27 July 2022
1QFY23 Results Update | Sector: Others
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TP: INR 3,520 (-7%)
Margin weakness to temper strong revenue growth
Valuations remain full, retain our Neutral rating
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
EBIT Margin (%)
EPS Gr. (%)
Div Yield (%)
64.4 / 0.8
5544 / 2912
Revenue rose 3.4% QoQ, led by General staffing (up 4%), while Other HR
Services (down 2.7%) and Specialized Staffing (down 1.5%) dipped in
1QFY23. It added ~9k associates, despite a decline of 5k associates in
NETAP, indicating a strong demand environment. EBITDA margin (at 1.34%)
was a large miss, down 90bp QoQ and 80bp YoY v/s our expectation of a
30bp decline, driven by salary increases, investment in the core team, and
the impact from Ind AS 116 due to a change in office premises.
The management remains positive on its growth outlook as supportive
macro and new logo additions boost demand for associates. We expect
TEAM to report good revenue growth in all verticals on a continued
improvement in General Staffing, a pickup in HR Services, increased demand
for manpower, and higher margin replacements in the IT Staffing business.
EBITDA margin declined on account of multiple factors (core salary hikes,
Ind AS 116, seasonality in HR Services, and associated cost inflation) in
1QFY23. While the management expressed its confidence of reaching its
FY22 EBITDA margin by 4QFY23, we expect a more gradual increase in
margin to 2.1% in 4Q, given the structural margin drag due to TEAM’s
difficulty in improving PAPM. We expect the company to deliver 1.8%/2%
EBITDA margin in FY23/FY24, which will result in a more modest earnings
growth, despite a robust demand-led revenue performance. We expect
TEAM’s earnings growth to be ~26% over FY22-24 and feel it is already
priced into the stock price.
While we remain positive on the medium- to long-term opportunities, as it
should gain from the formalization of the labor market, there is near term
margin pressure and uncertainty over income tax benefits claimed by TEAM.
We feel it is fairly valued and hence maintain our
We are lowering our FY23/FY24 estimate by -12%/-3% to factor in lower
margin. Our TP of INR3,520/share implies 34x FY24E EPS.
Revenue growth, at 3.4% QoQ and 36.5% YoY, was a little ahead of our
estimate of 2.3% QoQ and 35% YoY. Growth was led by General Staffing (up
4% QoQ), while other HR Services (down 2.7% QoQ) and Specialized Staffing
(down 1.5%) dipped in 1QFY23.
The biggest miss was in EBITDA margin (at 1.34% in 1QFY23), down 90bp
QoQ and 80bp YoY, v/s our estimate of a 30bp decline. Segmental margin in
General Staffing (1.5%) and Specialized Staffing (8.4%) fell 20bp QoQ each,
while HR Staffing reported losses (down 3% v/s 8% in 4QFY22) and
contributed 20bp to the decline.
PAT rose 9% YoY (est. 22%) to INR265m, benefitting from higher other
income in 1QFY23.
Strong revenue growth, big margin miss
Shareholding pattern (%)
Jun-22 Mar-22 Jun-21
FII Includes depository receipts
Mukul Garg – Research analyst
Raj Prakash Bhanushali – Research analyst
10 November 2020
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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