Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A/Stable/Crisil A1’ ratings on the bank facilities of TeamLease Services Limited (TLSL).

 

The rating reaffirmation takes into account the healthy business risk profile of the company with sustained revenue growth of 18% in fiscal 2024 and 20% in the first nine months of fiscal 2025 on-year basis. The growth is driven by increasing headcount in the general staffing segment by 12% despite a decline in the headcount in specialised and degree apprenticeship (DA) segments. The operating income is expected to remain strong in the medium term on the back of increasing demand in the general staffing segment. The rating also factors in the reputed and large diversified base of the clientele with no single customer contributing to more than 9% of revenue. The company caters to sectors such as financial services, consumer durable, telecom, fast-moving consumer goods and ecommerce.

 

While operating income grew significantly, the operating margin reduced marginally from 1.5% in fiscal 2023 to 1.4% in fiscal 2024. The margin further reduced to 1.09% in the first nine months of fiscal 2025. This is because of – 1) significant headwinds seen in information technology (IT) sector, resulting in low headcount and margin in the specialised staffing segment which generates high margin of 7-8% (7.3% in the first nine months of fiscal 2025) 2) degrowth in per-associate-per-month (PAPM) and 3) seasonality in the educational technology (EdTech) segment and annual appraisal cycle of core employees. While the margin from other HR Services have fallen from 6.8% in 9MFY24 to -6% in 9MFY25 due to delay in billing on account of delayed admission season due to implementation of the New education policy, it is expected to be a  positive margin segment for full year. The company is diversifying its customer base and expanding into global capability centres (GCCs) of multinational companies as well as domestic corporates, consumer goods and retail segments, which has resulted in headcount addition of 34,470 in the first nine months of fiscal 2025 as against an addition of 36,580 in fiscal 2024. Further, the participation in other schemes under the DA business is also increasing which led to rise in headcount by 2400 in the first nine months of fiscal 2025, which has already covered the loss under National Employability Enhancement Mission (NEEM) scheme and the numbers are expected to improve in the coming quarters. Increasing share of specialised staffing, changes in contracts to variable mark-up for new clients and cost optimisation measures undertaken by the company should also support profitability. While these measures are expected to result in gradual improvement in the operating margin, it is expected to remain at 1.4-1.5% over the medium term. Any further decline or lower-than-expected improvement in operating margin will remain a key rating sensitivity factor.

 

The financial risk profile remained comfortable as reflected in low gearing and adequate total outside liabilities to tangible networth (TOL/TNW) ratio (after factoring in amortisation of goodwill over five years as per adjustment by Crisil Ratings) of 0.04 time and 1.65 times, respectively, as on March 31, 2024. There is no long-term debt on the books of the company and net cash accrual are sufficient to cover working capital cycle which is reflected in average utilisation of 57% of the bank limit over the 12 months ended December 31, 2024. The financial risk profile was further supported by free cash and equivalent of Rs 310 crore as on December  31, 2024, and free liquidity of Rs 100-150 crore is expected to be maintained at all times.

 

The income tax (IT) department has disallowed TLSL’s additional employee cost deduction for fiscal 2019 under Section 80JJAA of the IT Act, 1961, and has issued a reassessment notice for fiscal 2017. The company has filed an appeal against the same at the National Faceless Appeal Centre and writ petition in Karnataka High Court. Any large obligation arising from it which can impact the company’s financial risk profile will be monitorable. The company received Income Tax refund for AY 2023-24 pertaining to 80JJAA allowance, amounting to Rs 115 crore in fiscal 2025 and had outstanding income tax refund of ~Rs 240 crore as on September 30, 2024.

 

The ratings continue to reflect the company’s dominant position in the organised staffing segment. These strengths are partially offset by exposure to intense competition in general staffing and risk stemming from acquisitions.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of TeamLease Services Ltd, its operating subsidiaries and TeamLease Skills University (TLSU; TLSL has provided corporate guarantee to the bank loans availed by TLSU), which is held under the TeamLease Education Foundation, collectively referred to as TLSL, as they have strong business and financial linkages.

 

Crisil Ratings has also amortised goodwill from acquisitions over 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

Strengths:

Dominant position in the organised staffing segment: TLSL is one of the large players in the domestic human resource services industry with a strong position in the temporary staffing segment. Its large base of more than 3,53,500 associates and trainees has contributed to strong revenue growth. The company has been consistently growing its associate or trainee base, despite large attrition in the temporary staffing segment.

 

The headcount of associates and trainees increased 13% in fiscal 2024 and 10% in the first nine months of fiscal 2025 on-year basis, supporting operating income. The operating income grew at compound annual growth rate (CAGR) of 15% over the five years through fiscal 2024 and should see healthy growth of 20-25% CAGR over the next three fiscals, supported by momentum in the general staffing and growing potential from GCC and non-IT domestic corporates.

 

The company will maintain its strong position over the medium term, driven by its increasing presence across India, well-entrenched relationships with over 3,800 clients and growing associate or trainee base.

 

Healthy financial risk profile as characterised by strong liquidity, comfortable capital structure: There is no long-term debt in the books of the company and it was net debt free with a cash balance of Rs 310 crore as on December 31, 2024. Debt protection metrics were comfortable with interest coverage ratio of 12 times and net cash accrual to total debt ratio of 6.59 times in fiscal 2024. Strong accrual (Rs 170 crore in fiscal 2024) and low debt resulted in healthy accretion to reserve, leading to comfortable capital structure with total outside liabilities to tangible networth (TOLTNW) ratio of 1.6 times as on March 31, 2024. They are expected to remain in the same range over the medium term.

 

Unencumbered cash and cash equivalent stood at Rs 310 crore as on December, 2024, thereby supporting liquidity. The company has made acquisition of ~Rs 350 crore in the past eight fiscals through 2018, funded through internal accrual and surplus cash. The company is expected to continue to grow through the inorganic route. Nevertheless, liquidity is expected to be maintained at Rs 100-150 crore at all points in time. Any large, debt-funded acquisition will remain monitorable.

 

Prudent working capital management: TLSL follows the collect-and-pay model for more than 87% of its contracts, which supports liquidity. The overdraft facility remained utilised at 57% on average for the 12 months ended December 31, 2024. Moreover, receivables were stable under 20 days in the past five fiscals. While the company wrote off receivables in fiscals 2021 and 2020, these were largely related to the permanent recruitment business, which was discontinued in fiscal 2021, and will not recur.

 

Weaknesses:

Intense competition in general staffing and risks stemming from inorganic growth: The staffing industry comprises several organised players in the domestic market. There are also several unorganised players that have regional presence and offer services at low cost, resulting in intense competition. This results in pricing pressure for organised players, who have to incur large overheads to maintain quality of services and staff. Furthermore, there is intense competition in the general staffing segment, from which TLSL derives around 90% of its revenue and mark-up in the segment is low at around Rs 670 PAPM as on December 31, 2025 (PAPM, reduced substantially from Rs 744 PAPM as in fiscal 2018). The operating profitability, therefore, remains modest. The company plans to move from fixed mark-up to variable plus fixed mark-up to improve its profitability and market acceptance for the same remains to be seen. 

 

As the business involves engagement of manpower, most players in this industry face high attrition, driven by intense competition among players to poach trained manpower. Issues relating to workforce availability can adversely impact relationships with clients and, therefore, revenue flow. However, this is mitigated by the company’s strong market position. 

 

Additionally, TLSL has grown through a series of acquisitions since its IPO in 2016, expanding into specialised staffing segments such as IT staffing. The company has acquired several companies, including Avantis Regtech, Ecentric Solutions and IMSI Staffing in the past, and has also picked up stakes in TR Darashaw, Wallet HR and Ikigai Enablers in fiscal 2025. While these acquisitions have helped TLSL scale up, they also pose integration risks and funding challenges. The company is likely to continue growing through inorganic expansion, and any large acquisition, its integration, and funding will be key rating sensitivity factors.

 

Low operating margins: TLSL operates in low operating margin as more than 90% of the revenue is from the general staffing segment which is inherently a low margin business. Further, high competition from the unorganised sector and limited pricing flexibility in the general staffing business have restricted TLSL’s margin expansion. In the first nine months of fiscal 2025, the operating margin declined to 1.09% from 1.4% in fiscal 2024 primarily due to significant headwinds seen in information technology (IT) sector, resulting in lower headcount thereby impacting the margin in the specialised staffing segment which generates higher margin of 7-8%, degrowth in PAPM and seasonality of in the EdTech segment and annual appraisal cycle of core employees. The operating margin from other HR services fell from 6.8% in the first nine months of fiscal 2024 to -6% in the first nine months of fiscal 2025 owing to delay in billing on account of delayed admission season due to implementation of the New Education Policy. However, it is expected to be a positive margin segment for the full year. Also, the company has done automation of its training process and is also focusing on improving productivity through those automation, which is likely to improve its margin and will be monitorable.

Liquidity: Strong

TLSL had unencumbered cash and equivalent of over Rs 310 crore as on December 31, 2024. Unencumbered cash is expected to be maintained at Rs 100-150 crore on an ongoing basis. The company has comfortable liquidity position as it follows the collect-and-pay model for more than 87% of its contracts. Consequently, utilisation of overdraft facility was 57% on average for the 12 months ended December 31, 2024. The company had nil long-term debt as on December 31, 2024, resulting in low annual debt obligation, which can be comfortably met through expected annual accrual of more than Rs 100 crore.

Outlook: Stable

Crisil Ratings believes TLSL will continue to benefit from its strong position in the temporary staffing segment and its healthy financial risk profile.

 

ESG profile

Crisil Ratings believes that TLSL’s environment, social, and governance (ESG) profile supports its credit risk profile.

 

The staffing sector has a low impact on the environment because of the lower greenhouse gas (GHG) emissions, and low waste generation by its core operations. The sector has a moderate social impact because of its large workforce and the impact on the health and wellbeing of its workers on account of its nature of operations. The company is focusing on mitigating environmental and social risks.

 

• The company has taken initiatives to reduce its energy consumption in its offices by taking measures such as shifting to LED lights, opting for better efficiency standards for its equipment and lower its emissions.
• Fiscal 2024 saw improvement in disclosures on social parameters. That said ESG disclosures of the company are evolving and it is in the process of further strengthening the disclosures.
• The gender diversity of the company stands at 37%, however, the attrition rate remained high at 45% in fiscal 2024.
• TLSL’s governance structure is characterised by 70% of its board comprising independent directors, presence of investor grievance redressal mechanism, and high quality of financial disclosure.
   

There is growing importance of ESG among investors and lenders. TLSL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given medium share of market borrowings in its overall debt and access to both domestic and foreign capital markets.

Rating sensitivity factors

Upward factors

• Healthy improvement in operating margin on a sustained basis
• Sustained annual revenue growth of more than 20% along with maintaining strong liquidity

 

Downward factors

• Reduction in ROCE to below 12% on a sustained basis
• Significant debt-funded investment or acquisition, weakening the capital structure
• Decline in liquidity, driven by reduction in unencumbered cash

About the Company

Established in 2002 by Manish Sabharwal, Ashok Reddy and Mohit Gupta, TLSL provides temporary staffing solutions and has over 3,500 clients and 2,90,000 associates and trainees. It acquired Indian Institute of Job Training in fiscal 2010 for Rs 24 crore, largely funded through private equity investors. The company signed a memorandum of understanding with the government of Gujarat in 2011 for setting up TLSU. In February 2016, it raised Rs 150 crore through an IPO. The company entered the specialised staffing segment in fiscal 2017 by acquiring three companies in the IT staffing business: Asap Infosystems Pvt Ltd, Nichepro Technologies Pvt Ltd and Keystone Business Solutions Pvt Ltd. In fiscal 2018, it acquired Evolve Technologies and Services Pvt Ltd in the telecommunication staffing segment. In fiscal 2019, it acquired the IT staffing vertical of eCentric Solutions, and in fiscal 2020, IMSI Staffing, which provides IT infrastructure staffing solutions. While no acquisitions were made during fiscals 2021 and 2022, the company increased its stake in existing subsidiaries. While there were no acquisitions in fiscals 2023 and 2024, in fiscal 2025 the company has picked up stake in TR Darashaw and Wallet HR, HR services platform and Ikigai Enablers which will support IT staffing in newer geographies like Singapore.

Key Financial Indicators

As on / for the period ended March 31		2024	2023
Revenue	Rs crore	9,390	7,989
Profit after tax (PAT)	Rs crore	104	102
PAT margin	%	1.1	1.30
Adjusted debt/adjusted networth	Times	0.04	0.03
Interest coverage	Times	12.9	18.9

Note: For analytical purposes, Crisil Ratings has amortised goodwill from acquisition for five years, resulting in difference in PAT and PAT margin from the values reported by the company

Any other information: Not Applicable