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Mixed performance with improving growth prospects in India business

Our view and valuation

Overall, mixed performance for the quarter. While revenue for the quarter was inline, EBITDA margin was below estimates. The growth trajectory remains intact as March'22 revenue run rate was almost 31% more than March'20 level. The growth 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. 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 estimate revenue CAGR of 15.8% over FY22‐FY24E, with average EBIT margin of 4.4%

We maintain BUY rating on the stock with revised target price of Rs 615/share, based on DCF valuation. The stock trades at PE of 15x on FY24E

Result Highlights

Reported revenue of Rs 26,480 mn( up 1.8% QoQ, up 8.3% YoY).  India Security grew 4.2% QoQ, broadly maintaining recent growth momentum; International Security was down 0.8% QoQ as certain holiday season related temporary contracts of Q3 ceased; and continued tapering of covid related quarantine contracts.  

Facilities management saw strong recovery with its revenue growing by 4.8% QoQ( up 30% YoY) as it won new contracts in Manufacturing, Healthcare, BFSI, e‐  Commerce.

India business was also impacted due to  3rd covid wave in Jan'22.

EBITDA margin was down 29 bps QoQ to 4.7% due to increase in expenses associated with customer related travel, staff training  and third party professional fees compared to FY21, when all these expenses were almost completely eliminated. The margin of international business is settling towards precovid level as temporary covid contracts with exceptional margins decline.

Net debt was down by Rs 310 mn QoQ to 6,870mn, with net debt/ EBITDA falling to 1.38x compared to 1.44x as of Dec'21.

Won a contract of Rs 2.26bn from Mahanadi Coalfields for India Security business.

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