Teamlease Services IPO – Should you invest in such low margin company?
Teamlease Services IPO – Should you invest?
Mumbai based, Teamlease Services IPO would open for subscription on 2nd February, 2016. Teamlease Services Ltd is human resource services and people supply-chain Company offering services to various small and large business clients. It revenues grown by 30% CAGR in last 5 years. It generates thin margins of 1.5%. What are the positive factors of Teamlease Services IPO? What are its hidden factors in Teamlease Services IPO?
About Teamlease Services Limited
TeamLease Services Ltd is a Mumbai based human resource services and people supply-chain Company offering services to various small and large business clients. TeamLease offers employment and employability services. TeamLease employment services include temporary staffing, permanent recruitment and regulatory consultancy for labor law compliance. TeamLease employability offerings include different types of learning and training solutions, including retail learning solutions, institutional learning solutions and enterprise learning solutions. TeamLease has 1+ lakh employees as of end of Nov 2015. The company has over 8 regional offices and over 1000 full time employees.
Issue details of Teamlease Services IPO
- IPO opens: 2-Feb-2016
- IPO closes: 4-Feb-2016
- Face Value: Rs 10 per share
- Issue price band: Rs 785 to Rs 850 per share
- Minimum Shares: 15 shares and multiples of 15 shares thereof
- Minimum amount: Rs 11,775
- Issue size: Rs 252 Crores to Rs 274 Crores
- Lead Managers: IDFC Securities, Credit Suisse Securities Pvt Ltd and ICICI Securities Ltd
- Listing: BSE and NSE
- Download Teamlease Services IPO Prospectus from SEBI Website at this link
Purpose of the IPO
1) Selling of shares from existing shareholders
2) Funding existing and incremental working capital requirements of our Company;
3) Acquisitions and other strategic initiatives;
4) Upgradation of the existing IT infrastructure; and
4. General corporate purposes.
Company Financials (reinstated-consolidated)
- Company generated revenue of Rs 698 Crores for the year ended Mar-11 and Rs 2,018 Crores for the year ended Mar-15.
- Company posted a loss of Rs 39.54 Crores for the year ended Mar-11 and profit of Rs 30.78 Crores for the year ended Mar-2015.
- Its restated EPS for FY 2015 is Rs 20.08 and last 3 years average EPS of Rs 13.44.
Reasons to invest Teamlease Services IPO
- Revenue has increased by a CAGR of 30% in last 5 years.
- First Staffing Company that gets listed on the stock exchange which is expected to create some buzz among investors. No listed peers in India making it more fancy.
- Crisil rated this IPO as 4/5 (4 out of 5) which indicates that fundamentals of the offer are above average compared to other listed equity shares in India.
Reasons not to invest in a Teamlease Services IPO
- It generated thin margins of 1.5% in FY2015. In 3 out of last 5 financial years, it generated losses for 3 financial years. For FY2014 and FY2015, it generated profits.
- Some of the Promoters are parties to criminal proceedings and if convicted, its business and reputation could be adversely affected. Certain of company Promoters and one of its Directors are parties to regulatory proceedings of a criminal nature and if convicted, company business and reputation could be adversely affected.
- Company operates in a highly competitive and fragmented industry with low barriers to entry and may be unable to compete successfully against existing or new competitors, particularly in the unorganized segment.
- Company business is subject to extensive government regulation, which may restrict the types of services we are permitted to offer or result in additional tax or other costs that reduce our revenues and earnings.
- They derive a significant portion of its revenues from some of its clients; factors that adversely affect its ability to do business with them may adversely affect company business.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 13 onwards.
Recommendation / Investment Strategy
- On the upper price band of Rs 850 and based on FY2015 EPS of Rs 20, its P/E Ratio works out to be 42. Similarly, based on last 3 years EPS of Rs 13.44, P/E Ratio works out to be 63. Means company is asking the higher price band of Rs 850 in the P/E ratio of 42 to 63. There are no listed peers to check whether the share price is under priced or overpriced.
- Teamlease Services Limited revenues have grown at 30% CAGR. However, it generates thin margins. Company generates Rs 30 Crores profits only over Rs 2,000 Crores revenue. I would have been excited if it generated higher margins. High risk investors can invest in this IPO from medium to long term perspective of 3 to 5 years. In the short term, investors may or may not get benefitted. Alternatively, one can wait till listing and if available at low prices, one can invest in such companies.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Teamlease Services IPO Review