and 19%, respectively, during the same period. Compared to its industry

peer, Quess Corp that has ~31% revenue contribution from top 10

clients, TLS is better placed from a client portfolio perspective.

Exhibit 25: Diversified client portfolio

13%

11%

14% 14%

12%

17% 17%

20%21%

19%

0%

6%

12%

18%

24%

FY16 FY17 Q1FY18 Q2FY18 Q3FY18

(%

)

Top5 Top10



Focus on general staffing to play out well for TLS…

A gradual movement from unorganised to organised staffing companies

in India is expected to bode well for organised staffing players like TLS

that have their revenue base in India. TLS being a focused player in

general staffing with 97% revenue contribution to total revenues in FY17,

would be a key beneficiary of this shift. Moreover, the company’s revenue

growth is an organic story with ~98% of revenue growing organically.

Exhibit 26: Focused player in general staffing

Operational Parameters (FY17)

Scope of operations

General Staffing, Specialised Staffing (IT & Telecom), Other HR

Services

General Staffing, IT Staffing, Integrated Financials Management,

Industrials

Revenue Mix

General Staffing (97%), Specialised Staffing (2%), Other HR

Services (1%)

General Staffing (57%), IT Staffing (28%), Integrated Financials

Management (10%), Industrials (5%)

General Staffing Revenue | 2945.3 crore | 2345.4 crore

Number of Associates 126463 114800

Core Employees 738 515

Associate to Core Ratio 203 223

Geographical Presence India

India, Singapore, Canada, USA, Phillipines, Malaysia Germany,

SriLanka

Number of Clients 1900+ 1700+

Top 10 clients contribution 17% 31%


Exhibit 27: Comparison on Financial matrix

Financial Parameters (FY17)

Market Cap (| crore) 3573.7 15217.7

Revenue (| crore) 3041.9 4157.3

EBITDA Margin (%) 1.5% 5.4%

PAT (| crore) 66.3 113.5

FY14-17 CAGR (%)

Revenue 25.8% 60.5%

PAT 54.9% 85.6%

RoE 17.4 13.6

RoCE 9.0 11.6



Financials

Revenue to grow at 22.1% CAGR in FY18-20E…

Historically, the topline has grown at a healthy CAGR 26.9% to | 3042

crore in FY12-17. Growth was driven by the general staffing business,

which grew at 26.7% CAGR to | 2945 crore during the same period.

Going ahead, rising penetration of temporary staffing in India in

conjunction with TLS’ core expertise in general staffing and primary focus

in India would provide an immense opportunity for sustainable growth.

Consequently, we expect general staffing & allied services revenues to

grow at 20.9% CAGR to | 4917.1 crore in FY18-20E. Revenues from

specialised staffing and other HR services are expected to grow in healthy

double digits at a CAGR of 42.8% and 17.5%, respectively, in FY18-20E.

Overall, we expect revenues to grow at a healthy 22.1% CAGR in FY18-

20E to | 5381.9 crore.

Exhibit 28: Revenue growth among segments

2,945

3,363

4,033

4,917

51

184

306

376

46 65

77

89

-

2,000

4,000

6,000


(| c

rore

)

General Staffing & Allied Services Specialised Staffing services

Other HR services

Source: Company, ICICIdirect.com Research e: Company, ICICIdirect.com, Research

Exhibit 29: Revenue contribution among segments

96.8% 93.1% 91.3% 91.4%

1.7

%

5.1

%

6.9

%

7.0

%

1.5

%

1.8

%

1.8

%

1.7

%

0%

50%

100%


(%

)

General Staffing & Allied Services Specialised Staffing services

Other HR services

Source: Company, ICICIdirect.com Research, ICICIdirect.com, Research

Exhibit 30: Revenues expected to grow at 22.1% CAGR during FY18-20E

2007

2505

3042

3612

4417

5382

31%

25%

21%

19%

22%22%

0

3000

6000

FY15 FY16 FY17 FY18E FY19E FY20E

(|

crore)

15%

25%

35%

(%

)

Revenues Growth, YoY


Diversifying into new verticals & productivity enhancements to drive

margins…

During FY12-17, absolute EBITDA turned around from -| 20.7 crore to

| 44.3 crore in FY17. Margins have expanded from 1.5% in FY17 to 1.9%

in Q3FY18. There are three parameters that could drive margins upwards.

i) Improvement in associate to core ratio- General staffing (including

NETAP trainees) associate to core employees’ ratio has increased from

149 in FY11 to 203 in FY17. The management aims to take this ratio


further to the 300-400 range in five to six years, thereby enhancing

productivity. ii) Entry into high margin business segments of IT and

telecom staffing iii)) Continued growth in HR services without making any

significant investment. Taking these factors into account, we expect

EBITDA margins to expand 70 bps to 2.5% in FY18-20E.

Exhibit 31: Productivity enhancements and increase in contribution from higher margin segments to drive margins

24

26 44 65 102 135

1.2%

1.0%

1.5%

1.8%

2.3%

2.5%

0.0%

1.0%

2.0%

3.0%

10

50

90

130


(%

)

(| c

rore)



PAT to get further boost upon availing 80JJAA tax benefit…

During FY15-17, PAT has grown at a robust CAGR of 46.8% to | 66.3

crore. Strong growth was the blend of revenue and EBITDA growth,

which witnessed a CAGR of 23.1% and 35.7%, respectively, during the

same period. Going ahead, we expect PAT to grow at 44.8% CAGR

(adjusted PAT to grow at ~35.7%) to | 152.3 crore in FY18-20E on the

back of a strong operating performance along with additional tailwind

from Section 80JJAA of the income tax benefits.

Exhibit 32: PAT expected to increase 44.8% CAGR in FY18-20E

31 25

66 73*

112

152

72.4%

-19.4%

167.5%

9.5%

53.8%

36.3%

-30%

20%

70%

120%

170%

10

50

90

130

170


(%

)

(| c

rore)

PAT Growth, YoY

Source: ICICIdirect.com Research

* It includes one off acquisition related expenses in FY18E. Adjusting for this, net income grew 25.7% YoY


Operating profitability, tax benefits to drive return ratios…

From FY15-17, the decline in profitability ratios (RoE, RoCE) was primarily

on account of increase in the share capital base from | 0.5 crore in FY15

to | 17.1 crore in FY17. Going ahead, the margin trajectory inching

upwards owing to TLS entering high margin revenue segments along

with cost optimisation and playout of tax benefits would drive profitability.

Hence, we expect RoE and RoCE to inch upwards to 21.7% and 20.7%,

respectively, in FY20E.

Exhibit 33: Return ratios trend upwards

20.7

8.0

17.416.0

19.8

21.7

18.9

20.720.1

11.3

15.4

15.4

0.0

10.0

20.0

30.0


(%

)

RoE RoCE


FCF could improve in FY19-20E…

On account of acquisitions in FY17, TLS generated a negative FCF of

| 57.1 crore in FY17. Taking into account the capex on acquisition and

stretching of the working capital cycle mainly due to GST concerns, we

expect FCF to be negative in FY18E. However, with improving operating

profitability and minimum capex requirements over FY19-20E, we expect

the FCF of the company to witness an improvement in the same period.

We do not factor in any new acquisitions.

Exhibit 34: FCF to witness improvement in FY19-20E

-57.1

-43.6

103.7

88.2

-1.6%

-1.2%

2.9%

2.4%

-2%

0%

2%

4%

-60

-20

20

60

100


(%

)

(| c

rore)

FCF FCF Yield



Risk & concerns

Insourcing of associates by clients…

TLS enjoys huge benefits under section 80JJAA of the Income Tax Act on

account of net employee addition. Going ahead, clients may either

directly look at client insourcing to avail the benefits themselves or may

ask for benefits to be passed through pricing. As of now, the management

has indicated that it has not seen such kind of scenario. If it happens in

future, it may impact TLS’ profitability. Also, with advancements in

technology and drive towards automation could impact company’s

business.

Higher competition and lower margins…

The Indian staffing market is currently dominated by unorganised players,

which account for ~70% market share with the organised space

accounting for the balance ~30% share. With a highly fragmented

industry, price competition becomes intense, making it difficult for

organised players to see an up-tick in pricing. Moreover, TLS operates on

wafer thin margins on account of a higher proportion of general staffing

business, which is a lower margin one. Any disruption or continued

competition by organised players could potentially limit the company’s

ability to maintain profitability. However, we highlight that structural

reforms like GST and other reforms should help the company sail through

the competitive field and benefit from a consolidation in the industry.

Slowdown in economic growth and job creation…

The staffing industry is a play on employment, which has a correlation

with the economic conditions of any country. Any economic downturn in

the operating country could impact the demand for staffing services as

many companies reduce their use of temporary employees. Global peers

in general staffing like Adecco, Randstad and Manpower, witnessed

negative growth in 2008-09 owing to economic conditions prevailing

during that period. Any economic slowdown and job creation in India

could impact TLS’ revenues and profitability, going ahead.

Acquisitions may not yield intended benefits…

TLS carried out certain acquisitions in the last two two years. Though the

company is prudent in its acquisition strategy, any failure to integrate

recently acquired entities may impact its financial performance.

Historically, TLS had encountered problems in delivering intended results

in acquisition such as IIJT. IIJT was India’s largest and leading vocational

training provider with over 40 owned centres and ~60 franchisee centres.

The acquisition did not turn around on expected lines as the high street

retail business model of the target could not work from a commercial

perspective.


Valuation

At the CMP, TLS is trading at 23.7x FY20E EPS. We like TLS given its

leadership position in the general staffing industry. The company is well

set to grab the opportunity from rising penetration of temporary staffing

in India. Hence, we expect earnings to witness a strong growth trajectory

of 44.8% (adjusted PAT at 35.7%) on the back of a strong operating

performance and tax benefits under section 80JJAA. Hence, we initiate

coverage on the stock with a BUY recommendation and a target price of |

2660/share based on DCF methodology. Our target price implies 29.9x

FY20E EPS. In our view, our target multiple for TLS is justified considering

the robust growth trajectory implying a PEG ratio of 0.8x and strong

return ratio (RoIC – 28.6% in FY19E).

We value TLS at | 2660/share based on DCF methodology. With its core

expertise in general staffing, we believe TLS is set to reap the benefits

from the formalisation of the economy through structural reforms. This

would enable its associates to grow at 12.8% CAGR to 1.1 million in FY18-

33E translating into revenue growth of 16.7% during the same period.

Exhibit 35: DCF valuation details

FY19E FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E FY31E FY32E FY33E

Net Sales 4417 5382 6434 7667 9149 10890 13015 15346 17855 20707 23947 27363 30596 33885 36787

y-o-y growth rate 22.3% 21.8% 19.5% 19.2% 19.3% 19.0% 19.5% 17.9% 16.4% 16.0% 15.6% 14.3% 11.8% 10.8% 8.6%

EBIT 92 125 161 202 260 319 395 475 562 661 773 893 1012 1135 1252

Margin (%) 2.1% 2.3% 2.5% 2.6% 2.8% 2.9% 3.0% 3.1% 3.1% 3.2% 3.2% 3.3% 3.3% 3.3% 3.4%

EBIT(1-t) 73 99 127 159 206 252 312 318 377 443 518 598 678 760 839

Tax rate 21% 21% 21% 21% 21% 21% 21% 33% 33% 33% 33% 33% 33% 33% 33%

Add: Depreciation 10 10 11 11 12 13 14 15 16 18 20 22 22 23 23

Change in WC 4 -42 -46 -54 -65 -76 -93 -102 -110 -125 -142 -150 -142 -144 -127

Capex -3 -4 -5 -6 -8 -9 -11 -13 -15 -17 -20 -23 -6 -6 -6

FCFF 84 62 86 110 145 179 222 218 268 319 376 447 552 632 728

Discounting Year 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13

Discount Factor 1.0 0.9 0.8 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.2

Discounted FCFF 62 77 89 105 116 129 113 125 133 141 151 167 171 177


We also consider a weighted average cost of capital (WACC) of 11.5%

and terminal growth rate of 4% to value TLS. Exhibit 38 shows the

sensitivity of these assumptions. Every 1% change in WACC and terminal

growth rate is expected to have an impact of 7-8% each on our target

price.

Exhibit 36: WACC assumption (%)

Beta 1.0

Risk Free rate (Rf) 7.5

Risk Premium 4.0

Cost of Equity 11.5

Cost of Debt (post tax) 8.0

Equity (%) 100.0

Debt(%) 0.0

WACC(%) 11.5

Source: Bloomberg, ICICIdirect.com Research

Exhibit 37: DFC valuation

Sum of Discounted FCFF 1756.0

Terminal growth rate 4.0

Terminal Value 2453.2

Enterprise Value 4209.1

Net Debt/ (Cash) -342.4

Target Market cap 4551.5

No of shares 1.7

Target Price 2660.0


We initiate coverage on TLS with a BUY

recommendation and a target price of | 2660/share


Exhibit 38: Sensitivity Analysis

2660 2.0 3.0 4.0 5.0 6.0

9.5 2790 2970 3200 3500 3900

10.5 2550 2710 2910 3180 3540

11.5 2340 2480 2660 2900 3220

12.5 2150 2280 2440 2650 2940

13.5 1980 2100 2240 2430 2680

WA

CC

(%

)

Terminal growth rate (%)

Source: ICICIdirect.com Research

Comparing TLS with its peers, we highlight that TLS is trading at a

relatively better valuation multiple of 24.1x FY20E while it is available at

an industry average PEG multiple of 0.7x on adjusted earnings growth of

35.7% in FY18-20E.

Exhibit 39: Peer comparison

Global Players RoCE RoE

CY17E CY18E CY19E CY17E CY18E CY19E CY17E CY18E CY19E CY17E CY17E

Adecco 12.7 29.0 30.0 30.9 1.0 1.0 1.1 2.9 12.6 12.1 11.5 14.8 21.6 2.9

Randstad Holding 13.1 26.3 30.1 31.2 0.8 1.0 1.1 19.3 15.2 13.1 12.4 11.9 15.9 1.9

Manpower Group 8.1 21.0 23.2 24.3 0.5 0.6 0.6 11.8 17.6 13.5 13.3 16.2 21.2 1.8

Average 11.3 25.4 27.8 28.8 0.7 0.9 0.9 11.3 15.1 12.9 12.4 14.3 19.6 2.2

Domestic Peer RoCE RoE

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY18E

Teamlease 3606.2 3611.9 4416.8 5381.9 72.7 111.8 152.3 44.8 49.6 32.3 23.7 15.4 16.0 0.7

Quess Corp 15304.9 6189.1 8188.9 9797.6 310.7 431.0 560.3 34.3 47.8 35.0 26.8 15.8 21.6 0.8

SIS 6269.7 5852.7 6901.9 7965.4 177.8 265.3 340.6 38.4 44.2 30.2 23.6 16.0 21.7 0.6

Average 8393.6 5217.9 6502.5 7715.0 187.0 269.4 351.1 39.2 47.2 32.5 24.7 15.7 19.8 0.7

CY17-19E

CAGR (%)

PAT (US$ bn)

Current

PEG

P/E Current

PEG

P/EMarket Cap

(Rs crore)

Revenue (Rs crore) PAT (Rs crore) FY18-20E

CAGR (%)

Market Cap

(US$ bn)

Revenue (US$ bn)

Source: Bloomberg, ICICIdirect.com Research

In terms of PE multiple, TLS has traded at an average PE multiple of 27x

since its listing in February 2016. Currently, it is trading at 23.7x FY20E

EPS. We value TLS at | 2660/share based on DCF methodology. Our

target price implies 29.9x FY20E EPS. In our view, this is justified

considering the robust growth trajectory implying a PEG ratio of 0.8x and

strong return ratio (RoIC – 28.6% in FY19E).

Exhibit 40: One year forward PE band

500

1,000

1,500

2,000

2,500

Feb-16

May-16

Aug-16

Nov-16

Feb-17

May-17

Aug-17

Nov-17

Feb-18

(|)

Price 20x 25x 30x 35x 40x


Exhibit 41: Average one year forward PE multiple

15

30

45

Feb-1

6

May-16

Aug-16

Nov-1

6

Feb-1

7

May-17

Aug-17

Nov-1

7

Feb-1

8

(x)

P/E Average PE 1+ STD

1- STD 2+ STD 2-STD



In terms of EV/EBTDA multiple, TLS has traded at average EV/EBITDA of

30x since February 2016. Currently, it is trading at 24.2x FY20 EV/EBITDA.

Our target price also implies target EV/EBITDA of 27.0x, which is at ~10%

discount to its historical average.

Exhibit 42: One year forward EV/EBITDA band

700

2,200

3,700

5,200

Feb-16

May-16

Aug-16

Nov-16

Feb-17

May-17

Aug-17

Nov-17

Feb-18

EV

(| c

rore)

EV 50x 40x 30x 20x


Exhibit 43: Average one year forward EV/EBITDA multiple

10

20

30

40

50

Feb-1

6

May-16

Aug-16

Nov-16

Feb-1

7

May-17

Aug-17

Nov-17

Feb-1

8

EV

(| c

rore)

EV/EBITDA Average EV/EBITDA



Financial Summary

Exhibit 44: Profit and loss statement | Crore


Revenue from operations 3,041.9 3,611.9 4,416.8 5,381.9

Growth (%) 21.4 18.7 22.3 21.8

Other Income 22.4 18.4 22.9 31.9

Total Revenue 3,064.3 3,630.4 4,439.8 5,413.8

Employee benefits expense 2,937.7 3,459.7 4,217.2 5,128.3

Other Expenses 59.9 86.8 97.3 118.6

Total Operating Expenditure 2,997.6 3,546.5 4,314.6 5,246.9

EBITDA 44.3 65.5 102.2 135.0

Growth (%) 71.8 47.8 56.2 32.0

Interest 1.1 2.2 3.6 4.4

Depreciation 4.3 9.0 9.8 10.2

PBT 61.3 72.7 111.8 152.3

Tax (5.0) - - -

PAT 66.3 72.7 111.8 152.3

Growth (%) 167.5 9.6 53.7 36.3

Diluted EPS 38.8 42.5 65.4 89.1

Growth (%) 143.7 9.5 53.8 36.3


Exhibit 45: Balance sheet | Crore


Equity Capital 17.1 17.1 17.1 17.1

Reserve and Surplus 364.0 436.7 548.5 685.6

Total Shareholders funds 381.1 453.8 565.6 702.7

Long term borrowings 0.0 0.0 0.0 0.0

Short term borrowings 1.1 1.1 1.1 1.1

Bank overdraft 22.3 32.5 44.2 53.8

Total Debt 23.4 33.6 45.3 55.0

Other long term liabilities 4.8 5.7 7.0 8.6

Long term provisions 37.6 44.6 54.6 66.5

Liabilities Total 447.0 537.8 672.5 832.7

Fixed Assets 102.9 137.0 130.2 124.5

Tangible 2.7 4.2 5.4 7.6

Intangible 100.2 132.8 124.8 116.9

Non-current Investments 0.0 0.0 0.0 0.0

Deferred tax asset 14.9 17.7 21.7 26.4

Long terms loans and advances 92.5 109.9 134.3 163.7

Other non-current assets 35.2 41.8 51.1 62.3

Inventories 0.2 0.2 0.2 0.3

Trade receivables 187.2 263.7 273.8 333.7

Current Investments 10.3 10.3 10.3 10.3

Cash 159.3 142.2 276.9 387.0

Short term loans and advances 26.7 31.7 38.8 47.3

Other current assets 63.0 74.8 91.5 111.4

Total Current Assets 446.7 522.9 691.5 890.0

Trade Payable 10.5 12.4 15.2 18.5

Other current liabilities 219.7 260.9 319.0 388.8

Short term provisions 15.2 18.1 22.1 26.9

Total Current Liabilities 245.4 291.4 356.3 434.2

Net Current Assets 201.3 231.5 335.2 455.8

Assets Total 447.0 537.8 672.5 832.7



Exhibit 46: Cash flow statement | Crore

(Year-end March) FY17 FY18E FY19E FY20E

Profit before Tax 61.3 72.7 111.8 152.3

Add: Depreciation 4.3 9.0 9.8 10.2

(Inc)/dec in Current Assets (39.2) (93.3) (34.0) (88.3)

Inc/(dec) in CL and Provisions 37.3 27.2 38.4 46.1

Taxes paid (19.1) - - -

CF from operating activities 33.2 (0.6) 106.7 92.7

(Inc)/dec in Investments (15.1) 18.4 22.9 31.9

(Inc)/dec in Fixed Assets (1.8) (43.0) (3.0) (4.5)

Others

CF from investing activities (16.9) (24.6) 19.9 27.5

Inc/(dec) in loan funds (21.7) 10.2 11.7 9.7

Dividend paid & dividend tax - - - (15.2)

Others (19.5) (2.2) (3.6) (4.4)

CF from financing activities (41.2) 8.0 8.0 (10.0)

Net Cash flow (24.9) (17.1) 134.7 110.2

Opening Cash 49.6 159.3 142.2 276.9

Closing Cash 159.3 142.2 276.9 387.0


Exhibit 47: Ratio analysis

(Year-end March) FY17 FY18E FY19E FY20E

Per share data (|)

EPS 38.8 42.5 65.4 89.1

Cash EPS 41.3 47.8 71.1 95.0

BV 222.9 265.4 330.8 411.0

DPS - - - 12.2

Cash Per Share 93.2 83.2 161.9 226.3

Operating Ratios (%)

EBIT Margin 1.3 1.6 2.1 2.3

PBT Margin 2.0 2.0 2.5 2.8

PAT Margin 2.2 2.0 2.5 2.8

Debtor days 22 27 23 23

Creditor days 1 1 1 1

Return Ratios (%)

RoE 17.4 16.0 19.8 21.7

RoCE 15.4 15.4 18.9 20.7

RoIC 17.0 16.9 28.6 34.6

Valuation Ratios (x)

P/E 52.7 48.1 31.3 23.0

EV / EBITDA 75.6 51.6 31.8 23.4

EV / Net Sales 1.1 0.9 0.7 0.6

Market Cap / Sales 1.1 1.0 0.8 0.6

Price to Book Value 9.2 7.7 6.2 5.0

Solvency Ratios

Debt/EBITDA 0.5 0.5 0.4 0.4

Current Ratio 1.5 1.7 1.5 1.5

Quick Ratio 1.5 1.7 1.5 1.5



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION

We /I, Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report

accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or wil l be directly or indirectly related to the specific recommendation(s) or

view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities

Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has

its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which

are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.

Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended

temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this

company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific

circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate

the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment

in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in

respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned

in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any

compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts

and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the

preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month

preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and

to observe such restriction.

Documents

TeamLease Services Ltd (TEASER) | 2109content.icicidirect.com/mailimages/IDirect_TeamLease_IC.pdf · This would expand its EBITDA margin profile by 70 bps to 2.5%. Hence, we initiate