Once a darling of foreign institutional investors (FIIs), TeamLease has seen its FII ownership plunge from 42% in June 2022 to just 11% now. Meanwhile, domestic institutional investors (DIIs) are taking a contrarian stance, raising their stake from 16% to 48% over the same period.

This divergence raises a key question: Is TeamLease still a solid bet amid mounting headwinds in specialized staffing, particularly IT?

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Staffing company, or a proxy for Indian IT?

Founded in 2001, TeamLease has grown into one of India’s largest staffing firms, commanding a 6% market share. It has placed over 2.3 million workers across 3,900 clients and operates in 28 states, building a strong reputation with a diverse client base.

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The company went public in 2016 and swiftly pivoted to IT staffing through a series of acquisitions. It snapped up ASAP Info Systems and Nichepro Technologies that year, followed by Keystone Business Solutions and Freshers World in 2017. In 2019, it further bolstered its IT staffing arm by acquiring the IT infrastructure divisions of Ecentric and IMSI. By 2021, TeamLease had positioned itself as the largest IT staffing firm in India.

Yet, IT staffing is only a small slice of its business. General staffing–covering sectors like BFSI, FMCG, consumer durables, and telecom–accounts for 93% of revenues but is intensely competitive and carries slim margins. The company’s per-associate-per-month (PAPM) margin in general staffing has slipped from ₹744 in FY18 to ₹670 as of December 2024.

In contrast, specialized staffing, which includes IT staffing, represents just 5% of revenues but drives margins. General staffing historically has fetched a 3% gross margin, while IT staffing delivers a far healthier 16%. In the first nine months of FY25 (9MFY25), the Ebitda margin in specialized staffing stood at 7%, compared to just 1% in general staffing.

This disparity explains why TeamLease’s stock performance is so closely linked to the fortunes of the IT sector.

Specialized staffing sputters as IT, apprenticeships falter

The two pillars of TeamLease’s high-margin specialized staffing segment– IT staffing and Degree Apprenticeship (DA)–are both struggling against regulatory and industry headwinds.

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During the post-pandemic digitization boom, the IT sector was on a hiring spree, driving a 33% revenue surge for TeamLease in FY22. But soon after, inflation concerns took over, and the US Federal Reserve raised rates at the most aggressive pace seen in decades. This spelt bad news for Indian IT, which derives more than half of its revenues from exports to the US. It also came to light that Indian IT majors had over-hired.

Quarter after quarter of layoffs followed, and hiring at Indian IT firms remains a shadow of the post-pandemic surge. TeamLease’s DA programme also took a hit with the discontinuation of the National Employability Enhancement Scheme (NEEM) in December 2022.

Consequently, even as TeamLease’s general staffing headcount rose from 220,00 in Q4FY23 to 300,000 in Q3FY25, its specialized staffing numbers fell from 8,600 to 6,700 during the period.

The first nine months of FY25 saw general staffing revenues grow by 22% year-on-year, while revenue from specialized staffing declined by 2%. Overall revenue growth for the company has slowed progressively, from 33% in FY22 to 19% in FY25 so far. Its operating margins have also shrunk to just about 1%.

No cheer in the new year

The stock had briefly recovered between 2023 and 2024, buoyed by hopes of a US monetary easing cycle and a potential IT sector rebound. But that optimism didn’t translate into hard numbers for TeamLease. The company’s fundamentals remained weak as hiring in the IT sector failed to pick up.

Matters have only worsened in 2025.

Tariff-led inflation and policy uncertainty have weighed on corporate spending in the US, prolonging the slump in Indian IT. This has coincided with seasonal weakness in the edtech space and appraisal cycles for its core employees. The implementation of the New Education Policy also delayed admissions and billing, further straining profits.

Consequently, Ebitda margin for its other HR services turned negative, from 6.7% in 9MFY24 to (-)7.2% in the 9MFY25.

Overall Ebitda margin shrank from 1.5% to 1.2% between Q3FY24 and Q3FY25. Despite a 19% growth in revenues to ₹2,931 crore, its operating profit declined 3% year-on-year to ₹35 crore and net profit saw a 9% fall during the period.

But the road ahead holds promise

The company is set to announce its Q4 earnings on 21 May.

As new clients are onboarded under a variable mark-up model and automation and cost-cutting measures take effect, margins may see some support. Sustained growth in general staffing and expansion into global capability centres (GCCs) are also expected to mitigate ongoing IT sector stress.

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Losses due to NEEM discontinuation have been recouped already, while the National Apprenticeship Promotion Scheme (NAPS) and Work Integrated Learning Program (WILP) have helped increase the headcount for its DA programme by more than 2,000 in FY25 so far.

Moreover, as per TeamLease’s Apprenticeship Outlook Report for the quarter ended March 2025, net apprenticeship outlook has increased 8% sequentially to 76%, driven primarily by sunrise sectors such as drones, electric vehicles (EVs), and GCCs, a promising sign for future DA growth.

Additionally, over the medium-to-long term, stress in the IT sector can be expected to moderate, further contributing towards increasing the share of specialized staffing services at the company.

Recently, TeamLease also announced acquisition of 80% stake in Ikigai Enablers Pte. This should help it expand its specialized staffing business in Singapore and Middle East. It also purchased 90% and 30% stakes respectively in TSR Darashaw HR Services and Crystal HR, which should help further its foray into HR Tech. These acquisitions have been funded by internal accruals, thereby lending confidence to investors, especially considering muted margins in recent years.

This is to say that over the longer term, the outlook appears brighter as regulatory winds turn favourable and specialized staffing picks up pace.

For more such analyses, read Profit Pulse.

For now, the focus will remain on monitoring the share of specialized staffing, margins, and the integration of recent acquisitions. TeamLease’s strong balance sheet, characterized by low debt and comfortable working capital, should provide some cushion as it navigates near-term headwinds.

Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment advisor.

Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.