Team Lease Services Ltd Management Discussions

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Team Lease Services Ltd Share Price Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Global economic overview

The rising inflationary pressures, relentless rise in interest rates by Central Banks to combat inflation, continuing geopolitical crisis in Europe and other parts of the globe, sudden surge of COVID lockdowns in China and recessionary trends across several countries have disrupted supply chains and impacted economic activity sporadically around the world.

However, the recent reopening of China has signalled a faster recovery. Another silver lining is the fact that global inflation is likely to decline from *8.7% in 2022 to 7% in 2023 and 4.9% in 2024.

The recent financial sector instability and a stickier inflation have impacted the prospects for a long-term recovery. Due to the continued high levels of debt and rising geopolitical tensions, risks are comparatively weighted to the downside. According to IMFs World Economic Outlook (April 2023), the global economy is expected to grow at 2.8% in CY23.1

Outlook

Geopolitical tensions could further intensify, inflation continues to necessitate tighter monetary policies and Chinas recovery from Covid-19 disruptions remains fragile. Thus, the outlook remains cautiously optimistic.

On the positive side, strong labour markets and robust wage growth may gradually strengthen consumer demand, while easing supply chain disruptions could help cool inflation and limit the need for further monetary tightening measures.

Indian economic review

A conducive domestic policy environment and the Governments sustained focus on structural reforms have kept Indias economic activity robust despite global headwinds. Indias economy will stay on course and is projected to grow at 7.2% at FY 2022-23.)2

India and China are anticipated to generate more than half of the global growth this year, with the rest of Asia contributing an extra quarter, according to the IMF. Indias economic recovery is still being supported by favourable policies, which have also increased public investment. Moreover, it is anticipated that monetary and fiscal tightening will be less pronounced than in the rest of the South Asian region.

Outlook

In the coming years, India is anticipated to be the fastest- growing G-20 country. Indias leadership of the G20 Summit in 2023 has significantly boosted its international standing.

The countrys ongoing economic momentum is likely to make it an attractive investment destination.

Stronger prospects for manufacturing, services, agriculture and related industries, improved business and consumer confidence, and accelerated credit expansion are expected to support domestic consumption and investment.

Strong high frequency indicators suggest that Indias economy is on a path of growth despite global headwinds.

Industry overview

Global staffing industry

The global employment industry is facing significant challenges due to multiple, overlapping crises in recent years. The COVID-19 pandemic has had a long-term impact on the global workforce, exacerbating existing decent work deficits and creating new ones. The global unemployment rate is expected to remain significantly higher than prepandemic levels with youth unemployment also expected to remain elevated. Many workers have been forced into informal employment or have dropped out of the labour force altogether due to the pandemic. Apart from unemployment, the quality of job also remains a concern.

Regional disparities in employment patterns are considerable, with some regions witnessing a resurgence in employment levels while others continue to struggle with high levels of unemployment and underemployment. Employment levels in Europe and Central Asia are likely to return to pre-pandemic levels. In contrast, employment levels in Latin America and the Caribbean are not likely to recover until at least 2024. The rate of youth unemployment is highest in upper middle-income nations, excluding China, and lowest in low-income countries.

The global labour force participation rate is expected to have declined slightly in 2022, due to a combination of factors, including demographic changes and the impact of the pandemic on womens employment. Women have been disproportionately affected by the pandemics impact on employment as Womens labour force participation rate is expected to have declined more compared to that of men.

However, due to the growing use of data analytics, machine learning, the Internet of Things (IoT), and Artificial Intelligence (AI) in HR operations, the global staffing market is expected to expand. For improved organisational performance, many HR management service providers are using innovative solutions that integrate the most recent technologies with HR systems. Growth is also anticipated to expand as a result of the integration of predictive analytics into HR operations and IT improvements. Customers also prefer cloud-based solutions because of their usage flexibility, lower maintenance costs, and lack of an installation process or associated expenditures.

Indian staffing industry

Indias unemployment rate rose to a three-month high of 7.8% in March 2023. The unemployment rate had surged to 8.3% in December 2022 but declined slightly to 714% in January 2023 before rising again to 7.45% in February 2023.The unemployment rate in urban areas was particularly high at 8.4% in March 20235. Start-ups, technology, and information technology industries optimised costs, which impacted the hiring of new employees. Also, the lack of demand in the leisure travel, entertainment, and hospitality industries seems to be a plausible reason.

While there was a rise in unemployment in India, there are various positive aspects to the countrys employment situation. The overall unemployment rate in March 2023 was still lower than the December 2022 rate of 8.30%. Additionally, Indias labour market has been steadily improving since the pandemic, with the unemployment rate dropping from a peak in April 2020 to 78% in March 20236 indicating that the countrys economy has been recovering and creating more job opportunities over time.

Moreover, the Indian government has launched several initiatives to boost employment in the country, such as the Skill India campaign, which aims to train people to improve their job prospects. The government has also launched the National Career Service portal, which connects job seekers with employers across various sectors and industries. These initiatives, coupled with the recovery of the Indian economy is anticipated to improve the employment situation in the country in the near-term.

The recruiting and staffing business in India contributes significantly to the national economy. The several initiatives made to mitigate the impact of the COVID-19 on MSMEs, street vendors, and manufacturing units may be attributed to Indias steady increase in employment levels over the last year. The government has launched a number of specific initiatives in an attempt to improve employment prospects and job creation.

The governments initiatives, such as the PLI scheme and Make in India, have created momentum for the creation of new job possibilities in all industries. The Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) is anticipated to generate new jobs and encourage employers to support formal employment. Other sectors, such as hospitality and tourism, FMCG, healthcare & pharmaceuticals, renewables, automobile companies with an electric vehicle presence, oil & energy, and infrastructure-related sectors such as steel and engineering and chemicals, are anticipated to drive white- collar employment.

The Union Budget 2023-24 prioritised significant public investments in infrastructure, productivity improvement, energy transition, and climate action and lays out a futuristic plan for women, youth, and marginalised groups. The staffing business will profit from a strong and stable macroeconomic climate focused on sustainable expansion and job creation in the upcoming years.

Technology driven

Government initiatives like Digital India, Startup India, and Skill India have brought a distinct focus on the unorganised sector and its blue-collar workforce. E-Shram, a portal established to register unorganized workers nationwide, has surpassed 285 Million registrations as of January 29, 2023.

According to a survey conducted by Quess, 84% of the respondents from the informal sector acknowledge that technology has significantly contributed to increasing awareness about the benefits of formal employment. Notably, digital natives, specifically informal employees aged between 18 to 35, exhibit higher confidence in the impact of technology on this awareness, with 45% of those aged 18 to 25 and 42% of those aged 26 to 35 strongly affirming its positive influence. In contrast, 38% of those aged 36 to 45 and 35% of those aged over 45 hold the same belief.

Moreover, a substantial portion of informally employed respondents (70%) has utilised tech portals, such as job hunting platforms, online news portals, and company websites, to seek information about job security and the benefits offered by potential employers.7

Professional employee network

Formal and informal mentoring programs, aimed at fostering professional development among employees, are gaining popularity within technology companies. Notably, the educational background of informal employees differs significantly from that of formal employees, with only 50% of informal workers holding qualifications of SSC + Tech Diploma or lower, compared to 75% of formal employees who possess graduate degrees or higher. Consequently, mentoring initiatives and professional networking opportunities hold particular importance for the growth and advancement of blue-collar workers.8

Employment trends in 20239

• Increased AI and automation usage

The development of modern artificial intelligence (AI) tools that are accessible to the general public has increased awareness of the significance of artificial intelligence (AI) and its capabilities. AI offers many prospects for growth in addition to automation technology. Companies may need to invest in upskilling and reskilling their staff to deal with these technologies as AI and automation open up new prospects in the workplace.

• Embracing data analytics

In 2023, as more businesses embrace data analytics for direct sourcing and talent acquisition, human resources departments will experience significant upheaval. HR professionals, for example, can utilise data to determine the causes of employee turnover.

Employers are learning vital details about both overall organisational performance and employee demands, thanks to people analytics or insights gained from data on workforce talent. Businesses would be using cloud computing, collaboration tools, and digitisation to enhance employee satisfaction and HR processes.

• Hybrid flexibility for frontline workers

As the world enters a more permanent era of hybrid work for desk-based employees, it is time to find equitable flexibility for frontline workers. The top role attractors for this segment include control over the work schedule, paid leave, stability in work schedule, and so on.

• Support for managers

In 2023, organisations are likely to provide fresh support and training to mitigate the widening managerial skills gap. They would define manager priorities in order to better allocate time and modify their responsibilities as needed.

• Non-traditional candidate hiring

Organisations will become more comfortable assessing candidates solely on their ability to perform in the role, not their credentials and prior experience.

• Sustainable performance

In the near term, organisations would implement proactive rest to help employees maintain their emotional resilience and performance, discussion opportunities to work through challenges and difficult topics, and trauma counsellors to provide on-site counselling.

• DEI efforts

Organisations would bolster diversity, equity and inclusion efforts while addressing employee pushback. They will validate employee concerns, communicate the value of DEI efforts and provide training and support to enable marginalised groups.

Flexi staffing industry

During FY 2022-23, the flexi staffing industry sustained a substantial growth trend in terms of new employment, achieving a remarkable 14% Year-on-Year expansion. The industry witnessed significant expansion, leading to the addition of approximately 1.77 Lakhs new flexi-jobs by the member companies affiliated with the Indian Staffing Federation (ISF) in the countrys official employment sector in the year FY 2022-23.

Flexible staffing gave organisations the ability to modify their workforce in response to demand, making it a desirable alternative for the businesses trying to optimise fixed expenses during a downturn. With widespread layoffs, the practise of contract hiring was on the rise, with many Indian companies following this trend. In a number of industries, including technology, communication, trade, logistics & supply chain, manufacturing, e-commerce, and consumer technology, contract staffing has gained popularity10.

Sectoral drivers

The Indian Flexi Staffing business experienced considerable growth in FY23. Increased demand in a number of industries, including FMCG, e-commerce, manufacturing, retail, logistics, banking, hospitality, tourism, insurance, and infrastructure, is the cause of this expansion. Flexi staffings expansion is a sign of the rising desire for flexible work arrangements. The states with the highest demand for contract workers were Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Odisha and Rajasthan. Industry wise, the FMCG industry had a larger market than e-commerce, manufacturing, retail, logistics, and healthcare combined.

Women participation

The engagement of women in the workforce has seen improvement due to the hybrid work opportunities provided by flexi staffing companies. Companies are focusing more on employing women for temporary positions in an effort to be more inclusive, giving women additional employment options in formerly male-dominated fields.

Youth involvement

The staffing industry plays a crucial role in facilitating the transition of freshers and first-time job market entrants from informal to formal employment, offering benefits such as social security, employment mobilization, industry skill matching, wage protection, and on-the-job upskilling and reskilling opportunities. As a result, many job seekers associated with staffing companies are able to secure permanent employment by demonstrating their performance.

General flexi staffing industry

The general flexi staffing sector serves all industries except IT & ITeS. Despite certain sectors experiencing cautious sentiment, the industry maintained a steady growth rate of 15.3% Year-on-Year during FY 2022-23, with employment demands continuing to rise resiliently.

Member companies of the Indian Staffing Federation (ISF) contributed to the addition of 1.47 Lakhs new employees in various general flexi staffing roles during FY 2022-23. The growth in the industry was primarily driven by demands from sectors such as FMCG, E-commerce, Manufacturing, Healthcare, Retail, Logistics, Banking, and Energy, among others.

IT flexi staffing industry

The IT Staffing Industry experienced a significant decline of -77% year-on-year, with a quarterly degrowth of -6% in Q4 of FY 2022-23. Following Q2 of FY23, the industry gradually witnessed decreasing demand, and Q4 of FY23 saw a more pronounced impact due to geopolitical developments worldwide, including events like the US markets situation and the Russia-Ukraine war, coupled with the effects of global financial markets. These factors have had a substantial negative impact on the IT industry, leading companies to rationalise their capacities and focus on productivity enhancements to address market pressures.

Despite the challenges, the IT Staffing Industry anticipates potential demand for digital adoption in certain sectors, particularly those showing slow growth, such as government infrastructure projects and emerging industries.

Online recruitment industry

The size of the online recruitment market, which was estimated at USD 33224.8 Million in 2022, is anticipated to grow at a CAGR of 8.07% over the course of the forecast year and reach USD 52914.93 Million by 202811.

The digitalisation of all corporate activities, including hiring, is a result of consumer demand. Digital transformation has an impact on how companies interact with their internal and external stakeholders. To reduce or eliminate administrative processes and improve operational performance across departments and hiring teams, digital transformation typically involves investing in software and data technologies, such as online recruitment channels and recruiting solutions.

Digitalisation and the shift to online recruiting provide a number of benefits, including improved production and efficiency. In some aspects, traditional employment procedures are sped up by online recruiting. Businesses can automate administrative duties like organising interviews and keeping track of candidate papers. The fourth industrial revolution and digital transformation have positively affected the online recruitment market, creating new job opportunities and shaping the future of work. An increasing number of companies are using AI in their employment procedures. Global virtual recruitment is being improved by a number of technologies, including application tracking software, interviewing software, and candidate relationship management software.

Online recruiters utilise application tracking system (ATS) solutions to quickly screen candidates since ATS solutions store all necessary candidate data in a single area. Online hiring tools are advantageous to more than just recruiters.

Candidates can apply seamlessly, thanks to the autofilling application forms and one-click apply buttons. Other elements influencing digitalisation include access to a wide pool of applicants and improved candidate analysis.

These considerations are driving businesses all over the world to digitise the hiring process, which is boosting the growth of the online recruiting market.

EdTech and employability industry

In 2022, Indias E-learning market had a value of US$6.4 Billion. Looking ahead, it is anticipated that the market will grow at a CAGR of 13.7% from 2023 to 2028, reaching US$ 14.1 billion12. The interactive environment of the e-learning system promotes a healthy exchange of knowledge among the participants. It is also utilised to give education at any time or location. E-learning keeps up with the ever-changing requirements for high-quality education and is a more cost- effective option than traditional brick-and-mortar teaching methods.

Key trends and drivers

The sector has been positively impacted by factors such as government policies, increased internet penetration, and a spike in EdTech start-ups. A number of Indian universities are working with foreign ones to deliver online courses, and foreign businesses are collaborating with local players to localise their products, both of which have a positive impact on the markets expansion.

The classroom learning experience is also being transformed by key technology trends, including blended learning, bitesized or nano learning, gamification, online assessment and personalised learning.

• Blended learning is a popular tech-supported learning experience within physical classrooms, where teachers use tech tools for assisted learning

• Nano learning or bite-sized learning breaks down longer chapters into smaller narratives with inter-related facts, helping children understand a concept better

• Gamification is gaining popularity across classrooms for its engaging and immersive learning experience, leveraging AR/VR and robotics

• Online assessment has been a steadily growing trend that has been helping teachers and students create a seamless, authentic, and easy assessment system while offering valuable data-driven insights

• Personalised learning allows for a customised learning system that shifts the group-centric learning to individual studentcentric approach, enabling students to engage proactively with teachers and enjoy learning at their own pace.

Government initiatives

Given the digital divide in India, the government of India is making revolutionary efforts to digitise education, encourage digital learning, and provide equitable access to education. The Government of Indias successful initiatives to launch distance education programmes to facilitate simple access to education are key factors driving the Indian e-learning sector. It has built internet infrastructure and utilised integrated e-learning technologies in the educational system through its National Education Policy (NEP), 2020. To further digital education in India, it has also launched a number of projects, including the National Programme on Technology Enhanced Learning (NPTEL), Digital Infrastructure for Knowledge Sharing (DIKSHA), and Study Webs of Active-Learning for Young Aspiring Minds (SWAYAM).

RegTech industry

The global RegTech market is expected to grow at a CAGR of 17.55% between 2023 and 2029. It is projected to increase from USD 6.5 Billion in 2022 to more than USD 28.83 Billion by 2029 . RegTech is a segment of the financial technology industry that leverages emerging technologies such as cloud computing, big data, machine learning, and natural language processing to address regulatory challenges in the financial sector. However, businesses outside of the financial sector are also adopting RegTech due to the wide range of solutions that it offers, thereby addressing unmet demands in various industries.

RegTech solutions aim to simplify and expedite regulatory and compliance obligations, thereby enhancing transparency, consistency, and standardisation of regulatory procedures at a lower cost. Fintech solutions are being implemented in various business processes in rapidly growing economies like China, Japan, Singapore, and India to provide efficient solutions.

Several financial institutions are exploring blockchain technology as a means of speeding up transactions, reducing error rates, and eliminating reconciliation. Blockchain is particularly suitable for the payments industry, where it can reduce settlement cycles from several days to realtime, thereby enhancing transaction operations, boosting companies capabilities for anti-money laundering (AML), know-your-customer (KYC), and regulatory compliance data, and facilitating faster transactions and settlements. This helps financial institutions and their clients transact seamlessly while eliminating intermediary fees to streamline the process. Hence, banks save time and money on labour-intensive operations with their clients and currency transactions.

RegTech solutions can also aid financial institutions in automating anti-money laundering activities, streamlining and automating KYC data collection methods, detecting and analysing important regulations and associated changes over time.

These solutions can be found in various application areas, including risk and compliance management, identity management, regulatory reporting, fraud management and regulatory intelligence, helping organisations meet real-time regulations and compliance needs, enhance customer experience, manage risks, and provide appropriate recommendations. Third-party RegTech services can also help companies save money on regulatory compliance.

Cloud computing services convert fixed costs into variable prices, allowing users to pay based on their usage patterns. Customers may pick from a variety of cloud-based solutions to match their demands. These solutions enable businesses to adapt to changing contexts easily, as customers can start or stop services depending on their current needs.

The adoption of cloud-based solutions has risen in recent years, as they offer advantages such as reduced physical infrastructure, low maintenance costs and 24/7 data accessibility from anywhere. SaaS has emerged as the preferred practice for companies seeking cost-effective functionality, thanks to advances in cloud technology.

Company overview

With over 3,600 clients in various industries, TeamLease Services is a leading provider of human capital management services in India. With 22 years of expertise, TeamLease has hired more than 19 Lakhs people to satisfy the demands of its customers. The Company administers Indias first vocational university and offers the fastest-growing PPP degree apprenticeship programme. It is one of Indias fastest-growing employers. The Company provides large, medium, and small clients with 3E (Employment, Employability and Ease of doing business) solutions. It is one of the largest private-sector employers in India with a network of more than 2.8 Lakhs associates and trainees. Through its TL Skill University and TL Edtech, TeamLease is committed to enhancing employability and has trained over 5 Lakhs students.

General staffing, IT staffing, telecom staffing, hiring, compliance and payroll services, degree apprenticeships, learning services, and skill universities are just a few of the services offered by TeamLease.

Opportunities and threats

Opportunities

Growing demand for human capital management solutions in India, particularly in the IT and telecom industries.

Expansion of the Companys services, such as the Degree Apprenticeship programme, to provide more value-added services to clients.

Increasing focus on employability and ease-of- doing business, presenting an opportunity for TeamLease to leverage its expertise in these areas.

Expansion into new geographic markets such as Southeast Asia, where the demand for its services may be high.

With the rise of remote work and the shift to digital processes, there is an increasing demand for digital hiring solutions.

The rise of gig economy has led to a growing demand for flexible and temporary workforce solutions, providing a significant opportunity for the Company.

Threats

Intense competition in the human capital management industry, which may limit the Companys market share and profitability. Changes in government regulations and policies that may impact the Companys operations.

Increased focus on automation and artificial intelligence, which may result in a decline in demand for human capital management solutions.

Economic slowdowns or downturns that may result in reduced demand for the Companys services.

Difficulties in retaining and attracting quality employees, particularly in niche areas such as IT staffing

Growing gig economy and changing attitudes towards work, leading to a reduction in demand for permanent staffing solutions.

Financial Highlights

Key Financial Ratios FY 2022-23 FY 2021-22
Revenue 7,86,999.75 6,47,982.30
EBITDA 12,226.57 14,236.94
PAT 11,154.98 3,945.46
EPS 65.12 22.48
Debtors Turnover 20.99 20.02
Current Ratio 1.45 1.43
Operating Profit Margin 1.55% 2.20%
Net Profit Margin 1.42% 0.61%
Return on Net Worth 13.81% 5.69%

Risk management

Risk Description Mitigation
Compliance and legal risk The legal framework governing the HR solutions market is designed to benefit the government, workers, private employment agencies, and their respective clients. Stringent labour laws and regulations in India can pose a challenge for the Company. The Company complies with all applicable laws and regulations and is accountable to all of its constituents for meeting its obligations. It endeavours to uphold ethics and responsibility while ensuring that all of its actions are completely transparent and up-to-date with changing regulations to ensure compliance and minimise legal risks.
Technological risk The rapid advancements in technology and the increasing dependence of companies on digital solutions for HR management may pose a threat to the Company The Company continuously invests in research and development to stay ahead of the curve and offer innovative solutions that meet the evolving needs of clients. Additionally, it also considers partnering with technology companies to offer integrated solutions and expand their offerings.
Talent risk Finding and retaining workers and associates with the education and experience necessary to satisfy a range of client requirements is essential for the Companys success. The Company uses both traditional and online recruitment methods to identify the best talent. To ensure career advancement, the Company also offers training and upskilling programmes.
Macroeconomic risk Instability in macroeconomic scenario and economic downturns caused by geopolitical unrest effects job creation and talent mobility, raising expenses and reducing customer demand. In order to effectively manage the business, the Company adopts a flexible approach to changing business dynamics and exerts significant effort to maintain positive relationships with clients and candidates.
Credit risk Customer payment delays may lead to increased working capital costs and interest costs. The Company follows strict credit monitoring and billing procedures. Expected credit loss is taken into account when reporting and monitoring the collection status on a regular basis.
Competition risk The Company faces intense competition from both local and international human capital management companies. The Company has partnered with multiple state governments and corporations to benefit from various schemes and stays ahead of the competition.

Cautionary statement

According to the applicable securities laws and regulations, any statements in this report that refer to the companys goals, estimates, forecasts, projections, or outlooks are forward-looking statements. Actual outcomes could differ from these predictions, expectations, and others, whether explicitly stated or implicit. The assumptions and upcoming events upon which the statements are predicated are outside of the Companys immediate control. The Company disclaims any obligation to publicly edit, change, or revise any of the statements in light of new information, events, or developments.

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