Buy SIS India Ltd For Target Rs.570- Yes Securities Ltd
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Inline financial performance in the quarter; margin recovery on track
Result Synopsis
SIS Ltd (SECIS) reported inline financial performance for the quarter. The sequential revenue growth and EBITDA margin were as per expectation. It reported revenue growth of 11.1% YoY (up 3.3% QoQ), led by India security business (up 13.3% YoY, up 5.9% QoQ) and Facilities management business(up 11.8% YoY, up 1.7% QoQ) and International Security business (up 8.4% YoY, up 1.3% QoQ in cc terms). There was sequential improvement in EBITDA margin (up 03 bps QoQ) led by improvement in EBITDA margin of India Security segment by 30 bps QoQ. Net debt increased by Rs 0.7bn QoQ to Rs 10.5bn, on account of increase in working capital.
The growth of SIS 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. It has been gaining market share in Indian market growing at 1.5x the Industry growth rate. Also, the vendor consolidation would benefit large players such as SIS. The EBITDA margin profile should improve going ahead led by normalization of business environment. We estimate revenue CAGR of 14.8% over FY23?25E with average EBITDA margin of 5.1%. We maintain our BUY rating on the stock with unchanged target price of Rs 570/share based on DCF methodology. The stock trades at PER of 15.7x/10.4x on FY24E/FY25E EPS.
Result Highlights
* Reported revenue of Rs 30.7bn (up 11.1% YoY, up 3.3% QoQ), led by India security business (up 13.3% YoY, up 5.9% QoQ) and Facilities Management business (up 11.8% YoY, up 1.7% QoQ). International Security business increased by 1.3% QoQ in cc terms (up 8.4% YoY).
* EBITDA margin improved by 3 bps QoQ to 4.7%. The improvement in EBITDA margin was due to efficiency measures in India Security Segment as its EBITDA margin improved by 30 bps QoQ.
* PAT for the quarter Q2FY24 was Rs. 753 mn which was down 15.9% q-o-q and up 11.6% on y-o-y basis. The decrease in PAT was due to lower tax credit in the quarter.
* Net debt increased to Rs 10.5bn (vs Rs 9.8bn as Q1FY24), with increase in debt led by increase in working capital.
* Net debt/ EBITDA was 1.93x as of September 2023 vs 1.9x in June 2023.
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SEBI Registration number is INZ000185632
