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TeamLease posted a steady and broadly inline operating performance in 1Q. Revenue grew 5.8% yoy to Rs30.3bn, above our estimate. EBITDA was up 2.7% yoy, lower than our estimate due to the margin miss. General Staffing (GS) revenue rose 4.8% yoy, adding 28 new logos, with >65% under the variable model. Specialized Staffing (SS) gross revenue grew 21.2% yoy, with GCCs contributing >67% of the revenue segment and remaining the key focus area for volume stability and growth quality. Management expects macro uncertainties to keep clients cautious over the next couple of quarters, and focus remains on commercial discipline and operating leverage toward improving quality of earnings. Management remains less committed on achieving the previously guided ~20% FY27 EBITDA growth, considering variability in demand and planned investment. It expects a) flat EBITDAM in GS in 2Q, with some expansion in 3Q-4Q, b) recovery in SS margins by 2Q-3Q, with stable-state 8-9% in 4-5 quarters, c) full-year margin for EdTech and RegTech at ~8-10%, d) decent positive net headcount addition in FY27 on the back of positive festive demand. We tweak FY27E-29E EPS by -7% to 1%, considering the 1Q performance and mixed outlook. Valuation is not demanding, though the upside hinges on delivering on guided objectives. We maintain BUY while cutting our TP by ~8% to Rs1,650 from Rs1,800.

Results summary

Revenue growth was modest at 3.8% qoq/5.8% yoy at Rs30.3bn, above our estimate. GS revenue grew 4.8% yoy to Rs28bn; SS revenue grew 21.2% yoy to Rs1.9bn and Other HR grew 11.7% to Rs504mn. Overall EBITDA was up 2.7% yoy to Rs315mn, lower than our estimate; EBITDAM was broadly flat yoy at 1.0%. EBITDA declined sequentially due to EdTech seasonality and appraisals. EBITDAM for GS and SS fell sequentially by 10bps and 110bps to 1.0% and 6.2%, respectively; Other HR Services losses came in at ~Rs20mn, due to seasonality in the EdTech business. Net Profit grew 31.4% yoy to Rs349mn, mainly driven by higher other income, including Rs82mn of interest income from a tax refund. What we like: Inline performance, continued traction in the GCC segment. What we do not like: Softness in GS, performance lagging guidance.

GS and SS headcount increase moderately; DA fell on the back of planned exit

Headcount was up by 4,000 (1.4% qoq) in GS and by 130 (including 33 from international business) in SS; in Degree Apprenticeship, net headcount fell by 3,400 due to planned exit of 5,500 trainees. The company added 127 new logos in 1Q (4Q: 109).

Plan to divest stake in Crystal HR to rationalize portfolio

TeamLease has opted to divest its entire 30% stake in Crystal HR & Securities Solutions JV by exercising the put option for cash consideration of Rs101.2mn as part of its portfolio rationalization and capital allocation strategy. The company is expected to fully recover its original investment.

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