Steep pricing, abysmal operating margin, promoters’ negligible cost of holding, circular investment mode and unassuming stake, credibility issues, etc., mar capital appreciation prospects.
Singapore-registered `promoter’ company, whose average cost of acquisition was just 42 paise, wants a price of not less than Rs 785 that is at a compounded annual return of over 98%! In other words, the fifteen-year-old company whose aggregate earned surplus until last audit (September 2015) amounted to less than Rs 6 cr is asking for a market valuation of more than Rs 1350 cr!
|
OFFER AT A GLANCE |
|
|
Name |
TeamLease Services Ltd |
|
Public Offer |
Fresh Issue of 17.65 to 19.11 lakh shares and Offer for Sale of 32.2 lakh shares of Rs 10 each |
|
Offer % on Total Equity |
29.15% to 29.75% |
|
Post-IPO Promoter Stake |
45.23% to 45.61% |
|
Offer Price |
Between Rs 785 and Rs 850 |
|
Offer Amount |
Rs 403 cr to Rs 424 cr |
|
Application Quantity |
15 & Multiples of 15 |
|
Bid/Offer Opens |
February 2, 2016 |
|
Bid/Offer Closes |
February 4, 2016 |
|
Listing |
NSE and BSE |
|
IPO Graded By |
CRISIL |
|
IPO Grade |
4 out of 5 |
|
Book Running Lead Managers |
IDFC Securities, Credit Suisse & ICICI Sec |
|
Registrar |
Karvy Computershare |
The IPO
The present IPO is a combined issue consisting of a fresh issue of Rs 150 cr by the company and `offer for sale’ of 32.2 lakh equity shares Rs 10 each from five shareholders viz. New Delhi-registered Gaja Capital India Fund-I (2,75,977 shares), Gaja Advisors Private Ltd (76,660 shares), Mauritius-registered GPE (India) Ltd (11,80,569 shares), India Advantage Fund S3 I (15,33,206 shares) and Singapore-based promoter-company HR Offshoring Ventures Pte Ltd (1,53,321 shares).
The IPO price band has been fixed at Rs 785-850 a share which values the total offer at Rs 403-424 cr. Investors should apply for a minimum of 15 shares and multiples of 15 thereafter. The IPO would constitute 29.15% to 29.75% of the post-issue paid up capital of the company (Rs 17.10 cr to Rs 17.24 cr). The promoters and their associates, who control 51.86% of the present equity (Rs 15.33 cr), would hold 45.23% to 45.61% post-public offer. IDFC Securities, Credit Suisse and ICICI Securities are acting as book running lead managers to the offer.
IPO Object
Of the fresh issue proceeds of Rs 150 cr, the company proposes to spend on the following: Working Capital requirements Rs 80 cr; Acquisitions and other strategic initiatives Rs 25 cr; Upgrading the existing IT infrastructure Rs 15 cr and General corporate purposes (balance net of issue expense). However, the fund requirements, the deployment of funds and the intended use of the issue proceeds are based on management estimates only and have not been appraised by any bank, financial institution or any other external agency.
Lineage
The Mumbai-based Teamlease Services Ltd (TSL) was originally incorporated in February 2000 as India Life Chakravarti Actuarial Services Private Ltd. The name was changed to Team Lease Services in January 2002 and was further changed to TeamLease Services in July 2015. As per the offer document, Manish Sabharwal, Ashok Kumar Nedurumalli, Mohitkaran Gupta, HR Offshoring Ventures Pte. Ltd, MKS Management Consultancy Services LLP, NED Consultants LLP and Dhana Management Consultancy LLP are the promoters of TSL. As on the date of filing of the Red Herring Prospectus TSL had 136 Shareholders. However, none of the individual promoters directly held any equity share in the company.
As regards the background of the promoters, the founder-chairman of TSL, Manish Sabharwal (45), who is one of sons-in-law of Lupin Laboratories’ promoter Desh Bandhu Gupta, holds a master’s degree in management. In 1996 he co-founded India Life, a human resource outsourcing company that was acquired by Hewitt Associates in 2002. He was chief executive officer of Hewitt Outsourcing (Asia) in Singapore.
Sabharwal reportedly headed the sub-committee for planning commission on remodeling of apprenticeship training as another mode for on the job training as the Chairman for the committee. He is currently a nominated member on the board of management of the Indira Gandhi National Open University and of the Central Advisory Board of Education – the highest advisory body to advise the Centre and State Governments in the field of education. Additionally, he serves on the executive committee of the chief minister’s advisory council, planning department of the Government of Rajasthan. He is also part of the expert committee on innovation (Niti Aayog).
The co-founder and managing director of TSL, Ashok Kumar Nedurumalli, who is the son of former Andhra Pradesh Chief Minister Janardhan Reddy, holds a bachelors degree in commerce and has 17 years of experience in human resource services industry. Prior to his current position, he was reportedly a director of India Life Capital, a pension and provident fund asset management company. Mohitkaran Gupta (46), promoter- whole time director until July 2015 and advisor thereafter, holds a masters degree in management. He is a director in India Insure Risk Management Services and a partner at Dhana Management Consultancy LLP.
The largest `promoter-shareholder’ of TSL is the Singapore-based HROV which currently holds 64,34,700 shares – equivalent to 41.97% of the pre-offer capital of TSL. Interestingly, HROV was incorporated three years later than TSL! The Singapore company is reportedly engaged in the business of carrying on investments in human resources outsourcing companies in India and overseas. Whereas HROV is said to have been promoted by Manish Sabharwal, and its board consists of Manish Sabharwal, his spouse Kavita Deshbandhu Gupta and Sujata Vithalrao Cowlagi, the company’s shares are held by three promoter groups. Manish Sabharwal and his spouse hold 53.57% and 0.05% respectively, Ashok Kumar Nedurumalli controls 43.91% and Mohitkaran Gupta’s sister-in-law Anupama Gupta holds 2.42%.
Another promoter-company that has significant stake in TSL is the Bengaluru-based Dhana Management Consultancy LLP (DMCL) which holds 1,379,886 shares, equivalent to 9% of TSL’s the pre-offer paid-up equity capital. This promoter company was registered only in March 2015 and its capital is just Rs 1 lakh. The partners of DMCL are Mohitkaran Gupta and his spouse Arati Menon.
The third promoter-company MKS Management Consultancy Services LLP (MMCSL) holds just 300 shares (less than 0.01%) in TSL. This Mumbai-registered partnership firm was formed in April 2015 with a capital of Rs 1 lakh by Manish Sabharwal and his spouse Kavita Gupta as partners. The fourth promoter-company NED Consultants LLP (NCL) too holds just 300 shares in TSL. This Bengaluru-registered partnership firm was formed in March 2015 with an identical capital of Rs 1 lakh was by Ashok Kumar Nedurumalli and his spouse Pooja Reddy.
While the promoters and their associates acquired more than a half of TSL’s equity at a negligible cost, the company could convince venture capitalists like Gaja Capital India Fund-I (GCIF), Gaja Advisors Pvt. Ltd (GAPL) and GPE India Ltd (GIL) to invest Rs 50 cr in 2009-10 and Rs 25 cr in 2011. ICICI Venture-controlled India Advantage Fund S3-I (IAF) too made an investment of Rs 75 cr in TSL.
Business Profile
TSL is said to be one of the country’s leading providers of human resource services in the organized segment to various industries and diverse functional roles across India to meet the needs of small and large business units as well as those of qualified job seekers or “Associate Employees”. TSL’s services reportedly span the entire supply chain of human resources in India, covering aspects of employment, employability and education.
Its employment services include temporary staffing solutions, permanent recruitment services and regulatory consultancy for labor law compliance. Its employability offerings include different types of learning and training solutions, including retail, institutional and enterprise learning solutions. As of November 30, 2015, TSL had 104,946 Associate Employees making it one of country’s leading people supply chain companies. TSL’s businesses operate on an asset-light model with low capital expenditure requirement.
The company’s core business is said to be providing staffing solutions across industry sectors and diverse functional areas. The majority of its Associate Employees are reportedly engaged in sales, logistics and customer service functions. The company focuses on people, processes and technology to enhance business productivity by enabling its clients to outsource their staffing requirements. In 13 years since 2002, TSL has provided employment to approximately 11.2 lakh Associate Employees. As of November 30, 2015, the company reportedly served 1,252 clients with a network of nine offices and 1,218 full-time employees across India.
Financials
The 15-year old TSL has shown a steady rise in its top line and achieved Rs 2007 cr in FY15. Nevertheless, the profit margin has been very poor. The company’s bottom line turned positive only in fiscal 2014. In other words, though TSL has already raised a share premium of over Rs 153 cr from the venture funds, its earned surplus was negative even after fifteen years. Operationally, the company could cover the accumulated deficit only in the first half of FY16 though it had been netting operating cash surplus since FY14.
Until FY15, TSL’s equity base was at just Rs 51 lakh which has enlarged to Rs 15.33 cr in July 2015 through a bumper 29:1 bonus issue. While it still had an accumulated deficit, the company set off Rs 38.22 cr share premium against the losses in FY14 and utilized Rs 14.82 cr share premium to issue the bonus.
|
TEAMLEASE SERVICES CONSOLDATED FINANCIALS |
||||||
|
(Amount in lakh) |
Sep-15 |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
|
Operating Revenue |
120965 |
200707 |
152965 |
125073 |
92583 |
68684 |
|
Other Income |
615 |
1139 |
788 |
1096 |
826 |
1149 |
|
Gross Income |
121579 |
201846 |
153753 |
126169 |
93409 |
69832 |
|
Operating Profit |
1744 |
3544 |
1992 |
-13 |
-1246 |
-2748 |
|
Operating Margin % |
0.9 |
1.2 |
0.6 |
-0.7 |
-1.7 |
-4.2 |
|
Interest |
18 |
14 |
23 |
51 |
34 |
16 |
|
Depreciation |
91 |
272 |
192 |
363 |
375 |
663 |
|
Tax |
568 |
180 |
0 |
0 |
0 |
0 |
|
Net Profit |
1068 |
3079 |
1777 |
-427 |
-1655 |
-3782 |
|
Net Oper. Cash Flow |
1129 |
3428 |
1637 |
-931 |
-4046 |
-772 |
|
Equity Cap |
1533 |
51 |
51 |
51 |
51 |
40 |
|
Share Premium |
13855 |
15337 |
15337 |
15337 |
15337 |
5416 |
|
Earned Surplus |
562 |
-535 |
-3504 |
-5290 |
-4920 |
-3270 |
|
Dividend % |
0 |
0 |
0 |
0 |
0 |
0 |
|
Net Block |
1250 |
946 |
1071 |
1074 |
1948 |
2113 |
|
Borrowings |
0 |
0 |
82 |
1208 |
806 |
285 |
Valuation
TSL, which has an earned surplus of Rs 5.62 cr and a share premium of Rs 138.55 cr at the end of September 2015, is asking for a valuation of about Rs 1400 cr. The offer document claims that there is no comparable peer in the listed domain. Though TSL may not have an exact listed peer in the staffing industry, job portals like Info Edge (naukri.com) is already listed and commanding high P/E multiples. Info Edge is currently traded at around Rs 793 discounting its earnings more than 57 times. As compared to this TSL’s price band gives a P/E multiple of 44 to 47x. While TSL may look cheaper compared to Info Edge, its operating profit margin is abysmally low at 1.2% as against Info Edge’s 21.7%. Moreover, when the Sensex and Nifty P/E are currently at 18x and 22x respectively, a P/E of more than 40 cannot sustain for long.
It is worth noting here that the main promoter company, HROV, is holding more than 64 lakh shares at a negligible cost of 42 paise a piece. In fact post offer for sale, HROV’s cost will turn negative. Another promoter company, DMCL, is holding around 14 lakh shares whose cost is nil. The cost of holding for the venture funds who had chipped in during the years 2010 and 2011 works out to between Rs 195 and Rs 294. Post offer for sale, the cost of venture funds’ holdings too will come down significantly. Considering these, the IPO price band of Rs 785 to Rs 850 looks very steep.
|
How Teamlease compares with Info Edge (naukri.com) |
||||||||
|
CO NAME |
M-CAP |
EQ |
REVEN |
NP |
P/E |
P/NB |
OPM |
PRICE |
|
|
(Rs Cr) |
(x) |
(%) |
(Rs) |
||||
|
Info Edge |
9,569 |
121 |
693 |
167 |
57.4 |
100.5 |
21.7 |
793 |
|
Teamlease |
1,453 |
17 |
2,007 |
31 |
47.2 |
116.3 |
1.2 |
850 |
|
|
1,354 |
17 |
2,007 |
31 |
44.0 |
108.3 |
1.2 |
785 |
Concerns
Even though TSL’s founder chairman’s standing (representation in the State as well as Central expert committees for labour reforms) may appeal, the manner that the promoters have acquired their stake in TSL raises credibility issues. For instance while the individual promoters and their operations are in India, they have resorted to a Singapore company (HROV) to control TSL. Ironically, the Singapore-registered ‘holding company’ was floated three years later than the investee company! And, its capital is just 1863 Singapore Dollars which is equivalent to less than Rs 1 lakh.
In 2014, HROV allotted 818 equity shares of 1 SGD to Bharat Kumar Nedurumalli (brother of Ashok Kumar) and 45 equity shares to Anupama Gupta (sister-in-law of Mohitkaran Gupta) at a price of SGD 100 each. In March 2015, the shares held by Bharat Kumar were transferred by way of gift to Ashok Kumar. In July 2015, HROV gifted 1,379,886 shares to Mohitkaran Gupta controlled DMCL, 300 shares to Sabharwal controlled MMCSL and 300 Equity Shares to Ashok Kumar’s NCL. Such unusual corporate gifts raise serious doubts about their intentions.
Strangely, one of the promoters, Mohitkaran Gupta, who was a whole-time director of the company till July 31, 2015, resigned from the executive post and he has been appointed as an advisor to the company effective from August 1, 2015 until the shares are listed on a recognized stock exchange or March 30, 2016, whichever is earlier for a monthly compensation of Rs 4.75 lakh. It may be noted here that the ESIC issued summons dated November 2015 to TSL and Mohitkaran Gupta in connection with recovery of statutory dues amounting to over Rs 30 lakh.
Promoter-chairman, Sabharwal has resigned from a subsidiary and a group company in 2014 claiming “due to preoccupation”. But, the fact is these companies face litigations from competent authorities. TSL has a nominee director, Gopal Jain, who is on the board of Bonanza Portfolio Ltd which has been served caution notices by SEBI for more than 10 times in nine years!
Lead Manager’s Track
TSL’s IPO is handled by three investment bankers who have a mixed track record. IDFC Securities has handled 15 IPOs between 2010 and 2015 of which eight are currently trading above their offer prices. While Gujarat Pipavav Port, Repco Finance and Va Tech Wabag have fared well, A2Z Infra and Jaypee Infra have inflicted capital loss of more than 90%!, Of the IPOs of 2015, Narayana Hrudayalaya and PNC Infratech are quoting above the offer price (32-35%) while MEP Infra is trading at 32% discount.
|
IDFC ASSOCIATED IPOs SINCE 2010 |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE* |
PRICE |
% |
|
Narayana Hrudayalaya |
17-Dec-15 |
250 |
330.00 |
32 |
|
PNC Infratech |
8-May-15 |
378 |
508.75 |
35 |
|
MEP Infrastructure |
21-Apr-15 |
63 |
43.10 |
-32 |
|
Sharda Cropchem |
5-Sep-14 |
156 |
225.10 |
44 |
|
Repco Home Fin |
13-Mar-13 |
172 |
642.60 |
274 |
|
Tribhovandas |
24-Apr-12 |
120 |
66.95 |
-44 |
|
A2Z Infra Engineering |
8-Dec-10 |
400 |
23.40 |
-94 |
|
Shipping Corporation |
30-Nov-10 |
140 |
81.65 |
-42 |
|
Ashoka Buildcon |
24-Sep-10 |
108 |
192.70 |
78 |
|
Va Tech Wabag |
22-Sep-10 |
262 |
590.75 |
125 |
|
Gujarat Pipavav Port |
23-Aug-10 |
46 |
161.85 |
252 |
|
Engineers India |
27-Jul-10 |
290 |
193.05 |
-33 |
|
Jaypee Infra |
29-Apr-10 |
102 |
10.64 |
-90 |
|
SJVN |
29-Apr-10 |
26 |
28.70 |
10 |
|
Man Infraconstruct |
18-Feb-10 |
50 |
35.60 |
-29 |
|
* IPO Price adjusted to stock splits and bonus (India Aarthik Research) |
||||
Credit Suisse has handled only three IPOs in last six years. Whereas the last one, Syngene (July 2015), is currently commanding a premium of over 60%. L&T Finance Holdings that tapped the market in July 2011 is currently traded just 12% over the issue price. However, the previous one, SKS Micro Finance, handled by the same investment banker in July 2010 is currently quoting 46% discount.
|
CREDIT SUISSE ASSOCIATED IPOs SINCE 2010 |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
Syngene International |
27-Jul-15 |
250 |
401.60 |
61 |
|
L&T Finance Hold |
27-Jul-11 |
52 |
58.30 |
12 |
|
SKS Microfinance |
28-Jul-10 |
985 |
528.80 |
-46 |
In the case of ICICI Securities, in last six years the investment banker has associated with 23 public issues of which 14 are currently quoting below their offer prices. Though the track record of the recent IPOs is quite satisfactory, the performance of the IPOs brought out by I-Sec in the year 2010 is pathetic. The investment banker lead managed as many as 13 public issues in that year of which as many as 12 are quoting below the investment cost. Of these, Nitesh Estates, Commercial Engineers, Parabolic Drugs, Jaypee Infra, A2Z Infra and Shree Ganesh Jewel are languishing at 75% to 97% discount!
|
ICICI SEC ASSOCIATED IPOs SINCE 2010 |
||||
|
ISSUER NAME |
IPO |
IPO |
CURNT |
GAIN |
|
|
DATE |
PRICE |
PRICE |
% |
|
Sadbhav Infrastructure |
31-Aug-15 |
103 |
88.30 |
-14 |
|
Manpasand Beverages |
24-Jun-15 |
320 |
482.00 |
51 |
|
PNC Infratech |
8-May-15 |
378 |
508.75 |
35 |
|
VRL Logistics |
15-Apr-15 |
205 |
401.10 |
96 |
|
Shemaroo Entertainment |
16-Sep-14 |
170 |
322.40 |
90 |
|
Wonderla Holidays |
21-Apr-14 |
125 |
398.65 |
219 |
|
Power Finance Corp |
10-May-11 |
203 |
174.80 |
-14 |
|
Future Consumer Ent |
25-Apr-11 |
6 |
21.35 |
256 |
|
Muthoot Finance |
18-Apr-11 |
175 |
191.20 |
9 |
|
PTC India Financial |
16-Mar-11 |
28 |
34.75 |
24 |
|
Punjab & Sind Bank |
13-Dec-10 |
120 |
34.75 |
-71 |
|
A2Z Infra Engineering |
8-Dec-10 |
400 |
23.40 |
-94 |
|
Shipping Corporation |
30-Nov-10 |
140 |
81.65 |
-42 |
|
Claris Lifesciences |
24-Nov-10 |
228 |
181.50 |
-20 |
|
Power Grid Corporat |
9-Nov-10 |
90 |
147.60 |
64 |
|
Commercial Engineers |
30-Sep-10 |
127 |
22.65 |
-82 |
|
Engineers India |
27-Jul-10 |
290 |
193.05 |
-33 |
|
Parabolic Drugs |
14-Jun-10 |
75 |
7.92 |
-89 |
|
Jaypee Infra |
29-Apr-10 |
102 |
10.64 |
-90 |
|
Nitesh Estates |
23-Apr-10 |
54 |
13.60 |
-75 |
|
Shree Ganesh Jewel |
19-Mar-10 |
260 |
8.73 |
-97 |
|
Rural Electrificat |
19-Feb-10 |
203 |
192.60 |
-5 |
|
NTPC |
3-Feb-10 |
201 |
142.20 |
-29 |