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TeamLease shares rise over 8%..Know why!

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Teamlease services

Mumbai: TeamLease Services shares rallied 8 percent intraday Tuesday on value buying after Kotak Institutional Equities has upgraded the stock to buy from add with retaining a target price of Rs 1,200.

The brokerage house believes recent correction and underperformance of the stock price present a good buying opportunity into TeamLease's long-term structural growth story of organised staffing, underpinned by GST implementation and simplification of labour laws.

It feels GST (goods & services tax) implementation can reduce the pricing gap between organised and unorganised staffing companies.

It believes the business models of unorganised staffing companies may face disruption post GST implementation as they may have to compulsorily deposit service tax recovered from customers to the government on time and they will also have to regularly deposit statutory employee payments such as Employees State Insurance Corporation and Employee Provident Fund.

Hence, this will drive market share gains for organised players like Teamlease, Kotak believes.

Kotak upgraded its EPS estimates by 16-22 percent as it built in change in accounting policy related to amortisation of goodwill. Tax rate may also be low as TeamLease may still be able to take income tax advantage of around Rs 3 crore a year for 10 years on goodwill amortisation within its subsidiary post a high court approval.

The stock has underperformed and corrected recently on account of heightened concerns on business momentum post demonetisation as well as a technical overhang of share sale post the expiry of the IPO lock-in. The brokerage house also says the simplification of labour laws will also have positive impact on the company.

Kotak says TeamLease's core temporary staffing business seems to be on a solid footing, with practically no demonetisation impact. Post the strong employee addition in Q3FY17, current run-rate suggests that TeamLease will still be able to end Q4FY17 with a sequentially flat employee count of around 125,000, despite Q4 being seasonally weak due to high attrition, it adds. At 10:48 hours IST, the stock was quoting at Rs 910, up Rs 40.05, or 4.60 percent on the BSE.

 

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