Revenue at the professional services firm stood at Rs. 15.2 billion, up 10.7% QoQ. Core/specialised/HR services revenue was up +10.0/+17.4/+12.7% QoQ. EBITDA margin for core staffing/specialised staffing/HR services came in at 1.7/9.1/4.3%.
Free cash balance at the company is at Rs. 2.4 billion that the company may deploy for M&A transactions. The cash collections continue to be robust (OCF/EBITDA at 100%).
“We expect revenue growth of 25.3/20.6% in FY23/24E and EBITDA margin of 2.3/2.5% respectively, leading to revenue and EPS CAGRs of 25% and 40% over FY21-24E”, adds the brokerage firm in the report.
Rationale for ‘Buy’ call on Teamlease
• The brokerage firm retains its ‘buy’ call on the scrip after a better-than-expected revenue growth of 10.7% QoQ and in line margin show.
• Robust development in hiring across major domains such as ecommerce,telecom, consumer, and BFSI, the inclusion of 59 new logos as well as improved hiring outlook across industries will aid growth in the core staffing segment that accounts for 90 percent of the company’s revenue.
• The specialised staffing (8% of revenue) will continue to grow, led by traction in IT hiring, increase in open positions/hiring across domains, and improvement in realisations.
• For the general staffing, HDFC believes margins shall remain in a narrow band due to the increasing wage costs. Specialised staffing and positive contribution from HR services on the other hand will aid in margin expansion.
The company made provision of Rs. 750mn for PF trust investments in two NBFCs. The brokerage believes that the company was late in providing for these provisions as this is an old issue; however, we don’t expect further provisions. “We reduce our EPS estimates by -6.6/4.0% for FY23/24E to factor in lower margin for general staffing. Our target price of Rs. 5,270 is based on 43x Dec-23E EPS (five-year average PE of ~35x). The stock is trading at a PE of 47/36x FY23/24E”, adds the report.
The given stock recommendation is taken from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
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