Team Lease Services Ltd Management Discussions.

Indian Economy

The Indian economy recorded steep decline in real GDP to 7.3% in the fiscal year 2020-211 due to the coronavirus pandemic. The nation-wide lockdown enforced since 25th MarcRs 2020 to 31st May 2020, in phases, disrupted the supply chain which led to an economic crisis.

Industrial and services sector were severely hit as an immediate effect of restricted mobility and social distancing. However, the sectors gathered momentum post unlocking the economy in the September quarter, spurred by the pent-up demand and propelled by rise in economic activities. Agriculture sector, backed by good monsoons and bumper harvests, was the only sector to register positive growth of 3.6% in output in the fiscal year 2020-21. While the industry and services registered sequential growth in the last two quarters, the annual growth contracted by -7% and -8.4%, respectively.2

The Reserve Bank of India adopted an accommodative monetary policy to maintain repo rate at 4% since May 2020 even as CPI based inflation hovered past 6% mark for 10MFY21. The policy measures intended to infuse liquidity into the system and lower the cost of borrowing by controlling the yields.

The Government consumption increased consistently over quarters, to stimulate demand, with nearly 25% growth in Q4FY21 over the 18% growth in Q4FY20. Private consumption reached its inflection point in Q3FY21 and grew by 7% in Q4FY21, driven primarily by vaccination progress and resumption in economic activities. While similar trend has been observed for investments, both private and gross fixed capital formation contracted on year to -6% and -8.5% respectively in FY21.

Outlook

Key economic indicators have been recording sequential increase in the last two quarters of the fiscal year 2020-21. The IMF revised its GDP growth for India by 100 basis points between January to April 2021, to 12.5% in FY22 based on the normalisation in economic activities and availability of vaccines3. However, the resurgence in covid 19 waves along with deadly mutations and other pathogens are likely to have dislodged the economy from its track. The break in continuity is further compounded by a deficient health infrastructure and an overstretched fiscal position to cushion any impending crisis. The inflationary trends that picked up since February 2021 could experience upward pressure from global commodity price trends, geopolitical tensions and domestic supply chain disruption due to the contagion making inroads to rural economy along with food and fuel prices.

Global Staffing Industry

The global staffing industry has expanded at a phenomenal rate between 2015 and 2019, with estimates indicating further market growth in the coming years. Rising Gross Domestic Product (GDP), increasing preference for temporary staffing solutions, growing industrial development and a millennial population is anticipated to drive the staffing market. Along with this, outsourcing of Human Resource (HR) operations and globalization are expected to further add impetus to this segment. However, talent shortage and an ageing population continue to weigh on the prospects of this sector and appear to be major hurdles for the sector.

Staffing companies act as intermediaries to find and/or supply temporary, contractual and permanent employees to businesses across sectors. Global estimates suggest, 45% of staffing revenue of around $224 billion is generated from the top 100 largest firms in the world4. The global staffing industry generated revenue of USD 497 billion in in 2019 (EUR 444 billion)5. The United States, Japan, and the United Kingdom were major contributors, with the top 14 nations accounting for 87 percent of overall global staffing revenue2.

However, the COVID-19 pandemic has decelerated revenue growth in the global staffing industry. Revenue from the industry is anticipated to record degrowth between 16% to 21% in 2020, as compared to 20196. As healthcare and pharmaceutical sectors were least affected during the pandemic, staffing and recruitment continued in this sector despite the overall economic sluggishness. On the other hand, aviation, hospitality and travel have been the hardest hit sectors with substantial impact on recruitment in these sectors.

Source: Statista (published 30th March,2021)

Impact of COVID-19

The COVID-19 pandemic has left an indelible imprint on all industries around the world. The staffing industry played a pivotal role to mobilise the workforce and helped clients to adjust to new methods of recruitment. With the prominence of the ‘work-from-home culture, organisations were compelled to adopt advanced technology and find innovative ways to resume work. An abrupt shift in workforce demand was also witnessed in 2020 due to partial or full closure of businesses. However, vertical spikes in recruitment were witnessed in sectors like logistics and healthcare only.

Moreover, the staffing segment has witnessed a rapid transition after the pandemic. Candidates are no longer chosen for their professional capabilities or educational qualifications alone. Instead, they are being tested for their ability to adapt to given skillsets required for any open position. Thus, selection processes around the world have seen phenomenal changes.

Developed and Developing Economies

The COVID-19 pandemic has transformed from an unprecedented economic crisis to a deep health crisis. The pandemic has resulted in massive job losses, an unprecedented drop in remittances and recessions in major economies around the world. Global unemployment increased by 33 million during this period, reaching 220 million in 2020 as unemployment rate increased 1.1 percentage points to reacRs 6.5 per cent7. In 2020, women have been worst hit in comparison to men and many have lost jobs during the pandemic.

The United States (US) staffing market is estimated to have declined by 8% in 2020, as per latest report8 and projected to grow by 11% in 2021. The United Kingdom (UK) staffing market is also likely to witness contraction in 2020 with the recruitment firms witnessing severe financial stress due to the pandemic. Similarly, the developing economies of India and China suffered huge job losses, significantly impacting the staffing markets in these regions.

Outlook

The global staffing market has started showing signs of recovery after successful vaccination drives in many parts of the world. The global healthcare staffing market is estimated to expand from USD 28,545.73 million in 2020 to USD 38,879.13 million by 20259. In the coming years, technology will play a pivotal role in the staffing process. Artificial intelligence will also support significant advances to find the right candidates for various open positions.

Indian Staffing Industry

The staffing industry in India has grown to unprecedented levels, especially in the field of third-party payroll service providers. With the rise of commerce and trade in India, there has been a lot of activity in the staffing sector. Temporary hiring has seen tremendous growth over the past few years. The staffing industry effectively offers a platform for recognised jobs, job preference, fair pay, annual benefits, and health benefits for the temporary workforce in India. According to the Indian Staffing Federation, 15 leading companies operate in this sector and account for revenues of RS 270 billion10.

The staffing market in India has been severely impacted by the COVID-19 pandemic in FY2020-21, with many workers losing their jobs. Unemployment in India peaked to a record 23.52% in April 2020 and declined to 6.5% in MarcRs 2021, due to growth in economic activities in the last two quarters. As of MarcRs 2021, there were 76.2 million salaried employees in India against 85.9 million salaried jobs observed in the previous fiscal. As a result, the market is now flooded with experienced and employable job seekers. On the other hand, sectors including healthcare, Indian Information Technology- Business Process Management (IT-BPM) and telecommunications have seen a rise in staffing.

COVID-19 impact

The COVID-19 outbreak in India, as well as the subsequent national lockdown that began on MarcRs 25, transformed the employment landscape in the country. An estimated 11 million non-farm jobs were lost in FY21 due to the lockdowns, and the loss distributed equally between business persons, salaried and daily wage earners11.

The aviation, hospitality, and travel industries were the hardest hit by the COVID lockdown due to the social distancing and hygiene requirements disrupting their people aggregating business model. As the economy gets back on track after the lifting of lockdown restrictions, the job market is showing signs of recovery.

Estimates suggest that over 1 million jobs were created in 2020 and employment generation is likely to have stabilised during the last quarter, as observed from EPFO data. In January 2021, almost 12 million people found employment, taking the total number of employed people to 400.7 million in comparison to 388.8 million in December 20209.

However, having short lived, the unemployment trend pulled up in April 2021 due to the second wave of Covid 19, resulting into 15 million job losses in May 2021.12 This translated into loss in employment which fell to 375.5 million in May 2021 from 390.8 million in April 2021.13

Net new EPF subscribers (in millions)

Source: BCG India Economic Barometer

Women at workplace

The share of female EPFO subscribers increased by 2.61 lakh in January 2021 thereby recording 30% monthly sequential increase.14 This can be largely attributed to their increased participation as care-takers and healthcare workers during the pandemic and more opportunities in facility management and the packaging services sectors.

Although, women have been offered job flexibility and better opportunities during the pandemic, as many as 85% of women have not received a raise or promotion due to gender discrimination15. Besides issues related to parity in compensation, gender discrimination and obligation towards family and homely affairs, hamper the efforts towards gender inclusion at workplaces.

Major hiring trends for 2020-21

Rise of remote workplaces

The year 2020 shed new light on the idea of remote working. Without being constrained by the geographical boundaries of the workplace, employees were given the flexibility to work remotely from a place of their choice. This allowed employers to hire candidates from different parts of the country and the world. Due to remote working opportunities, many companies have seen better efficiency and greater employee productivity. Flexible timings and reduced travel time made a remarkable impact on employees.

In 2021, work from home will be the biggest staffing trend observed across the industry. It will continue to boost recruitment efforts globally and enable companies to secure trained professionals from any part of the world. The use of advanced technology has also aided the rapid growth of remote workplaces.

Project-based hiring

The pandemic changed the way organisations work. Many companies hired freelancers or opted for project-based hiring as new modes of coping with rapid shifts in workplace norms. It is expected to open up more opportunities for domain experts looking for short-term projects. The trend is expected to be the ‘new normal in 2021 and is anticipated to boost productivity.

Focus on Retention

For any company, higher attrition rates are a cause of concern. Reinvesting in recruitment and training incurs additional expenses for the company. Therefore, retaining experienced employees help companies to create a better work culture and propagate a shared vision. Employers with a good reputation in the industry are often preferred for long-term employment. But, the Covid-19 pandemic compelled organisations to change their hiring patterns. By the second half of 2020, employment rates increased and in 2021, HR managers are anticipated to revamp hiring policies to adapt to a new normal.

Digitalisation and use of AI

Hiring processes have been upgraded over the years with the efficient utilisation of Artificial Intelligence (AI). It has completely automated the verification and onboarding practices. Organisations have moved from traditional analytics to data-driven approaches that help to aid recruitment efforts. The use of advanced algorithms facilitates the selection of the most appropriate employees for specific positions. It also helps to match candidates with the organizational culture, thereby finding ideal fits for companies.

Remote hiring processes have also improved due to the growing penetration of digitalisation in recruitment efforts. Companies are using advanced technology for remote interviews, payroll and attendance management as well. In 2021, digitalisation is anticipated to play a major role in hiring processes and seamless onboarding of candidates.

Outlook

The Indian staffing market is likely to experience strong growth in FY21 after overcoming the hurdles posed by the COVID-19 pandemic. With the transition towards a digital era, Information Technology (IT) staffing is likely to see an upsurge, indicating trends for strong hiring growth in this segment. Recruiters and consultants are also optimistic about staffing growth in the near term. Moreover, the rapid adoption of technology for recruitment and staffing is likely to make new inroads in the industry.

Flexi Staffing Industry

Flexi or temporary staffing allows companies to hire employees for brief periods, either for a fixed tenure or until the culmination of an assigned task. Staffing agencies generally hire these candidates on a contractual basis. The concept of flexi-staffing is constantly gaining prominence in the staffing industry and is helping organizations fulfil short-term assignments or goal-oriented objectives.

According to the Economic Survey 2020-21, India emerged as one of the largest countries for flexi-staffing during the pandemic, creating huge opportunities for job seekers. Moreover, digital networks continue to facilitate staffing, allowing job seekers and employers to easily connect with each other in the absence of middlemen. During the lockdown, employers offered ‘work from home positions and to reduce overhead costs many employers hired freelancers or contractual employees. The demand for project-specific consultants, logo/content creators, web designers, and other white-collar jobs increased at a rapid pace. Jobs for delivery boys and taxi drivers were also on the rise.

Gig or platform workers had no social security benefits until recently. These workers have now been placed under the Code on Social Security 2020, which categorises them as unorganised workers who are eligible for social security benefits.

With permanent and stable employment opportunities becoming less attractive in India, the flexi-staffing or contractual/temporary staffing industry is projected to increase in size. In India, flexi-staffing offers a lucrative proposition for people engaged in the IT sector and other related services.

IT Flexi Staffing Industry

The Information Technology (IT) industry requires talent for making use of emerging technology such as Big Data, Artificial Intelligence (AI), Robotics and Cloud Computing. As a result, the IT sector often intends to hire candidates ‘on a need basis instead of opting for permanent employees. It has not only contributed to their cost saving measures but have also allowed them to maintain a competitive edge in the market. India is expected to witness 22.75 CAGR growth in flexi-staff workforce from 3.3 million in 2018 to 6.1 million in 202116. IT and IT-enabled services sectors are predicted to be the greatest contributors to this segment, recording the largest market penetration in the flexi staffing industry .

The IT staffing market continued to grow even during the pandemic in FY2020-21 as it helped organisations to adapt to changing business dynamics. Flexible work schedules and access to highly qualified staff allowed this segment to sustain growth even through the pandemic. DevOps programmers, UX builders, big data experts, cloud developers, embedded data scientists, cryptography, and quantum computing are some of the areas that are gradually becoming prominent in the gig economy. Along with low-code programming where little or no coding is needed to create applications, use of Python, artificial intelligence, machine learning, computer processing, cybersecurity, and quantum computing is going to be rampant in the years ahead and the gig economy is expected to play a huge role in the growth of this segment in future.

Online Recruitment Industry

Online recruitment in India is likely to have witnessed degrowth over year during the fiscal year 2020-21 even as signs of revival during the last quarter, reversed in April 2021 due to the second wave of the pandemic. During the last quarter, the industries that registered positive year on year growth were Agro based, Median and Entertainment, Telecom/ISP and Logistics and transportation sector including courier and freight. During the same period, sectors such as BPO/ ITES, Oil and Gas, Travel and Tourism, Education witnessed negative annual growth, with travel and tourism residing in the negative territory consistently since the covid outbreak.17

Indias demand for online recruitment will be boosted by the rising use of social media sites and the increasing adoption of advanced technology.

Skilling Industry

India has gradually transitioned into a knowledge-based economy owing to a growing population of highly educated and skilled individuals. It has enhanced the efficiency and flexibility of the labour market, offering a competitive edge to candidates. The government has also introduced several skill development programmes, aimed at enhancing the economic prosperity of the nation.

Despite the pandemic in FY21, people across the world found ways to remain connected and explored opportunities to enhance their skills and capabilities. As industries across sectors continue to rely on technology to ensure business continuity, the demand for candidates trained in digital and coding skills continue to increase. Besides, critical thinking, creativity, innovation and technological know-how have been found to be some of the other necessary qualities for prospective employees.

For organisations, it was extremely challenging to adapt to unforeseen changes at the workplace, especially with remote working becoming the new normal. Technological advances and a skilled workforce helped many companies to tide through the crisis without major difficulties.

Government Initiatives

• Pradhan Mantri Kaushal Vikas Yojana: The scheme aims to engage a significant number of Indian youth in relevant skill training programs that can help them to secure better opportunities. Individuals with previous experience or expertise are evaluated and accredited in accordance with the Recognition of Prior Learning programme (RPL).

• Skill Acquisition and Knowledge Awareness for Livelihood Promotion (SANKALP): This scheme has been developed by the Ministry of Skill Development with loan facilities from World Bank. Its mission is to improve the quality of short-term skill training by strengthening institutions and improving business facilities. It aims to help disadvantaged people gain access to mainstream jobs.

• UDAAN: Udaan is a Special Industry Initiative (SII) for the youth of Jammu and Kashmir (J&K), funded by Ministry of Home Affairs and implemented by National Skill Development Corporation (NSDC). The Udaan programme is targeted for graduates, post graduates or three-year diploma engineers. Its aim is to impart skill training and improve work prospects.

• Skills Strengthening for Industrial Value Enhancement (STRIVE): This initiative, assisted by the World Bank and undertaken by the Indian government, aims to improve the relevance of skill training offered by Industrial Training Institutes (ITIs) and apprenticeships.

RegTech (Regulatory Technology) Industry

The RegTech industry promises to provide sophisticated solutions for the banking and financial sector. Stringent regulations and compliance issues govern the operations of banks and other financial institutes. To avoid complications related to non-compliance, the RegTech industry continues to equip the financial sector with efficient solutions. They provide solutions for Identity Management & Control, Risk Management, Transaction Monitoring, Compliance and Regulatory Reporting. Going forward, the industry is expected to encourage the adoption of globally aligned standards and practices that help to resolve technical barriers to trade.

Global Overview

The RegTech market was estimated at around USD 2175.6 million in 2019 and is expected to increase to USD 10360 million by 2026. An expected CAGR growth of 24.7% has been predicted from 2021 to 202618. They play a major role in financial and banking services, to provide Customer Credit Scoring, Know Your Customer (KYC), trade data tracking and fraud prevention. Enterprises are implementing risk management programs to tide through the financial crisis caused by the pandemic. Globally, companies adopted and invested in these solutions for effective functioning of their businesses.

Due to stringent rules and regulations for financial transactions and data protection, Europe has the highest rate of RegTech adoption. Companies are also shifting to cloud based SaaS platforms to reduce hardware and infrastructure expenses. The Asia Pacific region holds a huge potential for RegTech industry owing to the growth in emerging countries such as India, Hong Kong and Singapore. As a result, RegTech in Asia Pacific region is expected to grow at the highest compound annual growth rate (CAGR) by 202319.

India Overview

India too realised the advantages of the RegTech industry and continues to implement processes for managing regulatory issues. However, the pandemic has called for the replacement of physical touchpoints. As a result, real-time user authentication and Optical Character Recognition (OCR) continues to be used. Many Indian banks have also adopted artificial intelligence (AI) to prevent fraudulent activities. Moreover, reinforcement of regulatory and supervisory capabilities for effective use of data continue to spur Indian markets.

Corporate Overview

TeamLease Services is a leading HR services company offering a range of solutions to 3500+ employers for their hiring, productivity, and scale challenges. A Fortune India 500 company listed on the NSE & BSE, TeamLease has hired 18 lakhs+ people over the last 19 years. One of Indias fastest growing employers, TeamLease also operates Indias first Vocational University and Indias fastest growing PPP National Employability through Apprenticeship Program (NETAP). The Company offers solutions to large, medium, and small clients across the 3Es of employment (over 1.7 lakhs employees), employability (over 2 lakhs students) and Ease-of-doing Business (over 1000 employers).

The Company, in partnership with the Government of Gujarat has set up Indias first vocational university, TeamLease Skills University (TLSU) in Vadodara. The company at present has nearly 2,00,000 associates/trainees across the country, in more than 6,600 locations. Till date, the Company has offered employment to around 1.7 million people.

SWOT Analysis
Strengths Opportunities
• Significant market share with an established brand reputation. • Government initiatives to boost employment opportunities.
• Transparent and efficient hiring policies. • Increasing demand for flexi staffing after the pandemic.
• Continuous technological upgradation. • Significant opportunities for growth in the online recruitment market.
• Diverse client portfolio, spanning various sectors.
• PAN India presence.
Weaknesses Threats
• Restricted exposure to international market. • Due to the economic recession after the COVID-19 pandemic, hiring may be curtailed.
• Risk posed by inorganic growth.
• Increasing market competition.
Financial Highlights
Particulars

FY 2020-21

FY 2019-20

Comments

Revenue from Operations

488,145.67

5,20,072.26

-6.14%

EBITDA

9742.09

9,300.92

4.74%

PAT

7847.47

3,497.53

124.37%

EPS

45.33

20.46

121.56%

19https://www.researchandmarkets.com/reports/4614548/global-regulatory-technology-regtech-market
Financial Ratios
Ratios

FY 2020-21

FY 2019-20

Debtor Turnover

17.02

18.56

Current Ratio

1.52

0.99

Debt Equity Ratio

-

0.13

Operating Profit Margin

2.00%

1.79%

Net Profit Margin

1.60%

0.67%

Return on Net Worth

11.89%

6.11%

Risk Management
Risks Meaning Mitigation
Macroeconomic risk Macroeconomic volatility and economic downturns have an impact on employment generation and talent mobility, leading to increased costs and reduced demand for the business. The Company uses a flexible approach to respond to changing business dynamics and strives to maintain favourable relations with clients and candidates to efficiently run the business.
Financial risk The COVID-19 pandemic poses serious threats to revenue generation and business profitability. The COVID-19 pandemic poses serious threats to revenue generation and business profitability.
Talent acquisition and retention The Companys ability to recruit and retain candidates and associates with necessary qualifications and experience to satisfy a wide range of client requirements is crucial for business success. The Company strives to attract the best talent through traditional and online recruitment platforms. The company also ensures career advancement through trainings and opportunities for reskilling and upskilling.
Regulatory risk The HR solutions industry works within a legal system that is intended to benefit the government, employees, private employment agencies, and their clients. A changing political climate could result in ineffective or unbalanced regulation, which could have an impact on the Companys business model. The Company adheres to industry regulations and is accountable to all its stakeholders for fulfilling its legal and regulatory obligations. It ensures complete transparency in its conduct and strives to remain ethical and accountable.
Workplace safety The employees could be subjected to unsafe workplace conditions, which may lead to higher absenteeism, job strikes, and medical costs. The Company has implemented a robust Employee Health & Safety Policy. This policy aims to promote health and safety of employees, with a sharp focus on health awareness and safety procedures during the pandemic.
Technological risk Technological disruption is threatening the traditional recruitment and staffing industry. New delivery platforms and non- traditional competitors are gradually gaining momentum. The Company has developed a technology- driven business strategy that allows it to respond to evolving consumer demands while still staying ahead of the competition.
Credit risk Delays in client payment may result in higher working capital expenditure and interest costs. The Company follows robust practices for invoicing and credit control. The collection status is monitored and reported on a regular basis, with allowances for expected credit loss.

 

Cautionary Statement

The statements made in this report describing the Companys objectives, estimations, expectations, projections, outlooks, constitute forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may differ from such expectations, projections, among others, whether express or implied. The statements are based on certain assumptions and future events over which the Company has no direct control. The Company assumes no responsibility to publicly amend, modify and revise any of the statements on the basis of any subsequent developments, information or events.