June quarter earnings of temporary staffing firms were a mixed bag. TeamLease Services Ltd reported subdued earnings, mainly impacted by weak performance of its human resources services segment comprising the company’s training business, which is dependent on payments by the government.
TeamLease reported a negative Ebitda (earnings before interest, tax, depreciation and amortization) of ₹6.2 crore because of non-recovery of dues from the government for services rendered in second half of FY19.
Against this backdrop, a couple of broking houses, including Kotak Institutional Equities, have revised down their FY20-22 earnings per share estimates by 4-7%. Edelweiss Securities Ltd had downgraded the TeamLease stock in May in the wake of rich valuations and continues to maintain its stance. The stock is trading at a one-year forward price-earnings (P-E) multiple of 34 times, highest among peers.
Competitor Quess Corp Ltd did not report any major leap forward either. Its general staffing, business processing operations and facility management services continued to do well. However, the underperforming industrial and internet segments remained under pressure.
The Quess Corp stock has been on the radar screens of investors because of acquisition-related concerns. In this calendar year so far, it has fallen nearly 34%. No wonder then that the stock’s P-E multiple of 15 times is the lowest among peers.
Analysts said these worries have raised balance-sheet complexity, much to the dislike of investors. The management has indicated its focus on consolidation and cash conversion, but it would take a few quarters for the perception of investors to change. Some brokerage firms have thus trimmed their target price. Kotak Securities Ltd has cut its target price from ₹704 per share to ₹493 per share.
Security and Intelligence Services (India) Ltd (SIS) reported decent performance in the June quarter. The company’s revenues grew 25% year-on-year and operating margins were stable. However, in the wake of the ongoing demand slowdown, sustenance of such performance is the key. Also, as it is the market leader in manned guarding services in Australia, any slowdown there would lower demand for security services, thus posing a downside risk to the stock. SIS trades at a one-year forward P-E multiple of 20 times.
This sector came into limelight especially after the implementation of the goods and services tax (GST) in 2017. Given the large presence of the unorganized sector, these firms were seen benefiting from the GST-led shift in demand to the organized sector. However, there isn’t much clarity as yet on to what extent this anticipated shift has happened.
Meanwhile, Q2 is seasonally weak for the sector, so analysts don’t see any sharp upsides.