Strategy

Market outlook

Mahesh Nandurkar Jobs - A manageable concern

mahesh.nandurkar@clsa.com 3.7% jobs creation in organised sector is comforting
+91 22 6650 5079
Reliable high-frequency jobs data is not available, and hence the jobs
Abhinav Sinha scenario is open to interpretations. Our analysis of listed companies
+91 22 6650 5069 universe (5m employee base) shows that jobs growth has been good at
3.7% during FY17. Given the trend of more outsourced jobs for non-core
Alok Srivastava purposes, the real jobs growth could be higher than this for the corporate
+91 22 6650 5037 ecosystem. This shrinking contributor of the GDP has generated attractive
jobs growth, which implies that economy-wide jobs creation cannot be
too bad. Financial inclusion-driven consumer credit growth in Tier-2/3
towns is one of the key jobs driver where the growth should be
28 September 2017
structural. At the absolute bottom of the pyramid, jobs growth revival will
India need housing construction, which we believe is in the offing. With India
selling 20m+ cars and two-wheelers in a year, we believe the problem of
Market Strategy lack of jobs creation could be exaggerated.

Key employment statistics How good is 3.7%? Quite good

q Indias total working class is about 500m and nearly 220m of these are engaged in
Number of listed agriculture. Agriculture is not creating jobs anymore; in fact, its shedding jobs.
companies covered : 916 q About 10m people are entering the job market in India every year. On a non-
farming working class base of 280m, its 3.6%.
Total employee base : q In other words, a potential non-farming jobs growth of 3.6% will create full
5.2m employment for all the young entering the working class an ideal number.
q In that context, listed companies jobs growth of 3.7% is respectable.
Average wage :
Rs1.02m/year
BFSI/outsourced services driving jobs creation
Growth in FY17 : 3.7% or q Among the listed companies, which account for over 5m headcount, the services
187,803 sector (61% of total headcount) drove the entire growth of job creation as
manufacturing headcount declined by 0.6%.
Growth over the last five q While the IT sector growth seems to be decelerating in FY18, growth in private
years : 3.2% Cagr or financial/NBFCs could offset that. Private Financials employ 0.55m employees and
150,529/year grew 11% in YoY in FY17.
q Growth in outsourcing of security personnel, housekeeping staff, etc, has resulted
in the employee base of Teamlease, SIS and Quess growing to more than 0.4m.

Potential revival in housing construction can add 2m jobs/year

q We estimate that housing construction currently employs about 25m people and
this number has remained stagnant over the last five years as housing stagnated.
In fact, L&Ts contractual staff declined from 411,604 to 282,311 over the last two
years largely due to real-estate slowdown.
q We believe the expected revival of housing construction helped by best-in-a-decade
affordability and Government push can create 2m jobs/year.

Trend in job creation in listed space in India

8 Total job creation in listed companies, % YoY

% YoY
7

0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
www.clsa.com Source: Capitaline, Bloomberg, Companies, CLSA

Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
For important disclosures please refer to page 12.
 
  
 Jobs - A manageable concern Strategy

c.50% of India still employed in agri which is shedding jobs

Figure 1

Employee base, ex of Split of employees by broad segments in FY12

agriculture, is about
250m Other services
11%
Agriculture is a net
shedder of jobs
Trade, hotels,
trans, comm.
16%
Agriculture
47% 473m
Constr.
11%

Elect, water
1% Manuf. Mining
13% 1%
Source: NSSO Survey

Figure 2

Of the 74m new jobs Job creation over 10 years (FY00-FY12)

created over FY00-12,
40 Job creation
construction accounted
m
for 40%+ jobs; agri
continued to lose jobs 30

20

10

(10)

(20)
Agri Mining Electricity Other Manuf. Trade, Const
Services hotels
Source: NSSO, CLSA. Note: Electricity includes water, mining includes quarrying and trade, while hotels
includes transport and communication

Need to create 10m jobs/year or 3.6% of non-agri job base

Figure 3

We believe job creation Trend in jobs created and labour supply in India per year
would continue at same
level, but labour supply 12 Jobs created Labour supply
m
has increased leading to 10 10
higher unemployment 10

8
6 6 6
6
6 5
5
5 4
4 4
4

0
FY78-83 FY83-88 FY88-94 FY94-00 FY00-12 FY12-16 FY16-20
Source: NSSO, CMIE, CLSA; CLSA estimates beyond FY12

28 September 2017 mahesh.nandurkar@clsa.com 2

 
  
 Jobs - A manageable concern Strategy

3.7% job growth in listed space in FY17 is encouraging

Figure 4

Employment growth in Trend in job creation in listed space in India

FY17 of 3.7% is only
marginally lower than 8 Total job creation in listed companies, % YoY
% YoY
that of FY16 and better
than that seen over FY13- 7
15
6

0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Capitaline, Bloomberg, Companies, CLSA

despite this being a shrinking portion of the economy

Figure 5

Corporate revenue as a % Revenues as a % of GDP

of GDP has declined to the
lowest in several years 45 % Revenues as a % of GDP
40
40 38 38 37
36 35 36
35
35 31
30 29
30

25

20

15

10

0
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Bloomberg, CLSA; For BSE500 companies

Figure 6

Corporate profit as a % of Profit as a % of GDP

GDP also remains low
7 % 6.5 Profit as a % of GDP
5.8
6
5.2 5.2
5 4.7 4.7
4.2 4.0
4
3.1 3.0
3 2.7

0
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Bloomberg, CLSA; for BSE500 companies

28 September 2017 mahesh.nandurkar@clsa.com 3

 
  
 Jobs - A manageable concern Strategy

Wage growth has slowed down

Figure 7

Like-for-like wage growth Trend in increase in cost per employee for BSE500 companies
would be about 3ppts
higher at about 8% due 25 % YoY Increase in cost per employee Rs m 1.2
to the pyramid shift Cost per employee, Rsm (RHS)
impact 1.0
20 19.2
17.2
16.3
0.8
15
12.5
10.4 0.6
12.1
10 8.8 8.8
6.9 6.5 0.4
4.8 5.4
5
0.2

0 0.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Capitaline, CLSA

with low-end BFSI and outsourced jobs being key drivers

Figure 8

Financials and IT together Employment breakdown in listed space by sectors, FY17

account for more than
Telecom Utilities Real Estate
45% of jobs in listed Health 1.2% 1.0% 0.1% Pvt Financials
space in India Care 10.6%
5.4% Staples
6.1%

Materials Public
6.2% Financials FY17- 5.2m
14.3% employees
Industrials
6.7%

Outsourced job IT
services 20.8%
7.6%
Consumer
Energy Discretionary
8.3% 11.5%

Source: Capitaline, Bloomberg, Companies, CLSA; based on a list of over 900 companies in listed space;
Outsourced job services companies are Quess Corp, Team Lease and SIS

Figure 9

Outsourced job services Increase in headcount by sectors, FY17

and private financials are
ahead of other sectors in Outsourced job services 22
job growth in FY17 Private Financials 11
Information Technology 6
Total 4
Health Care 4
Consumer Discretionary 3
Public Financials 2
Materials (0)
YoY increase in headcount
Industrials (2) in FY17
Energy (2)
Consumer Staples (3)
Utilities (4)
Real Estate (7)
% YoY
Telecommunication Services (9)

(15) (10) (5) 0 5 10 15 20 25

Source: Capitaline, Bloomberg, Companies, CLSA; based on a list of over 900 companies in listed space

28 September 2017 mahesh.nandurkar@clsa.com 4

 
  
 Jobs - A manageable concern Strategy

Figure 10

Outsourced services, Contribution of different sectors to job creation in FY17*

private financials and IT
Health Care
are the key contributors
4% Based on gross
to job growth in FY17
addition of 0.22m jobs
in these sectors

Outsourced Pvt Financials

job services 25%
32% Public Financials
6%

Consumer IT
26%
Discretionary
7%
Source: Capitaline, Bloomberg, Companies, CLSA; *Other sectors have seen decline in headcounts. Gross
additions in the above sectors is 0.22m and for all sectors is 0.18m.

Manufacturing and public sector are seeing job losses

Figure 11 Figure 12

Private and public sector split of employment growth Manufacturing and services split of employment growth

YoY increase in headcount in FY17 YoY increase in headcount in FY17

6 % 8 %
5.1 6.8
5 7
6
4
5
3 4
2 3
1 2
1
0 (0.6)
0
(1) (0.2)
(1)
Public sector Private sector Manufacturing Services

Share in Share in
25% 75% 39%
employment employment 61%

Source: Capitaline, Bloomberg, Companies, CLSA; for listed space Source: Capitaline, Bloomberg, Companies, CLSA; for listed space

Figure 13

Bulk of jobs in last decade Trend in employment growth in public and private sector
or so has been created by
the private sector % Job creation in public sector, % YoY
14 Job creation in private sector, % YoY
12
10
8
6
4
2
0
(2)
(4)
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Capitaline, Bloomberg, Companies, CLSA; for listed space

28 September 2017 mahesh.nandurkar@clsa.com 5

 
  
 Jobs - A manageable concern Strategy

Outsourced job services are seeing strong growth

Figure 14

Largest employers in India in listed space as of FY17

500
'000s Number of employees as of FY17
450

400 Ques

350

300

250 Ques

200

150

100 Ques

50

0
Quess+Team TCS Coal India SBI Infosys Wipro Tech HDFC Bank ICICI Bank
Lease+SIS Mahindra

Source: Companies, CLSA

Figure 15 Figure 16

Trend in employees with Team Lease Trend in employees with Quess Corp
160,000 200,000
Team Lease Quess Corp
# of 180,000 # of
140,000 employees employees
160,000
120,000
140,000
100,000 120,000
80,000 100,000

60,000 80,000
60,000
40,000
40,000
20,000 20,000
0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Source: Company Source: Company

Figure 17

SIS has also entered the Trend in number of security guards employed by Securities and Intelligence
cleaning services space Services (SIS)
recently
Number of security guards employed by SIS

100,000 94,281
90,000 81,685
80,000 72,953
66,522
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
FY14 FY15 FY16 FY17
Source: Company

28 September 2017 mahesh.nandurkar@clsa.com 6

 
  
 Jobs - A manageable concern Strategy

But L&Ts contractual workers have declined due to

weakness in property market
Figure 18

Most of L&Ts contractual Trend in L&Ts contractual employees

workers are employed in
real-estate construction L&T contractual employees
projects 450,000 411,604
382,472 384,132
400,000
350,000
301,311
300,000 282,311

250,000
200,000
150,000
100,000
50,000
0
FY13 FY14 FY15 FY16 FY17
Source: Company

though improved housing affordability and govt support

could lead to property market revival
Figure 19

Low mortgage rates have Affordability trend (Mortgage payment to post-tax income ratio) for Rs3m
taken affordability to the apartment
best levels in several (%)
60
years
50
41
39
40 36
33 34 34 32
32 30
30 30
28
30 27 27 26
24 23 22
20

10

0 FY18CL
FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: HDFC, SBI, CLSA

Figure 20

Rising government Budgetary allocations and spending by Central government on Housing for All
support for Housing for
350 PMAY - Rural PMAY - Urban
All could lead to
construction sector (Rsbn)
300
revival in India
60
250
58% Cagr
200
49
150
11 15 230
100
160
130
50 111 101
79

0
FY13 FY14 FY15 FY16 FY17RE FY18BE
Source: Ministry of Finance

28 September 2017 mahesh.nandurkar@clsa.com 7

 
  
 Jobs - A manageable concern Strategy

Figure 21

Top companies with highest increase/decrease in headcount in FY17

Top increase Top decline
Company Net change in number of employees Company Net change in number of employees
TCS 33,380 Coal India (8,575)
Team Lease 30,651 Firstsource Solutions (7,552)
Quess Corp 28,209 McLeod Russel (4,453)
Wipro 14,111 Jubilant Life (3,794)
SIS 12,596 HDFC Bank (3,230)
HCL Tech 12,582 MTNL (3,151)
ICICI Bank 8,954 Allcargo Logistics (3,060)
Axis Bank 6,482 Heritage Foods (2,657)
Infosys 6,320 BHEL (2,377)
Apollo Hospitals 6,190 Rel. Comm. (2,319)
AU Small Finance 5,353 Cyient (2,117)
Yes Bank 5,125 Voltas (1,992)
Bajaj Fin. 4,085 Larsen & Toubro (1,888)
Tech Mahindra 3,663 Dabur India (1,770)
Apollo Tyres 3,371 DCM (1,682)
Welspun India 3,219 HCL Infosystems (1,542)
Punjab Natl. Bank 3,118 HUL (1,453)
Amara Raja Batt. 3,068 Sanghvi Movers (1,342)
Syndicate Bank 2,892 Reliance Capital (1,324)
IndusInd Bank 2,254 TajGVK Hotels (1,298)
Interglobe Aviation 2,242 ITI (1,177)
Satin Creditcare 1,937 Jubilant Food. (1,115)
Bharat Financial 1,933 Cipla (1,050)
State Bank of India 1,828 NTPC (1,040)
Indiabulls Housing 1,816
Finance
Source: Capitaline, Companies, CLSA; Quess Corp number adjusted for acquisitions, others are reported numbers

28 September 2017 mahesh.nandurkar@clsa.com 8

 
  
 Jobs - A manageable concern Strategy

Appendix Jobs data unreliable and infrequent

Figure 22

Rising trend in Unemployment rate in India

unemployment reflects
rising labour supply, in 6.0 Unemployment rate (%)
our view 5.0
4.9
5.0 4.7

4.0 3.8

3.0

2.0

1.0

0.0
FY12 FY13 FY14 FY16

Source: Labour Bureau, Government of India; Data not available for FY15 and FY17

Figure 23

Labour bureau data based Change in employment in key sectors in India

on select industries
800 ('000) QoQ Change in employment
shows a slowdown in jobs
creation 600

400

200

(200)

(400)

(600)
Dec 08

Jun 09

Dec 09

Jun 10

Dec 10

Jun 11

Dec 11

Jun 12

Dec 12

Jun 13

Dec 13

Jun 14

Dec 14

Jun 15

Dec 15

Jun 16

Dec 16

Source: Labour Bureau, Government of India

Figure 24

This data series shows a Trend in unemployment rate as per CMIE-BSE survey
divergence with the
annual series shown 12 Unemployment Rate (%)
above
10

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
16 16 16 16 16 16 16 16 16 16 16 16 17 17 17 17 17 17 17 17
Source: CMIE-BSE

28 September 2017 mahesh.nandurkar@clsa.com 9

 
  
 Jobs - A manageable concern Strategy

Figure 25

IT sector hiring was at its Trend in hiring in Indian IT sector

weakest in 1QFY18
35,000 Quarterly IT hiring 25.0
% YoY headcount change, RHS
30,000
20.0
25,000

20,000 15.0
15,000

10,000 10.0

5,000
5.0
0

(5,000) 0.0

Source: Based on data of TCS, Infosys, Wipro and HCL Tech

Figure 26

Naukri jobspeak index Trend in Naukri Jobspeak index

does not show an
50 Naukri jobspeak index (% YoY)
encouraging trend %
3mma %
40

30

20

10

(10)

(20)
Nov 14

Nov 15

Nov 16
Jul 14

Sep 14

Jul 15

Sep 15

Jul 16

Sep 16

Jul 17
Mar 14

May 14

Mar 15

May 15

Jan 16

Mar 16

May 16

Mar 17

May 17
Jan 14

Jan 15

Jan 17

Source: Info Edge

28 September 2017 mahesh.nandurkar@clsa.com 10

 
  
 Important disclosures Strategy

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Companies mentioned
Allcargo Logistics (N-R)
Amara Raja Batteries (N-R)
Apollo Hospitals (APHS IB - RS1,004.4 - BUY)
Apollo Tyres (N-R)
AU Small Finance (N-R)
Axis Bank (AXSB IB - RS505.5 - O-PF)
Bajaj Finance (N-R)
Bharat Fin Inclusion (N-R)
Bharat Heavy Elec (BHEL IB - RS82.9 - SELL)
Cipla (CIPLA IB - RS569.8 - BUY)
Coal India (COAL IS - RS260.9 - U-PF)
Cyient (N-R)
Dabur (DABUR IS - RS305.8 - O-PF)
DCM (N-R)
Firstsource Solutions (N-R)
HCL Infosystems (N-R)
HCL Tech (HCLT IB - RS874.9 - BUY)
HDFC (HDFC IB - RS1,719.0 - BUY)
HDFC Bank (HDFCB IB - RS1,775.7 - BUY)
Heritage Foods (N-R)
Hindustan Unilever (HUVR IB - RS1,203.7 - O-PF)
ICICI Bank (ICICIBC IB - RS276.3 - BUY)
Indiabulls Housing (IHFL IS - RS1,223.1 - BUY)
IndiGo (N-R)
IndusInd Bank (IIB IS - RS1,668.0 - BUY)
Info Edge (INFOE IS - RS1,029.1 - SELL)
Infosys (INFO IB - RS898.6 - BUY)
ITI (N-R)
Jubilant Food (JUBI IN - RS1,373.3 - BUY)
Jubilant Life (N-R)
L&T Tech (LTTS IS - RS771.8 - BUY)
Larsen & Toubro (LT IB - RS1,132.8 - BUY)
McLeod Russel (N-R)
MTNL (N-R)
NTPC (NTPC IS - RS165.0 - BUY)
PNB (PNB IB - RS132.8 - SELL)
Quess Corp (N-R)
Reliance Capital (N-R)
Reliance Comm (RCOM IB - RS19.9 - SELL)
Sanghvi Movers (N-R)
Satin Creditcare (N-R)
Securities and Intelligence Services (N-R)
State Bank of India (SBIN IB - RS250.4 - BUY)
Syndicate Bank (N-R)
TajGVK Hotels (N-R)
Tata Consultancy (TCS IB - RS2,490.2 - BUY)
Team Lease (N-R)
Tech Mahindra (TECHM IB - RS449.9 - SELL)
Voltas (VOLT IS - RS512.5 - SELL)
Welspun India (N-R)

28 September 2017 mahesh.nandurkar@clsa.com 11

 

 
 Important disclosures
Wipro (WPRO IB - RS288.6 - O-PF)
Yes Bank (YES IB - RS353.4 - BUY)
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Strategy
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 Important disclosures
publication of the report. Save from the disclosure below
(if any), the analyst(s) is/are not aware of any material
conflict of interest.
Key to CLSA/CLST investment rankings: BUY: Total
stock return (including dividends) expected to exceed
20%; O-PF: Total expected return below 20% but
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Overall rating distribution: BUY / Outperform - CLSA:
64.52%; CLST only: 67.61%, Underperform / SELL -
CLSA: 35.48%; CLST only: 32.39%, Restricted - CLSA:
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Investment banking clients as a % of rating category:
BUY / Outperform - CLSA: 4.77%; CLST only: 0.00%,
Underperform / SELL - CLSA: 2.98%; CLST only: 0.00%,
Restricted - CLSA: 0.00%; CLST only: 0.00%. Data for
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 Important disclosures
to form an investment opinion about the non-rated
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 Important disclosures
Singapore: In Singapore, research is issued and/or
distributed by CLSA Singapore Pte Ltd (Company
Registration No.: 198703750W), a Capital Markets
Services licence holder to deal in securities and an
exempt financial adviser, solely to persons who qualify as
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queries on the report. MCI (P) 033/11/2016
The analysts/contributors to this
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MSCI-sourced information is the exclusive property of
Morgan Stanley Capital International Inc (MSCI). Without
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prior written permission of MSCI, this information and
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Co. "CL" in charts and tables stands for CLSA and CT
stands for CLST estimates unless otherwise noted in the
source.
15