Team Lease Services Ltd Upgraded to Hold as Financial and Quality Metrics Improve

Financial Trend Improvement Drives Upgrade

The primary catalyst for the rating upgrade is the marked improvement in Team Lease Services’ financial trend. The company’s financial trend score surged from a flat 1 to a robust 9 over the last three months, signalling a positive turnaround in operational performance. This shift is underpinned by the company’s December 2025 quarter results, which showcased significant growth in key profitability metrics.

Specifically, the Profit Before Tax excluding other income (PBT less OI) rose to ₹25.36 crores, representing a 38.28% increase quarter-on-quarter. The company also reported its highest-ever quarterly Profit After Tax (PAT) at ₹47.28 crores and an Earnings Per Share (EPS) of ₹24.88, the highest recorded to date. Additionally, the Debtors Turnover Ratio for the half-year stood at an impressive 23.64 times, indicating efficient receivables management and cash flow generation.

However, it is important to note that non-operating income accounted for 48.32% of the PBT, which may raise concerns about the sustainability of earnings from core operations. Despite this, the overall financial momentum has been strong enough to warrant a positive reassessment.

Quality Metrics Upgraded from Average to Good

Alongside financial improvements, Team Lease Services’ quality grade was upgraded from Average to Good, reflecting stronger operational efficiency and financial health over the medium term. The company’s five-year sales growth rate stands at a healthy 19.35%, while EBIT growth averaged 11.98% annually over the same period. These figures indicate consistent expansion and profitability improvement.

Further supporting the quality upgrade are robust capital structure metrics. The average Debt to EBITDA ratio is a low 0.68, and the Net Debt to Equity ratio is effectively zero, underscoring the company’s conservative leverage position. Interest coverage, measured by EBIT to interest expense, is strong at 12.15 times, signalling comfortable debt servicing capacity.

Return metrics also reinforce the quality assessment, with an average Return on Capital Employed (ROCE) of 18.46% and Return on Equity (ROE) of 13.84%. Institutional investors hold a significant 56.19% stake, reflecting confidence from knowledgeable market participants. The company’s tax ratio is modest at 3.82%, and pledged shares remain low at 1.61%, further supporting the quality profile.

Valuation Remains Attractive Despite Market Underperformance

Team Lease Services currently trades at ₹1,438.40, down 4.33% on the day and below its 52-week high of ₹2,499.00 but above the 52-week low of ₹1,358.00. The stock’s Price to Book Value ratio stands at a reasonable 2.5, suggesting fair valuation relative to its peers and historical averages.

Despite the attractive valuation, the stock has underperformed the benchmark indices significantly. Over the past year, Team Lease Services delivered a negative return of -38.85%, compared to a 6.44% gain in the Sensex. The three- and five-year returns are also deeply negative at -38.22% and -55.44%, respectively, while the Sensex posted gains of 36.94% and 64.22% over the same periods.

However, the company’s profits have grown by 34.6% over the last year, resulting in a low PEG ratio of 0.5, which indicates that the stock may be undervalued relative to its earnings growth potential. This valuation dynamic supports the Hold rating, as the market appears to be pricing in risks that may be mitigated by improving fundamentals.

Technical Indicators and Market Sentiment

From a technical perspective, the stock’s recent price action shows volatility, with a day’s trading range between ₹1,426.50 and ₹1,500.00. The previous close was ₹1,503.45, indicating some short-term selling pressure. The Mojo Score stands at 50.0, reflecting a neutral stance, while the Mojo Grade was upgraded from Sell to Hold on 5 February 2026.

The upgrade reflects a balanced view that acknowledges the company’s improving fundamentals but also recognises the stock’s historical underperformance and current market challenges. Investors are advised to monitor the stock’s price action closely, especially given the high institutional ownership which may influence volatility and liquidity.

Summary and Outlook

Team Lease Services Ltd’s upgrade to a Hold rating is a reflection of its improved financial performance, enhanced quality metrics, and reasonable valuation amidst a challenging market environment. The company’s strong quarterly results, highlighted by record PAT and EPS figures, alongside a conservative capital structure and solid institutional backing, provide a foundation for cautious optimism.

Nevertheless, the stock’s persistent underperformance relative to the Sensex and BSE500 indices over multiple time horizons tempers enthusiasm. Investors should weigh the company’s improving fundamentals against the broader market context and the stock’s technical signals before making investment decisions.

With a Mojo Score of 50.0 and a Hold grade, Team Lease Services appears poised for potential recovery but requires further confirmation of sustained earnings growth and market sentiment improvement to warrant a more bullish stance.

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