Quess Corp, Teamlease to Benefit from Demonetization, GST

Temporary-staffing firms such as Quess Corp and TeamLease Services are among the fingerfull who are benefitting from demonetization as the process has led to a spike in the demand for temporary staff, particularly from the banks. TeamLease added 7,000 employees in the months of October and November as compared to 4,000 in the December 2015 quarter. Analysts said that demand from the banking sector could continue for another two to three quarters.

Benefit from GST:

These companies can also gain from the GST or goods and services tax as they can gain market share from their peers in the unorganized space. Analysts said that companies in the unorganized sector currently under-pay the service tax payable to the government.

Given that the GST would allow firms to receive credit of the service tax paid by temporary staffing companies, it could incentivize them to shift to organized players such as TeamLease and Quess Corp.

Ravi Vishwanath, chief financial officer at TeamLease said that rising market shares would reduce the difference in fees charged by these companies vice versa that of unorganized players and enable the listed firms to scale up their operating margins slowly over the coming years.

Views of Market Analysts:

Analysts said that the EBITDA margin of Quess Corp is likely to scale up to 5.5 per cent this financial year from 4.8 per cent in FY16 and from 1 per cent in FY16 to 1.4 per cent in FY17 for TeamLease. Higher TDS or tax deducted at source charged on invoices (employees’ salary, vendor revenues and service tax) at 10 per cent affects the cash flow of these firms. They have to get a certificate from the government every year to reduce TDS rate to 0.5 per cent, which usually comes with a lag.

However, this impact is likely to moderate in time to come. Market Analysts said that the regulatory processes were likely to get streamlined, resulting in early receipt of TDS certificate from the tax authorities, while enhanced margins would also provide some cushion.

Share price performance of Quess Corp and Teamlease since demonetization:

Since demonetization, Quess Corp share price is up 13 per cent and TeamLease share price is down 13 per cent. At current levels, while Quess Corp trades at 65 times FY17 estimated earnings, this metric is lower at 40 per cent in case of TeamLease. Analysts said that a larger revenue base coupled with higher EBITDA margins justified the valuation premium enjoyed by Quess Corp over TeamLease. Although most brokerages are positive on these two stocks, the current valuations are on the higher side and seem to adequately capture the positives for now. Dynamic Levels Research Analysts also recognize the two stocks as top 500 performing scrips.

A writer by day and a passionate reader by night. Writing just doesn't fill my pocket but it also fills my heart. Passion for writing about new events & happenings is what soothes my mind & soul.