Motilal Oswal Sees A 51% Upside On This Stock

Broking firm Motilal Oswal sees an upside potential of 51 per cent in the stock of Teamlease Services Ltd and believes there is a strong case for margin expansion. The stock currently trades at Rs 1718 and the broking firm has a target of Rs 2,600, implying an upside of 51 per cent from the current levels.

Valuation and view - Uncertainty declines meaningfully!

"As the economy prepares for a phased re-opening and given that clients have already incurred the bench cost of associates for the previous two months, it is unlikely that Teamlease Services would see a sharp spike in demobilization requests (May-Jul'20).

The propensity of enterprises to dodge supply-side disruption risk would be another key tailwind - (a) an increase in the pipeline of open positions in some verticals (NBFCs/Cards and Ecommerce), and (b) a rise in sales, logistics, collection agents, and customer service role requirements in a post-lockdown economy, which should drive resilience," the broking firm has stated.

Motilal Oswal believes that the current situation should also drive the conversion of certain otherwise strictly permanent roles to flexi roles.

"Significant pull-back in urban unemployment rate over the previous week (17% v/s 25% during lockdown; Source - CMIE) gives us further comfort. As the government looks forward to liberalizing and formalizing the labor markets, TEAM should be among the biggest direct beneficiaries. We upgrade our EPS estimate for FY21-22E by 15%, given the positive commentary around (a) recovery, and (b) EBIT margin expansion. Our DCF based target price of Rs 2,600 implies 32x FY22E EPS. Reiterate Buy," the broking firm has stated.