homemarket NewsMotilal Oswal upgrades TeamLease on scope for re rating, sees potential upside of 34%
Motilal Oswal upgrades TeamLease on scope for re-rating, sees potential upside of 34%
Strong structural tailwinds will drive long-term growth for the company, and Motilal Oswal values TeamLease at 25 times financial year 2025 Earnings per Share, which is a 10 percent discount to its five-year average valuation.
Shares of TeamLease Services Ltd gained as much as five percent on Wednesday after brokerage firm Motilal Oswal Securities upgraded the staffing firm to "buy" from its earlier stance of ‘neutral’. Its price target of Rs 2,890 per share implies a potential upside of 34 percent from Tuesday's closing levels.
The upgrade was driven by attractive valuations of the stock and strong structural tailwinds that boost the company's long-term growth outlook.
Motilal Oswal spoke about how the stock saw significant de-rating due to growth moderation and margin pressures. The stock fell nearly 60 percent from its peak. Wage increase in its general staffing vertical also led to a 60 basis points drop in the company's profitability for financial year 2023.
The brokerage said that the current valuations focus on the company's near-term challenges but it sees scope for re-rating once the challenges ease out. Motilal Oswal also expects tech staffing to see a recovery in the second half of financial year 2024, which will lead to a strong bounce back for specialised staffing in financial year 2025.
TeamLease's margin of 1.6 percent in financial year 2023 is likely to be the trough, according to Motilal Oswal, who expects a 50 basis points improvement in margin over financial year 2025.
Strong structural tailwinds will drive long-term growth for the company, and Motilal Oswal values TeamLease at 25 times financial year 2025 Earnings per Share, which is a 10 percent discount to its five-year average valuation.
The brokerage believes that the staffing industry remains under-penetrated and is set to deliver consistent growth on account of formalisation and the implementation of labor law reforms over the medium term.
Shares of TeamLease are trading 3.5 percent higher at Rs 2,226. The stock is still down by 12 percent on a year-to-date basis.
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