BackThe stocks of temporary staffing companies flatter to deceive
These companies also posted weak results for the March quarterThe near-term demand outlook for this sector is hazy due to the disruption caused by the coronavirus crisis
PremiumShares of temporary staffing companies have been badly hit of late. Quess Corp Ltd, Teamlease Services Ltd and Securities and Intelligence Services India (SIS) Ltd have fallen between 35% and 45% from their highs in January-February this year. In comparison, the Nifty 500 and Nifty Services Sector index have fallen nearly 13% and 19%, respectively, from their highs.
This sector has a high correlation with economic cycles. With the economy in a sharp decline, these stocks are clearly bearing the brunt. These companies also posted weak results in the March quarter.
The June quarter earnings too may not cheer. “Our interactions with listed and unlisted players indicate nearly 20% headcount decline in Q1FY21 compared with March 2020. That said, the staffing companies by way of reduction in core employees and control over other fixed costs should be able to hold up margins largely, in our view. A staggered lockdown has helped cushion the impact; a single long lockdown would have been devastating," Edelweiss Securities Ltd said in a 9 July report. For SIS, a private security services provider, the brokerage foresees around 10% topline decline, with stable margins. Private security was notified as an essential service during the lockdown, so business disruption has been minimal in the June quarter, Edelweiss said.
The staffing sector has a large presence of unorganized companies, and listed firms were seen as key beneficiaries of the GST-led demand shift. But, analysts say, not much has changed. “There was a lot of optimism initially, and GST was seen as an upside trigger, which helped these firms’ initial public offerings sail through two-three years ago. But there isn’t much evidence of market share gains from the unorganized sector," said an analyst at a domestic brokerage, requesting anonymity.
From its all-time of ₹1,207 in 2018, Quess Corp. has lost over 70%. Teamlease is down around 45% from its peak of ₹3,248 in 2018. In other words, these stocks were already on the decline, and the pandemic only made things worse.
The near-term demand outlook is hazy. As the Edelweiss report says, “The current crisis will certainly push back growth by 18-24 months, particularly for staffing companies." Against this backdrop, near-term triggers for these stocks also seem to be missing.
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