Considering quarterly revenue run rate of approx 800 Cr – this seems to be reasonable, also from aging table available in published document most of it is either not due or due within 180 days.
Most of it is towards Accrued salary, benefits, incentives, bonus etc..
Considering working capital requirement (High receivables, negligible payable) - debt level of Rs. 107 cr is fine - but finance cost of approx 30 Cr mentioned in P&L is beyond understanding when they declared that Cost of borrowing is around 7.50% - 8%
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Also as per post listing PPT shared by Bluspring, ROCE is even less than 10%.
Wondering at such ROCE, will it be able to create value for shareholder ever ?
Thoughts on Flexi Staffing INdustry
Negatives:
- Time Bomb - Flexi Staffing buinsess generally generates 1 to 1.5% EBITDA margins. With these thin margins, I think its difficult to survive if any thing goes wrong. For example, if just one customer goes bankrupt / defaults, it will impact the P&L.
With that view, I find flexi staffing business sitting on a time bomb, where just one bad incident can wipe out entire year’s profitibility.
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Scale - While it looks like scale brings advantage, even the largest flexi staffing companies have no great advantage when it comes to EBITDA margin expansion compared to smaller players.
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Low Entry Barrier - Anyone can enter the business, however, scaling is very difficult. However, as of now, I dont see what advantage scale is bringing, as highlighted in point above.
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Tax incentives - Income Tax incentives by the Govt to hire new people in formal job industry for the first time helps, but will not last forever. Same thing applies to recently indroduced Pradhan Mantri Viksik Bharat Yogana, where companies will get financial incentives. These are good, but will not last for long.
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Pricing Power - PAPM (Per associate per month) are the charges that Temp Staffing compay charges from clients. This figure is either stagnant or reducing since last many years for the industry, indicating that industry has no pricing power.
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Acquisition History - is not great for the industry.
Positives:
- Operating Leverage - While I said that Scale does not seem to add anything to the bottomline, even 1 % increase in the margins can create wonders to the bottomline. Will this operating leverage will play out and why? I have no idea but its a wild card.
- Growth - Temp staffing industry is growing at 15% CAGR since last many years, and growth is expected to remain intact for many years ahead.
- New Labour Regulation - Recently announced New Labour regulations will help the industry consolidate further as compliance arbitrage will reduce for unorganized players.
- Huge Topline - This reconciles to point 1 above, where a small increment in margin can add massively to botoom line.
- Inflation - Inflation may help the industry if charging structure changes from fixed PAPM model to % Margin on associate costs.
- Ability to attract Workforce - Large companies have the ability to attract the workforce. Employees would like to be associated with brands where they think continuing contract will not be challenge.
- Valuations - look not demanding for the top players to ME as of now.
Disclosure - Tracking, no position
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A decent presentation on Temp Staffing in present at below link:
Few Specfic Slides for reference from the above presentation
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