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SIS Ltd is engaged into security services business (overseas as well as domestic), facility management services business in India and in Cash Logistics business that it runs under a JV (51:49) with Prosegur of Spain. SIS is #1 player in Australia Security services market as well as in Indian security services market. In case of domestic Facility Management (FM) services business as well as in cash logistics business it is ranked #2 in India.

For FY21, overseas security services business formed 50% of revenue and 56% of EBITDA, Indian security services business formed 30% of revenue and 36% of EBITDA and FM services business present only in India formed 20% of revenue and 7% of EBITDA. Revenue, EBITDA and PAT for FY21 stood at INR 91.3bn, 5.2bn, and 3.7bn respectively growing at CAGR of 16%, 19% and 31 % respectively over the last 4 years.

Dominant Position across all verticals

In overseas market, it is the market leader with ~ 20% share in Australian Security Services market. In domestic businesses, SIS is a leading player despite having low single to mid-single digit market share as unorganised sector has huge presence.

Huge addressable potential in India with shift from unorganised to organised markets

Unorganised market is quite prevalent in India with ~ 60% of domestic security services segment being unorganised & ~ 70% in case of Facility Management Services. This provides huge growth potential for organised players like SIS as regulatory requirement compliance (PSARA, GST implementation & PF requirements) should result into gradual reduction of unorganised segment. In matured markets like Australia, organised sector's share in Security Services market stands at 60%.

Successful integration of acquired entities across

SBUs in the company's operations SIS has robust track record of integration of acquired entities across SBUs, be it overseas or domestic security business or Facility Management business. This has resulted into acceleration of overall business growth in addition to robust organic growth. Its payout has normally been in the range of 6 to 8x EV/EBITDA for businesses that it has acquired so far.

Outlook & Valuation

Despite being a dominant player in its India - Security services as well as Facility Management businesses, SIS is still scratching the surface in these markets as unorganised sector is quite prevalent. Successful track record of integration of acquired entities provides decent growth platform in addition to robust organic growth. Revenue & EBITDA is estimated to compound at 11 % & 15% respectively during FY21-23 and we initiate coverage with BUY rating and PT of 550 (25x FY23E EPS).

Key Risks

* Forex volatility particularly in relation to INR-AUD exchange rate

* Labour management in the light of huge workforce employed with the company

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