TeamLease shares soar 21% on debut, after huge demand in IPO

It had slipped 5% below the IPO price in opening trade but later had hit the upper limit

Defying weak market sentiment, shares of TeamLease Services soared 21 per cent during their trading debut on Friday. This followed huge over-subscription in the recruitment and staffing company’s initial public offering (IPO), which generated demand worth Rs 16,000 crore for the Rs 435 crore of shares on offer.

The share price of TeamLease ended at Rs 1,032, up Rs 182 or 21 per cent over its IPO price of Rs 850 a share on the National Stock Exchange (NSE). It had slipped five per cent below the IPO price in opening trade but later hit the upper limit, with no sellers at the lower price. Shares worth at least Rs 600 crore changed hands on both the NSE and BSE. “There was a lot of institutional demand for the shares at the lower level,” said Mridul Mehta, executive vice-president, ICICI Securities.

The rally is significant as the benchmark Sensex on the BSE has fallen by six per cent since closing of the IPO on February 4. “Investors are attracted to TeamLease’s asset-light model and its track record of good growth over the past few years,” said Mehta.

ICICI Securities, IDFC Securities and Credit Suisse Securities India were the investment banks that handled the IPO. The 38-times subscription was one of the highest over recent times in IPOs. It attracted demand from all categories of investors. The institutional investor segment was subscribed 29 times, the high net worth individual category by 190 times and the retail segment by 10.5 times.

TeamLease at the IPO price of Rs 850 was valued at a little over 40 times its 2015-16 estimated earnings, much higher than some global peers in a similar business. Global peers such as Adecco SA and Randstad Holding NV, despite a much superior margin profile, are trading at 12 times and 15 times their respective calendar year 2015 estimated earnings.

Those in the sector say the growth potential in India justifies the higher valuations. The domestic staffing services sector is valued at Rs 22,000 crore and is pegged to grow 25 per cent annually till FY19-20.