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Growth momentum intact in India business;
muted performance in International segment

Result Synopsis

SIS Ltd (SECIS) reported mixed financial performance for the quarter. While, the revenue growth was inline, EBITDA margin came in below estimates. It reported sequential revenue growth of 3.3% QoQ, led by India security business (up 8.5% QoQ) and Facilities management business( up 10.8% QoQ). There was sequential decline in EBITDA margin(down 54bps QoQ) due to dip in EBITDA margin of International business due to one off temporary factors. Net debt increased to Rs 8.4bn( vs Rs 7.4bn as of June'22), with increase in debt due to higher working capital on account of higher growth in India business.

The growth of SIS will be fueled by rising penetration of security and facility management business in India and the shift of market share from unorganized to organized players. The business performance remains resilient even during economic downcycles. Also, the vendor consolidation would benefit large players such as SIS Ltd. The EBITDA margin profile should improve going ahead led by normalization of business environment. We estimate revenue CAGR of 15.5% over FY22?24E with average EBIT margin of 3.9%. We maintain our BUY rating on the stock with revised target price of Rs 572/share based on DCF methodology. The stock trades at PER of 19.9x/14.2x on FY23E/FY24E EPS.

Result Highlights

* Reported revenue of Rs 27.7bn( up 13.9% YoY, up 3.3% QoQ), led by India security business (up 8.5% QoQ) and Facilities management business( up 10.8% QoQ). While, International Security business declined by 3.6% QoQ led by forex fluctuation and winding down of special covid19 related quarantine related contracts.

* EBITDA margin declined by 54 bps QoQ to 4%, with sequential decline in margin due to 169 bps QoQ decline in International business EBITDA margin. The decline in International business EBITDA margin was on the back of landmark wage increase in Australia and this decline is temporary phenomena which is caused by timing differences between the increase in wages and the contracted increase in the revenue and prices from clients.

* PAT for the quarter Q2 FY23 was Rs. 674 mn, which was down 18.3% q-o-q and down 1.4% on y-o-y basis.

* Net debt increased to Rs 8.4bn( vs Rs 7.4bn as June'22), with increase in debt due to higher working capital on account of higher growth in India business.

* Net debt/ EBITDA was 1.74x as of Sep 2022 vs 1.48x in June 2022.

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