Article: TeamLease set for IPO debut next week, to raise Rs 420 crore

#HRIndustry

TeamLease set for IPO debut next week, to raise Rs 420 crore

The aggressively priced TeamLease IPO might be indicative of just how much potential the Indian HR Industry has – not just in staffing but beyond.
TeamLease set for IPO debut next week, to raise Rs 420 crore

The Initial Public Offering (IPO) of TeamLease, providers of human resources services in the organized segment sector, will open on February 2. A public statement by the company states that the IPO would be made through a fresh issue aggregating up to Rs.150 crore (a little over $22.5 millions), and an offer for sale of up to 32.2 lakh equity shares. Teamlease is offering equity shares of face value of Rs.10 each for cash at a price band of Rs.785 to Rs.850 per share. Shares of the company are proposed to be listed on BSE and NSE. February 1 has been reserved as the offer period for anchor investors.

The success of this IPO by Teamlease will eventually reinforce the potential of the HR industry and also their valuation, however, if it does not then it might affect the positive sentiment of the overall HR industry. HR as an industry is just not related to staffing – retail investors need to look beyond recruitment, and other segments in the industry offer profitability as well. The fact remains that even though the making business solely on HR services is difficult, and even verticals of the domain with higher profitability margins like technology enabled services may be more attractive for retail investors and better suited for IPO, but even those have not reached the scale and sustainability to command industry attention. Though skeptics will maintain scrutiny on TeamLease, and all eyes will be on how it performs, it wouldn't be wrong to say that this could be an opportunity for organisations working in the sector to reiterate the potential and growth opportunities present. Maybe retail investors will shy away from going all out for TeamLease, since profit margins are a thorny issue, but the sector, and organisations working in the same are set for a healthy growth in the coming years, which means such pieces of information are definitely good in the longer run. 

The capital from the IPO, which will close on February 4, will be used for acquisitions and other investments (about 25 crore), upgrading the current IT infrastructure (about 15 crore), working capital requirements (about 80 crore) and other general purposes. 10,000 shares have been reserved for the employees of the organisation. TeamLease is expected to raise about Rs. 423 crore at the upper end of the price band. There is an offer for sale of around 1.5 million shares each by entities related to Gaja Capital and ICICI Venture, who will be partially exiting, and of 153,321 shares by the promoters. The selling shareholders will get as much as Rs 274 crore from the issue. The issue is being managed by IDFC Securities, ICICI Securities and Credit Suisse Securities (India) Pvt. The papers for the public offer were filed with SEBI in September last year and the approval was obtained last month. 

TeamLease was founded in 2002, with four offices, 20 clients and 40 employees, and today is one of the largest temporary staffing companies in India in terms of revenues and number of associate employees in 2014, as reported by CRISIL. The organisations website states, “The company currently has 99,090 associates across the country and has till date provided employment to approx. 1.12 million people with an aim to hire millions more!” Currently operating from eight offices, TeamLease’s revenue has grown at an annualised rate of 30% in the last four years to reach 2,018 crore in Financial Year‘ 15. In the first half of Financial Year’16, the profit was Rs. 10.97 crore, a dip of 37% from 17.2 crore one year back. TeamLease is set to become a unique type of HR services firm to be listed in the country and Ashok Reddy, MD, TeamLease has been quoted saying, "We are going for an IPO to get liquidity and institutionalising the company. A company listed on the stock exchange has more trust.”

The company is expected to be valued at over 1,400 crore, and the issue is being seen as aggressively priced, in an already unstable and turmoil-hit stock market.  The offer has been graded by CRISIL Research and has been assigned a CRISIL IPO grade of '4/5' indicating that the fundamentals of the offer are above average relative to other listed equity shares in India. Since most IPOs from the last year are still in red, and returns not looking as promising in the current scenario, the move is being hailed as bold, and the confidence seems to stem from the growth in the flexi-staffing industry size over the past few years, which is about 14%. The industry is expected to grow to 9 million and represent 10% of the organised workforce by 2025. Reddy has said that Teamlease is clocking a return on investment of up to 40%  compared to the average of 12% for global staffing companies and that the growth rate is three to four percent annually for global staffing companies compared to 25 percent for Teamlease. He has also said, “If we can maintain the current five to six percent growth rate, we can be the largest staffing company in the world." 

While sceptics question the high valuation, which is at par with global peers but lacks the lower margin, the dependence of temporary workforce of economic activity and the high percentage of unorganised workforce in country, one thing is clear for the HR industry on the whole, that it is just waking up and realising its potential. Slowly, but surely, more players are showing interest in staffing as a business in itself. Although room for profitability might be low, due to the nature of the process and the competition, both national and international, yet investors and people are willing to bet on it. The fact retail investors now have a chance to invest in different segments and verticals of the HR Industry, is testament to the fact that TeamLease might just pave the way for more aggressively priced issues by organisations in the staffing industry.

The fact remains that even though the making business solely on HR services is difficult, and even verticals of the domain with higher profitability margins like technology enabled services may be more attractive for retail investors and better suited for IPO, but even those have not reached the scale and sustainability to command industry attention. Though skeptics will maintain scrutiny on TeamLease, and all eyes will be on how it performs, it wouldn't be wrong to say that this could be an opportunity for organisations working in the sector to reiterate the potential and growth opportunities present. Maybe retail investors will shy away from going all out for TeamLease, since profit margins are a thorny issue, but the sector, and organisations working in the same are set for a healthy growth in the coming years, which means such pieces of information are definitely good in the longer run.

Topics: #HRIndustry, #Movements

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