Temporary staffing: Decent employee additions, margin pressures may sustain
Among Teamlease, Quess and SIS India, margin compression in Q2 could be higher of Quess as it has been impacted by losses of recently acquired Monster.com
In the run-up to the festive season, September quarter earnings of temporary staffing companies are anticipated to be robust. Analysts are pencilling in decent growth in the associate headcount and revenues for temporary staffing firms.
“Ramp-ups in retail in preparation to the festive season are expected to drive volume. Despite a key festival slipping into Q3 (vs Q2 in FY18), we expect strong organic/overall revenue growth of 20-24% and 25-47% for Teamlease and Quess,” Ambit Institutional Equities said in report on 8 October.
In the June quarter, Teamlease Services Ltd’s total associate headcount grew 17% from a year earlier to 137,735. During the same period, Quess Corp Ltd’s employee headcount was more than 272,000, an year-on-year growth of 39%.
Kotak Institutional Equities Ltd expects an acceleration in sequential associate employee headcount addition for Teamlease to 7,000 and steady commissions.
For SIS India, Edelweiss Securities Ltd expect 2-3% sequential growth in headcount for its India Security segment. “SIS’s Australian business has shown strong progress in the past two quarters, and Q2FY19 will see consolidation on this strong base,” the broking firm said in its earnings preview report.
While tax benefits under section 80JJAA of the Income Tax Act will aid the net profit growth of these firms, margins may be under pressure due to expectations of a minimum wage hike, say analysts.
Also, since these companies depend on short-term borrowings for working capital, some analysts have raised queries on the funding cost assumptions. Consequently, operating margin estimates for the current fiscal year have been revised downwards by 6-11%. Between the three companies, margin compression in the September quarter could be higher for Quess Corp, which has been impacted by the losses of recently acquired Monster.com.
As for stock performances, shares of these companies got hammered in the recent market carnage. Once outperformers, on a year-to-date basis, most have corrected more than the Nifty 500 index. Also, their one-year forward price-to-earnings multiples have moderated.
Given the ongoing volatility in Indian equities, despite decent earnings, a further correction in their stock prices and valuations is likely, caution analysts.
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