Buy TeamLease Services; target of Rs 3300: Motilal Oswal

Motilal Oswal's research report on TeamLease Services

TEAM's 3QFY19 Revenue at INR11.7b grew by 28% YoY (exp. of +22% YoY); EBITDA at INR245m grew by 37% YoY (exp. of +44% YoY); PAT at INR255m grew by 39% YoY (exp. of +46% YoY) General staffing associates grew by 7,548 QoQ, +5.2% QoQ and 16.6% YoY to 152,693, above our estimate of 5,000 additions QoQ. Specialized staffing saw in uptick of 52 associates QoQ to 6,117 (+3.5% YoY), and in line with our estimate of 6,100. EBITDA margin at 2.1% declined 10bp sequentially, below our estimate of 2.3%. However, EBITDA margin in General staffing came in line with our estimate of 2.1%, whereas the disappointment was led by specialized staffing, where EBITDA margin was 5.6% (-170bp QoQ) v/s estimate of 7.9% and Other HR services, where EBITDA margin plummeted from 10.6% to 1% (estimate of 4.5%) PAT at INR255m (+1.3% QoQ, +38.6% YoY) was 5.4% below expectations, led by operational miss.

Outlook

We value TEAM using DCF to arrive a target price of INR3,300 (implied target P/E of 37x/27x on FY20E/FY21E EPS). We have revised our FY20 margin assumption downward by 20bp to accommodate for near-term investments select verticals in general staffing (and EPS by 6.5%). At 29x/20x FY20/21E earnings, valuations are rich, but justified given revenue/EBITDA/EPS CAGR of 23/41/42% over FY18-21. Sustained superiority of the financial performance because of industry trends, business model and operational excellence continue strengthening our long-term view. Buy.

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Read More First Published on Feb 7, 2019 04:22 pm