Rating Rationale
March 26, 2018 | Mumbai
TeamLease Services Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.20 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Rs.25 Crore Commercial Paper CRISIL A2+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on bank facility and commercial paper programme of TeamLease Services Limited (TeamLease) at 'CRISIL A-/Stable/CRISIL A2+'.

The ratings continue to reflect the company's dominant market position in the organised staffing segment, moderate financial risk profile and adequate liquidity. These rating strengths are partially offset by low operating profitability and project risk stemming from the continued acquisitions by the company.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of TeamLease, its operating subsidiaries, and TeamLease Skills University (TLSU), which is held through the TeamLease Foundation. This is because of the strong business and financial linkages between these entities, together referred to herein as TeamLease. For analytical purposes, CRISIL amortises goodwill created upon acquisition for a period of five years.

Key Rating Drivers & Detailed Description
* Dominant market positon in the organised staffing segment: The company is a large domestic player in the human resource services industry, with a dominant market position in the temporary staffing segment. This has resulted in strong revenue growth and zero bench strength for its large base of over 1,75,000 associates and trainees.

The strong market position is likely to be maintained over the medium term, driven by an increasing presence across India, well-entrenched relationships with over 2,500 clients, and a growing associate base.

* Moderate financial risk profile: The Company has comfortable debt protection metrics, and adequate cash and bank balances. The company was net debt-free as on December 31, 2017. However, adjusted for intangible assets, TeamLease had a Total outside liability to Tangible networth (TOL/TNW) ratio of around 1.3 times (vis-à-vis reported TOL/TNW ratio (including intangible assets) of around 0.9 times), as on March 31, 2017.

A portion of the liquid surplus (estimated at around Rs 115 crore as on December 31, 2017) is planned to be used for acquisitions. Despite this, a healthy liquid surplus is expected to be maintained over the medium term to meet the business needs.

* Low operating profitability: The operating profit margin was low at 1.3% in fiscal 2017, though has improved from 0.7% in the previous fiscal. The margin was largely suppressed because of losses in the TLSU over the past three fiscals owing to high fixed costs. However, the same has achieved an Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) break even for the first nine months of fiscal 2018, which has resulted the consolidated operating margins to improve to over 1.7%. The margin improvement was also aided by company's scaling up in the lucrative specialised staffing business through a series of acquisitions. This business has inherently higher operating margins. Furthermore, the company has invested in various initiatives in the technology, people, and process segments to improve profitability margins. However, CRISIL believes the margins to remain low and sustenance of improved profitability over the medium term will be a key monitorable.

* Project risk stemming from inorganic growth: Teamlease had made a series of acquisitions post its initial public offering (IPO) in February 2016. The group acquired three companies -Cassius Technologies Pvt Ltd, Evolve Technologies and Services Pvt Ltd, and School Guru Eduserve Pvt Ltd - for a deal size of Rs 90 crore during the first nine months of fiscal 2018. While these acquisitions have helped Teamlease scale up faster, CRISIL believes the company remains exposed to project risk, and successful integration of these businesses, will remain a key monitorable.
Outlook: Stable

CRISIL believes TeamLease's business risk profile will continue to benefit over the medium term from its strong market position in, and the robust scaling up of the specialised staffing business. Also, profitability is expected to improve gradually over this period, while the financial risk profile is likely to be maintained.

Upside scenario
* Substantial scaling up across all segments of businesses, and strong improvement in operating profitability
* Substantial build-up of liquidity through steady accruals
Downside scenario
* Weaker-than-expected operating performance
* Sharp decline in the operating profitability margin, impacting cash accruals
* Weakening of the financial risk profile because of debt-funded capital expenditure or acquisitions

About the Company

TeamLease was established in 2002 by Mr Manish Sabharwal, Mr Ashok Reddy, and Mr Mohit Gupta for providing temporary staffing to clients. The company currently has more than 2500 clients and over 1,75,000 associates and trainees. It acquired the Indian Institute of Job Training in fiscal 2010 for Rs 24 crore, largely funded by private equity investors. In the following year, it wrote off Rs 22 crore of this investment because of the lower-than-expected profitability outlook in the business. The company signed a memorandum of understanding with the Government of Gujarat in 2011 for setting up the TeamLease Skills University.  In February 2016, it raised Rs 150 crore through an initial public offering. In the fiscal year 2017, company has acquired three companies in the IT Staffing business - Asap Infosystems Private Limited, Nichepro Technologies Private Limited, and Keystone Business Solutions Private Limited.

For nine months ended December 31, 2017, Teamlease's (excluding TLSU) reported profit after tax (PAT) and operating income were Rs 52 crore and Rs 2,646 crore, respectively, against PAT and operating income of Rs 24.4 crore and Rs 2,241 crore in the corresponding period of previous fiscal.

Key Financial Indicators (Consolidated)
As on / for the period ended March 31,   2017 2016
Revenue Rs crore 3,254 2,595
Profit after tax Rs crore 44 6
PAT margins % 1.4 0.2
Adjusted Debt/Adjusted Net worth Times 0.08 0.10
Interest coverage Times 12.25 11.88

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of the Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Rating Assigned with Outlook
NA Commercial Paper NA NA 7-365 Days 25 CRISIL A2+
NA Proposed long term bank loan facility NA NA NA 20 CRISIL A-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  25  CRISIL A2+    No Rating Change    No Rating Change  22-02-16  CRISIL A2+    No Rating Change  CRISIL A2 
Fund-based Bank Facilities  LT/ST  20  CRISIL A-/Stable    No Rating Change    No Rating Change  22-02-16  CRISIL A-/Stable  26-08-15  CRISIL BBB+/Positive  CRISIL BBB+/Stable 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 20 CRISIL A-/Stable Proposed Long Term Bank Loan Facility 20 CRISIL A-/Stable
Total 20 -- Total 20 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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