Photo: Hemant Mishra/Mint
Photo: Hemant Mishra/Mint

Investors cheer TeamLease, but stock is pricey

TeamLease's June quarter results show net profit surged 48.4% and revenue growth up 23.92%, but at 45 times the EPS, the stock is pricey at the moment

Shares of recruitment firm TeamLease Services Ltd were trading down nearly 5% for most of the day on Tuesday, but they recovered later in the afternoon. The swing from red to green was buoyed by the company’s robust June quarter earnings. Consolidated net profit surged 48.4% to 7.36 crore on a year-on-year basis, consolidated net revenue increased 23.92% and average mark-up per associate per month—commission earned on recruitment—rose 8.4% year-on-year to 712.

The company beats recently listed peer Quess Corp Ltd on the profit front; however, the latter leads when it comes to consolidated Ebitda margin. Ebitda stands for earnings before interest, taxes, depreciation and amortization. TeamLease saw a slight rise of 10 basis points in operating margins year-on-year; for Quess Corp the surge was 80 basis points. A basis point is 0.01%.

One factor could be Quess Corp’s diversified portfolio. It operates in four verticals—global technology solutions, people and services, integrated facility management, and industrial asset management—versus TeamLease’s two: staffing and allied services, and other HR services.

Following Quess Corp’s footsteps, whose strategy has been to grow via acquisitions, TeamLease too is opting for the inorganic route to give its margins a fillip. Quess Corp has completed nine acquisitions till date and proposes to complete two-five acquisitions in FY17.

TeamLease ventured into the high-margin IT hiring business by buying Bengaluru-based ASAP Info Systems Pvt. Ltd in July for 67 crore.

“As per our initial workings, ASAP acquisition can add 5-10% to FY18 EPS (earnings per share) and 40bps (basis points) to Ebitda margins," brokerage firm Prabhudas Lilladher Pvt. Ltd said in a report dated 5 July.

The TeamLease management in an analysts’ conference call after its June quarter earnings said it expects the ASAP deal to close soon, adding that the company is willing to make more acquisitions going ahead. As of 30 June, the firm had cash to the tune of 200 crore on its books.

Apart from this acquisition, TeamLease’s margins may also see a boost because the second half is seasonally strong for the company, say analysts.

Listed in February, the TeamLease stock has gained 35.12% to 1,148.55 from its offer price of 850. On the other hand, Quess Corp got listed on 12 July, gaining 68.93% to 535.50.

According to the TeamLease management, the full-fledged impact of the ASAP buyout would reflect in the December quarter, hence analysts expect the stock, which has run-up quite a bit, to consolidate at the current levels in the near term. At 45 times one-year forward EPS, the stock is richly valued.