TEAMLEASE - TeamLease Services Limited Share Price

Management Outlook and Major Points:

Outlook:

• Staffing Growth: Expect muted growth in Q4 due to ongoing BFSI challenges (RBI regulations impacting microfinance, credit cards, and personal loans), but anticipate normalization post-Q4. Manufacturing/telecom growth remains modest.
• Specialized Staffing: Positive momentum with net headcount growth after several quarters, driven by GCCs (BFSI, Life Sciences, healthcare). Cautious IT hiring but early signs of recovery.
• HR Services: EdTech profitability impacted by billing delays but expects Q4 catch-up. Focus on integrating HR tech acquisitions (TSR Darashaw, Wallet HR) to enhance SaaS and payroll solutions.
• International Expansion: Partnership with Ikigai to expand IT staffing in Singapore/Middle East, leveraging offshore delivery.
• Margins: Prioritize absolute profit growth over margin percentages, driven by operational efficiency and productivity gains.

Key Highlights:

1. Q3 Performance:

   • General Staffing: Revenue up 4% QoQ (19% YoY), 1,300 net associate additions. BFSI headcount flat; consumer/retail scaled back earlier.
   • Specialized Staffing: First net headcount growth in quarters; GCCs contribute 55-60% of revenue.
   • HR Tech: Acquired TSR Darashaw (payroll) and Crystal HR (SaaS), adding ~4L employee records.

2. Sectoral Trends:

   • BFSI: Continued caution due to RBI norms; recovery expected post-Q4.
   • Manufacturing/Telecom: Low single-digit growth; smartphone demand slowdown impacts hiring.
   • GCCs: Key growth driver for specialized roles in non-IT sectors.

3. Financials:

   • EBITDA grew 4% QoQ (operational efficiency). Free cash at Rs.310 crore.
   • EdTech delays led to losses but projected 6-7% EBITDA for FY25.

4. Strategic Moves:

   • Focus on upselling HCM/learning solutions to offset wage inflation.
   • Digitization and productivity gains (e.g., recruiter efficiency up 32% in specialized staffing).

Future Focus: Drive synergies from acquisitions, expand HR tech offerings, and leverage GCC/non-IT sector demand for sustained growth.

Question: The first question is around your general staffing business. So we expected some headcount pressure which is of the NBFC thing. So one, you did allude that it will continue into 4Q. So how -- I mean, given that fresh hiring already stopped, would there be further declines in hiring on NBFC front or if you could just give some more color as to how we should think about hiring in 4Q on the general staffing level?
Answer: The BFSI sector's slowdown (driven by RBI guidelines on KYC and lending norms) will persist into Q4, leading to a marginal net headcount decline in general staffing, though other sectors may partially offset this. Q1 FY26 is expected to normalize with positive hiring signals.

Question: The second question would be on general staffing margin itself. So what we've seen over the last two, three quarters. And if we were to spread it slightly broader 2 years, 3 years, is that margins have rather been flat for the entire years and then we have a tariff hike in the first -- sorry, we have a wage hike in first quarter of the next year and then that these two margin deterioration and the trend has continued.
Answer: Margins face pressure from wage inflation, but absolute profits are prioritized. Productivity improvements (e.g., FTE efficiency, value-added services like HCM and learning solutions) aim to mitigate margin erosion. Focus remains on client-upselling and operational efficiency.

Question: Third question is specifically on the EdTech piece, so if I heard directly, the statement was that this business has still maintained 6%, 7% margins for the full year. In the first 9 months, it has done about INR4 crores of loss which would then mean that fourth quarter would be like INR10 crores, INR12 crores profits. Is that understanding correct or I've missed any remarks?
Answer: EdTech's full-year EBITDA margin guidance of 6-7% remains intact despite Q3 delays. Q4 is expected to see lumpy revenue recovery from delayed university billings. Service delivery is complete, but billing cycles may shift recognition to Q4.

Question: Sir first on the general staffing, just a follow-up on what you said. So obviously this is the first quarter where the addition in general staffing has been actually lower than "“ am I audible?
Answer: Q3's muted net headcount growth (+1,300) reflects seasonal weakness and BFSI-driven attrition. Q4 may see marginal declines, but FY26 is projected to rebound with sectoral diversification (e.g., manufacturing, telecom) and client demand normalization.

Question: And secondly, on the specialized staffing, obviously, we are seeing some green shoots there in terms of better hiring. And the one-third of the segment, which is like GCC continues to be strong. But in terms of strategy, we are trying to go international with expansion into Singapore and Middle East.
Answer: International expansion (via Ikigai partnership) complements domestic GCC growth. It addresses client demand for offshore delivery without diverting focus from India. Ikigai is breakeven currently but offers geographic diversification and synergy potential.

Question: In terms of margin profile, how is the margin profile of the acquired entity because in line with what we have the existing businesses? Or is it higher than the company average?
Answer: Acquired HR Tech entities (TSR Darashaw, Crystal HR) have annual revenues of ~INR22 Cr and profits of ~INR7.2 Cr. Margins align with existing segments, contributing ~INR1.1 Cr EBITDA in Q4. Integration aims for 6-7% EBITDA margins in HR Tech long-term.

Question: So there are talks of change in the labour code in the budget or introduction of a new labour code in the budget. So I just wanted to understand when you -- let's say, there's a big increase in minimum wages. How does that financially impact our company?
Answer: Minimum wage hikes are pass-through costs (no EBITDA impact) but dilute margin percentages. Current average salaries (~INR26,000/month) exceed minimum wages, limiting near-term risk. Focus remains on absolute profit growth through productivity and volume.

Question: How are the things going out in the manufacturing hiring?
Answer: Manufacturing hiring remains subdued (10-12% of general staffing) due to sector-specific challenges (capital intensity, indemnity demands). Growth hinges on formalization and client negotiations balancing margins and volume.

Question: In HR Services, we've obviously reported a loss of about INR7 crores in 9 months, is it fair to say that we'll end up negative in FY '25?
Answer: HR Services (EdTech) will turn profitable in FY25 due to Q4 revenue catch-up from delayed university billing. Full-year guidance remains positive, with lumpy Q4 recovery offsetting earlier losses.

Question: If the minimum wage increases, you pass on the hike to customer. Does it direct pass-through, can you explain how does it affect our margins?
Answer: Wage hikes are largely pass-through (no absolute EBITDA impact) but reduce margin percentages. Newer contracts increasingly use variable mark-up models (~70% of recent sign-ups), mitigating long-term margin pressure.