Bonanza Time

Two years ago, TeamLease, the country’s leading provider of human resource services, had a stellar debut with the stock listing at Rs.1,023 against its issue price of  Rs.850. Today, the stock is trading at Rs.2,347 after hitting a high of  Rs.2,536.

Co-founder Mohit Gupta controlled promoter entity, Dhana Management Consultancy LLP is cashing on the current rally. Pre-IPO, he had a 10% stake in the firm, of which he sold 1% during the IPO. Recently, Dhana has sold shares worth Rs.6.4 crore in January and an additional Rs.23.04 crore worth of shares in March. Thus, Gupta closed FY18 by taking home Rs.49.5 crore by paring down Dhana’s stake to 5.58%.

Prior to the current selling, the overall promoter holding had declined to 43.14% in the December 2017 quarter against 45.61% in the comparable year-ago quarter. Co-founders Manish Sabharwal and Ashok Reddy, though, continue to hold 20% & 15.5% through HROV and NED Consultants LLP, respectively. During the past year, the stock has rocketed 132% against the 9% gain of the NSE Midcap Free float 100 Index. 

Over FY14-17, net sales grew at a CAGR of 26%, while PAT grew at an impressive 55% CAGR, over the same period. The strong performance has continued in FY18 with 9MFY18 net sales rising 19% to Rs.2,647 crore and PAT growing 114% to Rs.52 crore. This was driven by a steep improvement in core employee productivity and addition of three large accounts.

Besides being a net beneficiary of the greater thrust on the shift from the unorganised sector to the organised sector, the firm’s strong operating performance (RoE 17%, RoCE -20%) and leadership position (7% market share) have kept sentiment bullish around the stock. While analysts expect the return ratios to improve (RoE 19% and RoIC 23%) in FY19, and a greater focus on formalisation to drive growth, at 41x one-year forward price to earnings, the optimism is more than reflected in the valuation.

However, appetite is high among institutional investors. In fact, foreign portfolio investment holding has increased from 15.38% in December 2016 to 24.64% in December 2017. The firm also received approval from RBI for increasing FPI limit from 24% to 75% of paid-up capital. Among FPIs, Goldman Sachs funds increased their stake from 2.3% in December 2016 to 3.33% by December 2017. The stock had hit a 52-week high in November 2017 when T Rowe Price acquired a 4.39% stake.

Domestic mutual funds marginally increased their stake from 14.34% for the quarter-ending December 2016 to 14.7% for the quarter-ending December 2017. While HDFC Mutual Fund marginally reduced its stake from 9% to 8.97% in the December 2017 quarter, Aditya Birla AMC held 1.77% and Reliance Capital 2.6%. Among insurance firms, Canara HSBC Oriental Bank of Commerce Life Insurance marginally increased its stake from 1.39% in the December 2016 quarter to 1.97% by December 2017.