Teamlease Services

Very expensive

The company is a leading player in providing temporary staffing services to various industries

Promoted by Manish Sabharwal and Ashok Nedurumalli in 2002, Teamlease Services (TSL) is one of the India's leading human resource services provider in the organized segment delivering a broad range of human resource services to various industries and diverse functional roles to meet the needs of small and large business clients as well as those of qualified job seekers or ‘Associate Employees'.

The company's core business is providing staffing solutions across industry sectors and diverse functional areas. Around 98% of company's total revenues come from staffing services and around 2% come from permanent recruitment, regulatory compliance, retail and institutional learning solutions including payroll. As on March 31, 2015, TeamLease has provided employment to approximately 1.12 million associate employees since 2002.

The company has a market share of 5% in terms of associate employees in 2014. As of November 30, 2015, TeamLease had 104,946 Associate employees, serving 1,021 clients and 1,218 full time employees making them as one of the India's leading people supply chain companies. The majority of their associate employees are engaged in sales, logistics and customer service functions.

The diversified client base of the company includes Vodafone, ATC Telecom Tower Corp. Pvt. Ltd, E.I.Dupont India Pvt. Ltd, Levis, Strauss India Pvt. Ltd, Godrej Industries, YOU Broadband India Pvt. Ltd, PNB Housing Finance Ltd. and ZTE Telecom India Pvt Ltd in Staffing Services and Mphasis Ltd., Nunhems India Pvt. Ltd., and Edelman India Pvt. Ltd. and India First Life Insurance Co. Ltd in the regulatory space.

The company's services span the entire supply chain of human resources in India covering aspects of employment, employability and education. This includes temporary staffing solutions, permanent recruitment services and regulatory consultancy for labor law compliances, retail learning and training solutions, institutional learning solutions and enterprise learning solutions.

TeamLease has grown largely organically, driven by the strong operational and technological excellence. However, it is evaluating inorganic options to grow and is currently exploring opportunities to cater to the growing information technology, healthcare and hospitality services sectors. Further, the company so far is present in general staffing which is more of a volume driven segment of human resource segment. It has plans to venture into IT staffing through inorganic or organic way which has higher potential, higher margins and scalability.

The Offer and the Objects

The issue comprises public issue of Rs 150 crore with equity shares of 0.19 crore of face value of Rs 10 each at lower price band of Rs 785 per share and equity shares of 0.18 crore of face value of Rs 10 each at higher price band of Rs 850 per share. In addition to the above, there is an offer for sale of 0.32 crore of equity shares of Rs 10 each which comprises of selling shareholders namely: Gaja Capital India Fund, Gaja Advisors Pvt ltd, GPE (India), Indian Advantage Fund S3 and HR Offshoring Ventures Pte.

The minimum bid lot is 15 equity shares and in multiples of 15 equity shares thereafter. The issue is made through a book building process and will open on 2 February and will close on 4 February with anchor investor bidding date of 1 February 2016.

In addition to achieve the benefits of listing the equity shares on stock exchanges, enhance the visibility and brand image among existing and potential customers and provide liquidity to the existing shareholders, the company intends to utilize the proceeds of the public issue (Rs 150 crore), to fund the existing and incremental working capital requirements for about Rs 80 crore, to upgrade the existing IT infrastructure for Rs 15 crore, about Rs 25 crore for acquisition and other strategic initiatives and balance for general corporate purpose.

Strengths

The entire businesses operate on an asset-light model with low capital expenditure requirements. Through a centralized office in Banglore connected with hub and spoke model with its 8 branches across India, the company works on optimizing resources.

There is strong loyalty of customers. Repeat customers accounted for about 95.81% and 93.21% of total revenues for FY 2014 and FY 2015, respectively. Five of their top 10 clients by revenue in the year ended March 31, 2015 have been with TeamLease for a term exceeding 6 years.

TeamLease has made significant investments in their proprietary technological platforms that have contributed significantly to operational efficiencies and the scale of their operations, which differentiates itself from its peers. Through this centralized platform, the company is able to utilize its man power effectively which has helped in overall increase in the operating margins for the company.

The company is debt free, with cash balance of more than Rs 120 crore as on September 2015.

Weaknesses

The company operates in a highly fragmented, competitive, low-margin and low entry-barrier industry, which is dominated by unorganized players.

The company operates its general staffing business predominately in India and thus is subject to adverse fluctuations in general economic and commercial activity in India and during period of economic downturn, temporary employees which the company recruits, often are laid out first.

The scope for margin improvement in its present kind of business is limited.

The company comes under full tax regime from FY 2016 as most of the past losses are completely absorbed.

Any change in labor laws or government regulations can affect the outsourcing business of the company.

The company is planning inorganic growth, which can lead to costly or inappropriate acquisitions and consequent pitfalls.

Valuation

For FY 2015, the consolidated net sales grew by 31% to Rs 2007.07 crore, OP was up by 200% to Rs 24.06 crore and PAT 173% to Rs 30.79 crore. For the six months ended September 2015, revenues stood at Rs 1209.65 crore up by 28% and PBT stood at Rs 16.36 crore, up by 22%. After paying Rs 5.68 crore of tax as compared to tax credit of Rs 3.76 crore for the six months ended September 2014, consolidated PAT for the six months ended September 2015 stood at Rs 34.10 crore

At a price of Rs 850, thepost-issue diluted equity share capital of the company works to Rs 17.13 crore of face value of Rs 10 each. On this equity, the EPS for FY 2015 works out to Rs 18. EPS for the six months ended September 2015 is not annualized due to seasonality of business.

At a higher price band of Rs 850, the scrip is offered at a P/E of 47.3 times its FY 2015 earnings.