Buy TeamLease Services Ltd for the Target Rs. 2,050 by Emkay Global Financial Services Ltd
We upgrade TeamLease to BUY from Add, with an unchanged SOTP-based TP of Rs2,050, considering ~8%/10% correction in the stock price over the past 3M/6M. The company reported a steady Q2 operating performance. Revenue grew 4.9% QoQ/8.4% YoY to Rs30.3bn, in line with our estimate. EBITDA grew 14.5% YoY, with acquisitions contributing ~5%. General Staffing revenue rose 7% YoY, adding 37 new logos with more than 65% under the variable model. Specialized Staffing revenue grew 34% YoY (organic 17%). It serves over 90 GCC clients, with increased momentum in Life Sciences, Telecom, Consulting, Engineering, BFSI, Consumer, and IT. While BFSI headwinds persist in General Staffing, contributions from retail, e-commerce, consumer, and telecom verticals are promising. The company expects a steady recovery in H2, steered by the contribution from GCC, Degree Apprenticeship (DA), and consumerfacing sectors. The management remains confident of sustaining the EBITDA growth momentum in FY26 and expects ~25% growth, with focus on revenue growth, cost optimization, and operating leverage. We largely retain our FY26- 28E EPS (<1% change), factoring in the Q2 results and anticipated recovery across segments.
Results Summary Revenue grew 4.9% QoQ/8.4% YoY to Rs30.3bn, in line with our estimate of Rs30.2bn. General Staffing revenue grew 6.7% YoY to Rs27.8bn; Specialized Staffing grew 34.3% YoY to Rs1.9bn and Other HR grew 27.6% YoY to Rs574mn. Overall EBITDA grew 14.5% YoY to Rs383mn, led by operating leverage and volume growth. EBITDAM expanded by 20bps YoY to 1.3%, above our estimate. EBITDAM for General Staffing was flat QoQ; Specialized Staffing’s EBITDAM grew by 60bps; Other HR Services reached breakeven level in Q2, largely led by increased billing in Edtech. General Staffing’s headcount was up by 8,080 (2.7% QoQ); Specialized Staffing saw an increase of 320 (4.8% QoQ) and DA saw an addition of 2,600 trainees (5.3% QoQ). Core to Associate Productivity inched up to 382 (vs 377 in Q1). The company added 140 new logos in Q2 (vs 118 in Q1). What we liked: Healthy growth in EBITDA and profit, the momentum in Specialized Staffing led by the traction in GCC. What we did not like: Slower headcount growth in GS.
Earnings Call KTAs
1) In General Staffing, the company’s net headcount addition was 8,080; 23% of it came from client acquisitions. The company ended the quarter with over 20k open positions.
2) Sector-wise, BFSI continues to face regulatory headwinds and is in transition (expected to recover, going forward), while retail, e-commerce, consumer, and telecom verticals showed encouraging growth.
3) Staffing recovery remains uneven across sectors, although the momentum is improving sequentially
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