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In-line performance; upgrade to BUY

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 4) In DA, the company recorded a net headcount addition of 2,600 in Q2, supported by NAPS (National Apprenticeship Promotion Scheme) and WILP (Work Integrated Learning Program). PAPM increased by Rs11 on a QoQ basis. Growth momentum is expected to continue as the impact of NEEM winds down. 5) The absolute EBITDA of General Staffing and DA remained largely flat over the past few quarters; however, the figures are expected to grow ahead. 6) Margin expansion in the coming quarters is likely to be driven by operating leverage and a higher contribution from margin-accretive businesses like DA. 7) In Specialized Staffing, the net addition stood at 320; of this, 25 came from Singapore operations. This segment is expected to witness an uptick, driven by strong growth and improved operating metrics. 8) Tier-2 IT services and GCC demand have started to pick up, though hiring volumes are still below prior peaks. 9) HRTech and EdTech businesses are expected to show meaningful growth over the next two quarters. 10) Tech and AI adoption are expected to enhance productivity.

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