“In FY19, the incremental headcount for Quess was around 56,000 and FY20 has started on a good note for us. Among all our verticals, we expect general staffing to drive growth in employee headcount," Subrata Kumar Nag, group chief executive officer and executive director of Quess Corp. Ltd said in an interview. Similarly, in a post-earnings conference call, the management of TeamLease Services said it currently has open positions of 10,000 versus around 5,500 in FY18, and will continue to focus on filling them.
The company has guided 15-17% associate growth in the medium term, saying demand was across financial services, e-commerce and manufacturing sectors.While this is a positive, analysts said further upside in these stocks depends on many other factors. One of them is improvement in operating margins.
“Apart from employee additions, our aim is to improve operating margins and consistently improve cash flow conversion rates. On an annualized basis, margin growth has been around 5.5%," added Nag of Quess Corp.
For TeamLease Services, weak performance in telecom staffing has dragged overall margins in FY19, say analysts. However, the management expects telecom margins to recover to around 5%.
In case of SIS India, although analysts believe margin concerns on account of write-offs in the Indian security business are easing, the company has been fairly aggressive on acquisitions, and the complete integration of some of those may take some time.
As for their stock performances, Quess Corp. and TeamLease Services have rallied quite a bit since their listing in 2016. SIS India, which was listed recently, has posted comparatively muted returns. These stocks hogged the limelight, especially after the implementation of the goods and services tax (GST), as the sector was seen as a beneficiary of the anticipated shift to the formal economy. Once large outperformers, these stocks were beaten down in the mid-cap carnage last year.
Consequently, their one-year forward price-to-earnings (P-E) multiples have also moderated. These stocks are currently trading at a P-E multiple of 23-37 times. As the chart alongside shows, TeamLease Services has outperformed the Nifty 500 index and its peers in the recent past. Analysts attribute this to the improved traction in its key core staffing business.
As for the sectoral outlook, while the anticipated GST-led shift is happening gradually, company-specific factors will play a key role in deciding the further course of these temporary staffing firms.