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Buy TeamLease Ltd For Target Rs.4550

Revenues to improve in coming quarters…

About the stock: Teamlease Ltd (TLL) is one of the leading providers of human resource services in the organised segment with ~6% share in flexi staffing.

* Employment services include temporary staffing solutions, IT staffing, regulatory consultancy for labour law compliance and training & skills

* Net debt free and healthy double digit RoCE (>14%) key positives

Q1FY22 Results: Teamlease reported healthy revenue growth.

* Revenues increased 2.7% QoQ led by general & specialised staffing

* EBITDA margins increased 20 bps QoQ 2.1%

* Operating cash flow conversion to EBITDA was 130%

What should investors do?

Teamlease’s share price has grown by ~4x over the past five years (from ~| 1030 in July 2016 to ~| 3,757 levels in July 2021).

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value Teamlease at | 4550 i.e. 45x P/E on FY23E

Key triggers for future price performance:

* Key beneficiary of under penetrated temporary staffing market (0.5% in 2015 vs. global average of 1.7%) and formalisation (16% in 2018)

* The pandemic has forced enterprises to variablise its cost structure leading to increased outsourcing of flexi staffing. Hence, we expect overall revenues to increase at 22.7% CAGR in FY21-23E

* TLL is expected to register healthy margins mainly led by reversal of discounts, improving of core to associate ratio, improving specialised staffing margins and higher revenue growth.

Alternate Stock Idea: Apart from Teamlease, in our IT coverage we like InfoEdge.

* Leadership in recruitment segment and quasi play on Indian start-up like Zomato, PolicyBazaar, Shoekonect, Ustra, Gramophone

* BUY with a target price of | 5,740

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