Buy SIS Ltd for the Target Rs. 410 by Motilal Oswal Financial Services Ltd
Growth momentum intact
APS acquisition to drive 2H outlook
* SIS (SECIS)’s 2QFY26 revenue was up 15% YoY/5.9% QoQ at INR37.6b vs. our estimate of INR35.6b. Revenue growth was aided by ~5.7% growth in India security, whereas International Security/Facilities management posted a growth of 1.9%(CC)/5.9% QoQ. EBITDA margin came in at 4.5%, up 10bp YoY (vs. est. 4.7%). The margin for India Security was 5.3%, while the same for International Business was 3.3%, flat QoQ.
* Adjusted PAT stood at INR930m (flat QoQ). The net debt-to-EBITDA ratio stood at 1.03x (0.87x in 1Q). For 1HFY26, revenue/EBITDA grew by 14.2%/13.5% YoY. We expect revenue/EBITDA to grow 20.4%/23.1% YoY in 2HFY26. We reiterate our BUY rating on the stock with a TP of INR410, implying a 21% upside potential.
Our view: India business margins stay on course
* SIS delivered another strong quarter, with growth remaining broad-based across all three segments. We believe the India Security business will continue to anchor performance, supported by improving private sector demand and the ramp-up of key contracts. The revenue mix is steadily shifting toward India, now contributing ~65% of consolidated revenue and ~75% of EBITDA. This is a structurally positive trend, in our view, given its stronger growth and margin profile. We expect revenue growth of 21%/18% YoY for 3Q/4QFY26E, primarily driven by the APS acquisition and sustained momentum from the India business.
* We expect the recently acquired APS (17% of India Security revenue) to further deepen SIS’s presence across BFSI, logistics, and warehousing, with meaningful revenue and synergy gains likely from 3QFY26 onward.
* Facility Management sustained its healthy momentum and a 90bp margin improvement to 5.2%, aided by efficiency gains and a better client mix. We believe the segment remains on track to achieve ~6% EBITDA margins over the next few quarters. International Security also performed well, growing 19.3% YoY (the strongest organic growth in nearly a decade) driven by healthy client retention and new contract wins. Margins were steady at 3.3%, and we expect a gradual uptick toward the 4–4.5% range as restructuring and SG&A optimization efforts gain traction.
* Management reaffirmed its FY26 PAT guidance of ~INR 4000 mn, supported by inorganic growth and margin normalization. We believe SIS is wellpositioned to sustain its growth momentum, with an improving India mix, recovering international business, and potential value unlocking from the upcoming cash logistics IPO. We expect a gradual improvement, with EBITDA margins reaching 4.6%/4.7% in FY26/FY27.
Valuation and changes to our estimates
* We broadly retain our estimates. SECIS has relatively delivered better growth than its peers in 1HFY26, and we believe it shall continue the momentum in 2H as well, further aided by the APS acquisition.
* We value SECIS at INR410 (21% potential upside), assigning a 7x forward EV/EBITDA multiple to its international business and DCF to its Indian business. Reiterate BUY.
Beat on revenue but miss on margins; SIS acquires a 51% stake in APS
* SECIS’s revenue grew 15% YoY/5.9% QoQ at ~INR37.6b vs. our est. of INR35.6b.
* Revenue growth was aided by ~5.7% growth in India security, whereas International Security/Facilities management posted a 1.9% (CC)/5.9% growth YoY.
* EBITDA margin was 4.5%, up 10bp YoY (vs. est. 4.7%). The margin for India Security was 5.3%, while the same for International Business was 3.3%, flat QoQ.
* Consolidated reported PAT stood at INR807mn vs our estimate of INR1,149m. Adj. PAT stood at INR930m (flat QoQ). Reported PAT is adjusted for capital gains tax of INR123m due to the intergroup transfer of the 5.06% stake in SIS Australia Group Pty Ltd. from SIS Limited to SIS Australia Holdings Pty Ltd., as part of internal restructuring.
* Net debt amounted to INR6.6b from INR5.4b in 1QFY26. Net debt/EBITDA stood at 1.03x vs. 0.87x in 1QFY26.
* OCF/EBITDA on a consolidated basis was 6.3% for the quarter due to a nil income tax refund in 2QFY26 vs. INR786m in 1QFY26 and an increase in DSO by one day from 1QFY26.
* SECIS acquires a 51% stake in A P Securitas (APS). APS contributes ~17% to the Security Solutions’ India monthly revenue run rate.
Key highlights from the management commentary
* SIS reported consolidated revenue growth of 15% YoY and 5.9% QoQ. The consolidated monthly revenue run rate stood at INR 1,300 crore, the highest ever for the company.
* This marks the strongest revenue growth year in the last five years, with broadbased performance across all three business segments.
* Management indicated that 3Q is shaping up well, with strong momentum continuing across business lines. Two-thirds of the current growth is being driven by volume expansion rather than pricing, indicating robust demand and execution traction in the underlying business.
* The ratio of revenue and profit is shifting significantly toward India, with roughly 75% of EBITDA and 65% of consolidated revenue now coming from India.
* Management continues to focus on contract rationalization, SG&A efficiency, and quality of earnings.
* Management reiterated FY26 PAT guidance of ~INR 400 crore, supported by revenue growth and margin normalization across segments.
* SIS completed the acquisition of a 51% stake in A P Securitas. APS will start consolidation from 3QFY26.
* Cash logistics IPO remains on track and will unlock value for shareholders. The proceeds will be primarily used for debt reduction and lowering interest costs.
Valuation and view
* With the liberalization and formalization of labor markets and laws, SECIS should be among the biggest direct beneficiaries. It has managed to gain market share during the last few years, and the trend is expected to continue.
* We value SECIS using SOTP: 1) DCF for the India Security business (INR212), 2) an EV/EBITDA multiple of 7x (INR124) for the International Security business, and 3) DCF for the FM business (INR124) less net debt (INR47). Consequently, we arrive at our TP of INR410. We reiterate our BUY rating on the stock.
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