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Result Synopsis
SIS Ltd (SECIS) reported inline financial performance for the quarter. Both, the revenue growth and EBITDA margin were inline with estimates. It reported sequential revenue growth of 4.9% QoQ, led by India security business (up 4.7% QoQ) and Facilities management business( up 5.3% QoQ) and International Security business(up 5.0% QoQ).There was sequential improvement in EBITDA margin(up 39bps QoQ) due to completion of price revisions with customers in the international business and focus on efficiency measures across segments. Net debt increased to Rs 9.9bn( vs Rs 8.4bn as Sep'22), with increase in debt due to higher working capital 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 14.8% over FY22?24E with average EBITDA margin of 4.8%.We maintain our BUY rating on the stock with revised target price of Rs 550/share based on DCF methodology. The stock trades at PER of 16.1x/12.3x on FY23E/FY24E EPS.

Result Highlights

* Reported revenue of Rs 29.0bn (up 11.7% YoY, up 4.9% QoQ), led by India security business (up 4.7% QoQ) and Facilities Management business (up 5.3% QoQ). International Security business increased by 5.0% QoQ.
* EBITDA margin improved by 39 bps QoQ to 4.4%. Both revenue and margins from international security business bounced back to normal levels. The improvement in EBITDA margin was due to completion of price revisions with customers in the international business and focus on efficiency measures across segments.
* PAT for the quarter Q3 FY23 was Rs. 1,034 mn which was up 53.4% q-o-q and up 2.7% on y-o-y basis. The steep increase on sequential basis was due to tax credit of Rs 410 mn in the quarter.
* Net debt increased to Rs 9.9bn (vs Rs 8.4bn as Q2FY23), with increase in debt due to higher working capital and on account of share buyback.
* Net debt/ EBITDA was 2.1x as of Dec 2022 vs 1.8x in Sept 2022.

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