IGI Logo

Resilient then; on growth path now

SIS India (SIS) reported in-line Q2FY22 results that demonstrated resilience as well as participation in recovery. Revenue was up ~13% YoY and performance was broad-based across segments. The facility management recovery especially looks promising, and operating leverage should particularly play out the highest thereof.

We expect margins to revert to mean levels, viz., ~6% for India Security and 5–5.5% for the Australia business. FY21 marked resilience for SIS (one of the few companies that grew), and FY22 and beyond SIS should be able to participate in economic growth. Retain ‘BUY’ with unchanged estimates and TP of INR600.

Q2FY22 results a combination of resilience and growth

SIS reported 12.7% YoY/2.2% QoQ growth in consolidated revenue, led by a steady performance in all segments. The India security business reported 12.6% YoY/7.4% QoQ revenue growth, whereas facility management grew 31% YoY/10% QoQ, hinting at strong recovery. International business too performed well, despite ad hoc covidrelated contracts tapering off. On the margin front, India security business margins contracted to 4.1%, due to several operating expenses reverting to normal levels, not to mention new hires and business development-related costs. However, SIS hinted at achieving the normal 5.5–6% margins in coming quarters.

Shock-proof in FY21; growth-oriented otherwise

SIS is one of the handful businesses that grew during covid-impacted FY21. That essentially displayed its recession- or shockproof business model that is Security Services-based. As recovery and growth come back in the economy, we expect SIS to now participate in the domestic growth cycle. Encouragingly, facility management, which is more sensitive to economic cycles, is showing clear signs of recovery. We expect operating leverage to play out for both India Security and FM business. In the international security segment, while ad hoc contracts should taper off and margins should also revert to 5–5.5%, its cash generation should continue to be strong.

Outlook and valuation: Inherently resilient, retain ‘BUY’

We continue to be bullish on structural growth opportunities that SIS’s businesses offer. We retain our estimates and TP of INR600. Our DCF-based TP assumes WACC of 11.5% and terminal growth of 5%, and implies FY23E PE of 26x. Maintain ‘BUY’.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.edelweiss.in/disclaimer
SEBI Registration No. INH000000172

Above views are of the author and not of the website kindly read disclaimer