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Great proxy to play India economic recovery

Reorganising the sales team around six key clusters seem to be bearing fruit. In conjunction with the strong pick-up in demand as Covid 2nd wave subsides, Teamlease’s growth outlook sounded unusually upbeat. New logo addition (47) in general staffing was robust – led by verticals like e-commerce, telecom and consumer. Progress on achieving higher fulfilment ratio was encouraging.

Commentary around specialized staffing was strong too. In Mar-21, Teamlease hinted at discounts led pressure on mark-ups to continue through FY22. Company’s update on this front – about stable or even increasing realisations going ahead – is a pleasant surprise. In conjunction with backended productivity benefits, TeamLease’s outlook on margins is upbeat too.

While recovery in growth and margin expansion was delayed by covid second wave, we are confident of robust earnings growth (FY21-FY24E EPS CAGR: 46%) and cash conversion over the medium term. Staffing companies, by their nature, are spring boards during good times. Maintain BUY as we expect TeamLease to be a great proxy play on India economic recovery and workforce formalisation.

* Strong beat on revenue and margin expectations. Despite the second wave impact, sequentially, TeamLease was able to defend its general staffing headcount. Revenues grew 3% QoQ led largely by specialised staffing (+17% QoQ) and HR services (+22% QoQ) segments. Headcount addition in Specialised Staffing was robust (10% QoQ). New logo addition across different segments was impressive (47 / 27 / 24 across general staffing / specialised staffing / NETAP). Adjusted for a provision reversal in HR services, EBITDA margin expanded 10bps QoQ to 2%. Across the segments, margin expansion was driven by general staffing. Realisation Per Associate Per Month remained more or less stable at Rs 690. Staffing productivity witnessed a marginal dip (to 342 from 352 in Q4FY21) led by addition to sales team even as associate count remained stable.

* Brighter medium-term prospects. In this quarter, Teamlease’s growth outlook sounded unusually upbeat. Commentary around both growth and margins in specialised staffing was strong too. In Mar-21, the company hinted at discount-led pressure on mark-ups to continue through FY22. Company’s update on this front – about stable or increasing mark-ups going ahead – is a pleasant surprise. While recovery in growth and margin expansion was delayed by covid second wave, we are confident of robust earnings growth (FY21-FY24E EPS CAGR: 46%) and cash conversion over the medium term. Maintain BUY as we expect TeamLease to be a great proxy play on India economic recovery and workforce formalisation.

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