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Our view

Despite this being soft quarter on account of impact from 2nd covid wave, the outlook remains positive due to low formalisation of the business and ongoing shift from unorganised to organised players. SIS has a strong brand recall in the market. It is the largest player in India and has ~21% market share in Australia.  At CMP of Rs 481, it trades at EV/EBITDA OF 9.5x which is attractive considering strong growth outlook. We maintain BUY rating on the stock with DCF based target price of Rs 580.

Result Highlights

* Reported revenue of Rs 23,793 mn (slightly below estimate, down 2.7% QoQ) mainly due to impact of 2nd covid wave on India security business. Overall, On YoY basis, revenue was up 9.8%. India Security business‐ down 2.3% QoQ (up 2.6% YoY). It has seen good uptick in June with opening of economy. International business which benefited from certain temporary covid contracts in previous quarters saw degrowth of 4.2%WoQ (up 17.7% YoY)

* Facilities management which was the most impacted in FY21 continued sequential recovery showing 3.1% QoQ growth (up 4.2% YoY). Cash logistics which is a JV business showed 15.6% QoQ decline due to covid impact on retail segment and portfolio rationalisation (but up 17.4% YoY.)

* EBITDA margin was stable at 5.1% led by cost optimisation despite one off cost involved in vaccination of employees  

* Net debt increased from Rs 375 cr to Rs 601.6 crore QoQ on account of cash outflow due to balance stake purchase of Henderson and Uniq (Rs 177 cr) and share buyback (Rs 124 cr). The net debt/ EBITDA remains at comfortable level of 1.15x. DSO for India security business has increased to 74 days from 68 in March’21 quarter. The management expects it to come down to historical levels

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