TeamLease CFO: Confident to reach target margin of 3.5% in 4 years.

Update on the Indian Equity Market:

On Monday, NIFTY closed positive (+0.5%), recovering slightly from the post-budget decline seen on Saturday. Consumer stocks were the top gainers across NIFTY50 led by ASIANPAINT (+6.3%), NESTLEIND (+5.0%) and HINDUNILVR (+4.8%). INFRATEL (-6.1%), YESBANK (-4.6%) and ITC (-4.6%) were the top NIFTY losers. MEDIA (+1.7%), REALTY (+1.6%) and AUTO (+1.5%) were the top gaining sectors. PSU BANK (-2.5%), IT (-1.3%) and PHARMA (-0.5%) were the sectors that ended negatively.

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TeamLease CFO: Confident to reach target margin of 3.5% in 4 years.

Excerpts from an interview with Mr N Ravi Vishwanath, CFO, TeamLease that aired on CNBC-TV18 on 29th January 2020:

• In 3QFY20, TeamLease’s revenue growth slowed down to ~15% from the range of 20% that the company used to deliver. The slow growth is largely reflective of the general economic slowdown. There is also impact of some large deals getting shifted from 3QFY20 to 4QFY20.
• Over the long term should be able to maintain the growth of 20% as always committed.
• The revenue for 9MFY20 has grown by up 18%. Management does not expect the full-year growth for FY20 to reach 20%. In FY21E, the topline growth could get back to 20%.
• The specialized staffing business which included the IT, telecom and infra staffing is expected to grow over 20% in FY21E (IT, telecom, infra).
• As far as telecom sector staffing is concerned, the worst is over for TeamLease. In FY19, they got into certain telecom, infra, and radiofrequency projects which resulted in lower profitability. The company has exited some of those mandates and will exit the 1 or 2 that are left as and when they get completed.
• TeamLease has exited some lower profit mandates, especially in telecom. This should lead to better profitability going into FY21E. On the flip side, the company is in talks and has almost signed some better margin mandates in telecom now. The management expects the situation to only get better from here.
• The per associate per month (realization in general staffing) has grown 5% YoY. Mr Vishwanath thinks that this growth will continue.
• The management is targeting a margin of 3.5% over the next 4 years.

Consensus Estimate: (Source: market screener website)

• The closing price of TEAMLEASE was ₹ 2,472/- as on 3-February 2020. It traded at 40.5x/ 31.8x/ 24.7x the consensus earnings estimate of ₹ 61.1/ 77.8/ 100.0 for FY20E/ FY21E/ FY22E respectively.
• Consensus target price is ₹ 2,762/- which implies a PE multiple of 27.6x on FY22E EPS of ₹ 100.0/-

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