Buy TeamLease Ltd for the Target Rs. 2,300 by Motilal Oswal Financial Services Ltd
Soft quarter, selective strength
BFSI and IT drag offset by growth in EdTech, telecom, and GCCs
* TeamLease (TEAM)'s 4QFY25 revenue growth of 17% was in line with our estimate of +16% YoY. General Staffing declined by 4% QoQ, while specialized staffing/HR services grew 7%/44% QoQ. EBITDA margin of 1.7% was ahead of our expectation of 1.5%. EBITDA grew by 37% QoQ, backed by catch-up billing in Edtech and inorganic contribution. Adj. PAT at INR380m was up 38% YoY/34% QoQ. For FY25, adj. PAT stood at INR1,100m. The company's revenue/EBITDA/PAT grew 20%/6%/2% YoY in FY25. We expect revenue/EBITDA/PAT to grow 17%/54%/57% YoY (due to low base) in 1QFY26. We reiterate our BUY rating with a TP of INR3,200.
Our view: BFSI headwinds largely behind
* General staffing’s 4QFY25 performance was subdued, with a 4% QoQ decline, impacted by scheduled BFSI ramp-down. Growth in consumer durables, telecom, and e-commerce supported the addition of 25,000 associates during FY25, with 37% sourced from new clients. BFSI remained mixed through the year, but we believe the insourcing impact from the RBI circular is largely behind. While PAPM declined modestly by INR5 QoQ, we believe a diversified client portfolio and variable mark-up structure (71% of contracts) should help TEAM sustain realizations.
* Specialized staffing continues to face IT hiring challenges, with softer demand likely in early FY26; however, GCCs remain a strong growth driver. With GCCs representing 60% of segment revenue, and supported by the Ikigai acquisition, we believe PAPM gains in this segment reflect improving value-chain positioning.
* HR services showed sharp profit recovery in 4Q, driven by EdTech catch-up billing and integration of TSR Darashaw and Crystal HR, which we believe will support margin stability going forward. The company targets 20-25% revenue growth and 5-6% EBITDA margins in EdTech in FY26.
* Overall, while near-term pressures persist, the company’s focus on highmargin clients and operational efficiencies should drive a gradual margin recovery. We estimate EBITDA margins to improve to 1.5%/1.6% in FY26/FY27E.
Valuation and revisions to our estimates
* We remain positive on the medium- to long-term opportunities owing to gains from the formalization of the labor market. We cut our FY26/FY27 estimates by ~4%/6%, reflecting a mixed 4Q performance and expected softness in General Staffing due to subdued BFSI hiring (~22% of revenue). We reiterate our BUY rating with a TP of INR2,300 (19x FY27E EPS).
In-line revenue and beat on margins; 107 new logos secured
* Revenue declined 2% QoQ but grew 17% YoY, broadly in line with our estimate of 16% YoY growth. For FY25, revenue stood at INR112b, up 20% YoY.
* General Staffing declined by 4% QoQ, while specialized staffing/HR services grew 7%/44% QoQ.
* General Staffing associates declined 2% QoQ to ~292k. Specialized Staffing’s headcount was down by 80 (-1% QoQ). GCCs now account for 60% of the total Specialized Staffing revenue and 40% of the headcount. At the group level, there was a net impact of ~7k headcount on account of scheduled BFSI headcount attrition.
* EBITDA margin of 1.7% was ahead of our expectation of 1.5%. EBITDA grew by 37% QoQ, backed by catch-up billing in Edtech and inorganic contribution.
* 107 new logos were added during the quarter.
* Adj. PAT at INR380m was up 38% YoY/34% QoQ. For FY25, adj. PAT stood at INR1,100m.
Key highlights from the management commentary
* 1HFY25 saw broad-based growth, while 2H was hampered by sectoral headwinds. TEAM is well-positioned for cost optimization and growth in FY26.
* 4QFY25 was more of a period of consolidation than expansion. At the group level, there was a net reduction of ~7K headcount, primarily due to scheduled BFSI attrition following regulatory changes. This impacted EBITDA by ~INR15m.
* In General Staffing, BFSI was a mixed bag in FY25; hiring slowed down. Credit card issuers saw some decline, resulting in a downstream impact.
* E-commerce and quick commerce sectors remained positive. Telecom (ISPs, equipment manufacturers) showed growth among service providers.
* E-commerce exposure is ~10% of headcount. In quick commerce, the company is involved with workforce in dark stores; attrition is 70% per month.
* Consumer durables and retail registered growth due to increasing formalization in the sector.
* In Specialized Staffing, the IT hiring landscape continues to face macro challenges. There are delays in closing open positions, though high-level tech roles are still in demand.
* Demand continues in BFSI and high-tech sectors. The BOT model has enabled value-chain progression
Valuation and view
* As both the central and state governments look to liberalize and formalize the labor market, TEAM should be among the biggest direct beneficiaries in the medium term.
* We cut our FY26/FY27 estimates by ~4/6%, reflecting a mixed 4Q performance and expected softness in General Staffing due to subdued BFSI hiring (~22% of revenue). We reiterate our BUY rating with a TP of INR2,300 (19x FY27E EPS).
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