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Strong recovery in India business

Our view

Overall, the performance was broadly as per expectation. It is set to benefit from rising penetration of security and facility management business in India and also the shift of business towards organized players. Also, the vendor consolidation would benefit large players such as SIS Ltd. Trades at EV/ EVITDA of 8.8x on FY24E EBITDA. We maintain BUY rating on the stock with unchanged target price of Rs 580/share.

Result Highlights

* Reported revenue of Rs 24.3bn( up 2.2% QoQ, up 13% YoY). The growth was led by strong performance in India Security business which grew 7.4% QoQ; and the Facility management( up 10.3% QoQ).  

* While, the  international security business had marginal declinein revenue of 3.7% QoQ due to decline in ad‐ hoc Covid business.

* EBITDA margin was flat QoQ at 5.1%. EBITDA in India Security has seen an impact due to normalisation of expenses on travel, hiring and additional expense in vaccination.

* PAT increased by 14.9% QoQ to Rs 684mn as the high tax rate which it faced in the recent quarters is reverting to the lower levels on the back of higher hiring.

* Net debt increased by Rs 0.5bn QoQ to Rs 6.5bn due to increase in DSO in the international business resulting from larger contract deployment during the quarter.

* Net debt/ LTM EBITDA increased to 1.27x from 1.25x in June'21.

Valuation

The stock trades at EV/EBITDA  of 8.8x on FY24E EBITDA. Recovery in Security and facilities management business in India provides strong revenue growth visibility. The EBITDA margin profile should improve going ahead led by normalization of business environment. We rollover to FY24E estimates and value the stock through DCF method, arriving at target price of Rs 580/share.

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