Rating Rationale
March 28, 2019 | Mumbai
TeamLease Services Limited
Rating outlook revised to 'Positive', rating reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.20 Crore
Long Term Rating CRISIL A-/Positive (Outlook revised from 'Stable' and rating 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 revised its rating outlook on the long-term bank facility of TeamLease Services Limited (TLSL) to 'Positive' from 'Stable', while reaffirming the rating at 'CRISIL A-'. The rating on the commercial paper programme has been reaffirmed at 'CRISIL A2+'.

The outlook revision reflects improvement in the company's operating performance. Revenue grew a healthy 25% year-on-year in fiscal 2018 and 31% in the first nine months of fiscal 2019. Operating margin has also improved to 1.84% in the nine months through December 2018, from 1.05% in fiscal 2017. The financial risk profile continues to be healthy, with low gearing and healthy debt protection metrics. Debt stood at Rs 10.9 crore, while cash and liquid assets were Rs 133 crore (Rs 76 crore unencumbered) as of December 2018.

The ratings continue to reflect the company's dominant market position in the organised staffing segment, and healthy financial risk profile and liquidity. These rating strengths are partially offset by intense competitive pressure, and project risk stemming from acquisitions.

Analytical Approach

CRISIL has combined the business and financial risk profiles of TLSL, its operating subsidiaries, and TeamLease Skills University (TLSU), which is held through the TeamLease Education Foundation. This is because of the strong business and financial linkages between these entities, collectively referred to herein as TeamLease.

For analytical purposes, CRISIL amortises goodwill created upon acquisition for a period of five years.

Please refer Annexure - List of entities consolidated , which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
* Dominant market position 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 arising from its large base of over 200,000 associates and trainees. The company has been consistently growing its associate/trainee base despite the large attrition prevalent in the temporary staffing segment.

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/trainee base.
* Healthy financial risk profile: Long-term debt remains nil as of December 2018. Total debt outstanding as of December 2018 was Rs 10.9 crore against which the company had cash and liquid assets of Rs 133 crore (of which Rs 76 crore was unencumbered). Debt protection metrics are comfortable with interest cover of 30.5 times and net cash accrual to total debt of 3.4 times in fiscal 2018. Total outside liability to tangible networth (TOL/TNW) ratio adjusted for intangible assets was also moderate at 1.8 times.

Unencumbered cash and bank balance, however, reduced to Rs 65 crore as of February 2019 from over Rs 100 crore a year earlier. This was on account of higher advance tax(in form of TDS) paid in fiscal 2019 due to delay in procuring lower tax withholding certificates, and is expected to be temporary. A portion of the liquid surplus could be used for future acquisitions.

Timely refund of advance tax paid and build-up of cash balance is a monitorable.
* Competitive intensity in general staffing: The general staffing segment from which the company derives about 90% of its revenue is highly competitive, and mark up in the segment has remained low at 3-3.5%. Operating margin has improved from 1.05% in fiscal 2017 to 1.84% in the first 9 months of fiscal 2019, on account of higher economies of scale and productivity, as reflected in the high associate/core employee ratio of 260 in December 2018 (170 in June 2016). Margins have also been supported from higher contribution from specialised staffing which commands higher margins. While margins are expected to improve further going forward, they are still expected to remain low as general staffing will remain the largest contributor to company's revenues.
* Project risk stemming from inorganic growth: The company had made a series of acquisitions post its initial public offering (IPO) in February 2016. In fiscal 2017, the company entered specialized staffing segment with the acquisition of three companies in IT staffing and since then has made a number of other acquisitions. In fiscal 2019, the company has picked up stake in Avantis Regtech for Rs 5 crore and has announced to acquire the IT staffing vertical of E-centric Solutions (deal size not disclosed). The company is expected to continue to grow via the inorganic expansion route. While these acquisitions have helped TeamLease scale up faster, the company remains exposed to project risk, and successful integration of these businesses, will remain a key monitorable.

The company has adequate liquidity. Overdraft facility has been utilised only to an extent of about 20% in the 12 months through February 2019 as the company follows the collect-and-pay model on about 80% of contracts. Total debt outstanding as of December 2018 was Rs 10.9 crore, against which the cash and liquid assets were Rs 133 crore (of which Rs 76 crore was unencumbered). However, unencumbered cash and liquid assets have reduced to Rs 65 crore as of February 2019 from over Rs 100 crore as on 31 March 2018 on account of higher advance tax paid due to delay in procuring  lower withholding tax certificates. This dip in liquid assets is however expected to be temporary. TeamLease is also expected to continue acquiring companies, funding of which will be done through its liquid surplus. Improvement in unencumbered cash levels will hence be a key monitorable.

Outlook: Positive

CRISIL believes TeamLease's business risk profile will continue to benefit over the medium term from its strong market position, and ramp-up in the specialised staffing business. The rating may be upgraded if the unencumbered liquid assets increase, while operating and financial performance remain stable. The outlook may be revised to stable if operating performance weakens, or if any large debt-funded capital expenditure, acquisition, or tax outgo constrains the financial risk profile.

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 2,00,000 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 TLSU.  In February 2016, it raised Rs 150 crore through an IPO. The company entered the specialised staffing segment in fiscal year 2017 by acquiring three companies in the IT Staffing business ' Asap Infosystems Private Limited, Nichepro Technologies Private Limited and Keystone Business Solutions Private Limited. In fiscal 2018, the company acquired Evolve Technologies and Services Private Limited in the Telecom staffing segment.

For the nine months ended December 31, 2018, TeamLease reported a profit after tax (PAT) and operating income of Rs 71 crore and Rs 3756 crore, respectively, against PAT and operating income of Rs 53 crore and Rs 2876 crore in the corresponding period of previous fiscal.

Key Financial Indicators (Consolidated)
As on / for the period ended March 31,   2018 2017
Revenue Rs crore 4066 3252
Profit after tax Rs crore 68 51
PAT margins % 1.7 1.6
Adjusted Debt/Adjusted Net worth Times 0.05 0.07
Interest coverage Times 30.51 47.02

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-/Positive
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for consolidation
TeamLease Digital Private Limited Full 100% subsidiary of TLSL with strong financial and business linkages as of 31 March 2018
IIJT Education Private Limited Full
TeamLease Education Foundation Full
Keystone Business Solutions Private Limited Full
Evolve Technologies and Services Private Limited Full
TeamLease Skills University Full Strong financial and business linkages with  TLSL
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  25.00  CRISIL A2+      26-03-18  CRISIL A2+  28-07-17  CRISIL A2+  22-07-16  CRISIL A2+  CRISIL A2 
                    22-02-16  CRISIL A2+   
Fund-based Bank Facilities  LT/ST  20.00  CRISIL A-/Positive      26-03-18  CRISIL A-/Stable  28-07-17  CRISIL A-/Stable  22-07-16  CRISIL A-/Stable  CRISIL BBB+/Positive 
                    22-02-16  CRISIL A-/Stable   
All amounts are in Rs.Cr.
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-/Positive 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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