Stock to Buy: TeamLease Services Shows A Potential Upside of 33%

Leading brokerage firm Motilal Oswal has a "Buy" rating on TeamLease Services with a target price of Rs 2,890. The firm believes that TeamLease is well-positioned to benefit from the growth in the Indian staffing market. It also expects the company to continue to improve its margins and profitability in the coming quarters.

Motilal Oswal has a positive view of the Indian staffing market. The stock-broking firm expects the market to grow at a CAGR of 15%-20% over the next few years. The growth in the market is being driven by economic growth, globalization and advanced technology:

• The Indian economy is growing at a healthy pace, which is creating more jobs.
• The increasing globalization of the Indian economy is leading to more companies outsourcing their staffing needs.
• The use of technology in the staffing industry is helping companies to improve their efficiency and productivity.

The stock-broking firm believes that TeamLease will benefit from the growth in the Indian staffing market and expects revenue growth to accelerate to 21% YoY in FY25, aided by a recovery in IT Services and a gradual margin recovery (+50bp v/s FY23).

The company has a strong brand name and a large network of offices across India. TeamLease also has a strong track record of growth and profitability. Last year, it has delivered strong financial performance as its revenue and profit have grown by 25% and 30%, respectively. TeamLease has also been able to maintain its margins despite the rising cost of labour.

Valuation

As per Motilal Oswal, due to concerns about growth moderation, especially in the specialized staffing vertical, and margin pressure, the stock has seen significant de-rating (down ~59% from the peak). The brokerage firm believes that valuations have bottomed out and already factored in near-term downsides.

Additionally, as both the Central and State governments look to liberalize and formalize the labour market, TeamLease should be among the biggest direct beneficiaries in the medium term. Strong growth and expected margin recovery should help the company deliver a 33% earnings CAGR over FY23-25E, which should drive a significant re-rating in the stock.

"With healthy growth prospects, EPF issues behind, margin recovery in place and a sharp correction in the stock price, we upgrade TeamLease to BUY with a TP of Rs 2,890, implying 25x FY25E EPS, a 10% discount to its 5-year median P/E (2- yr forward) on account of slow normalization of profitability," Motilal Oswal added.

Scrip Price Movement

The latest stock price of the company has rallied 3.43% to Rs 2,223.10 per share on an intraday basis. In the last one year, the share price has declined by 31.01% while over three years, it has risen by 28.69%.

Disclaimer

The stock has been picked up from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author or the brokerage firm will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.