TeamLease Services: Stable earnings in Q2, but expensive valuations

While the first half of the year was a little tepid, and saw some spillover of contracts to October, TeamLease is hopeful of clocking better performance in the second half


Graphic: Naveen Kumar Saini/Mint
Graphic: Naveen Kumar Saini/Mint

Temporary staffing firm TeamLease Services Ltd delivered stable second quarter (Q2) earnings, but missed expectations on some fronts. Consolidated net profit surged 58% year-on-year (y-o-y) to Rs9.03 crore in Q2 of fiscal year 2017, lower than the Bloomberg estimate of Rs9.4 crore. Earnings before interest, tax, depreciation and amortization (Ebitda) grew 22% y-o-y at Rs8.61crore, marginally lower than anticipated. Its shares have fallen 10.52% in the last three trading sessions.

While the first half of the year was a little tepid, and saw some spillover of contracts to October, TeamLease is hopeful of clocking better performance in the second half. The remaining two quarters of the fiscal year generally generate 60% of the total business, the management said in a post- earnings conference call.

Q3 is a seasonally strong one and so far has been in-line with expectations. The company added 3,000 employees in October, much higher than the Q2 monthly run-rate of 950 employees. More traction is foreseen in the next two months. Apart from that, contribution from two recent IT acquisitions—ASAP Info Systems and Nichepro Technologies—would start reflecting in its balance sheet from hereon. Staffing industry growth remains stable, and TeamLease should be able to meet its 15% growth guidance in FY17, the management added.

Meanwhile, peer Quess Corp Ltd bettered TeamLease, with its net profit rising 65.9% at Rs30.10 crore and 26.9% y-o-y revenue growth of Rs1,018 crore. TeamLease’s gross revenue stood at Rs840.88 crore, up 14% y-o-y. On the Ebitda margin front, Quess saw a y-o-y improvement of 69 basis points to 5.4%, while TeamLease margins were 30 basis points higher at 1.2% in Q2 of FY17. A basis point is 0.01%.

Among the two, Quess Corp has a more diversified portfolio of services with significant exposure to IT staffing—a higher margin business than general staffing. With the aforesaid acquisitions, TeamLease has made a foray into the IT staffing business and is looking for more buyouts in this vertical.

Listed in February, the TeamLease stock has gained 3.15% to Rs876.80 since then from its offer price of Rs850. On the other hand, Quess Corp got listed on 12 July, gaining 87.59% to Rs594.65. Valuation-wise, TeamLease is trading at a one-year forward price-to-earnings multiple of 36.45, higher compared to Quess Corp’s 55.57.

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