SIS - SIS LIMITED Share Price

Management Outlook and Key Points:

Outlook:

• Growth Target: Aim to grow at 2x India's GDP, targeting a ~15% CAGR historically, driven by volume expansion and potential recovery in wage-linked pricing post-labor code reforms.
• Margin Improvement: Focus on restoring pre-COVID EBITDA margins (India Security: 6%+, FM: 6%+, International: 4.5%) through better contract terms, SG&A optimization, and operational efficiency via IT platforms (MySIS, SISCore).
• Debt Reduction: Net debt reduced to Rs.632 crore (lowest in 3 years) with a net debt/EBITDA ratio of 1.07; further deleveraging planned via cash flow and potential monetization of Cash Logistics (IPO in progress).
• Cash Logistics: 84% revenue now non-ATM; unlocking value via IPO while scaling PAT to ~8% margins.
• International Expansion: Strategic focus on Australia/New Zealand (seasonal events, defense contracts) and Singapore (regional hub opportunities); margin recovery to 4.5% targeted with labor market easing.
• Tech Integration: Solutions like VProtect (security tech) and outcome-based FM contracts to drive non-linear growth without headcount dependency.

Key Highlights (Q3 FY25):

• Revenue Growth: Consolidated revenue up 9.4% YoY to Rs.3,363 crore (all segments grew: India Security +7.7%, FM +9.7%, International +11.1%).
• Margin Progress: Consolidated EBITDA margin improved to 4.7% (from 4.4% in Q2). FM EBITDA hit record Rs.26.5 crore (+18% YoY); International EBITDA rose 19.5% QoQ.
• Debt & Working Capital: Reduced net debt by Rs.225 crore QoQ; DSOs down 4 days to 69 days.
• Technology & Efficiency: Scaling branch revenue (target: Rs.3 crore/branch) and automating processes to boost productivity.
• No Major M&A Plans: Focus on organic growth; acquisitions only for strategic fit (IRR >21% in base case).

(1,999 characters)

Question: Could you please provide a clear breakup of the other income line item wise?

Answer: Other income includes interest from fixed deposits (INR 12.5 crore) and IT refunds (INR 90 crore in India, INR 25 crore internationally). A foreign exchange fluctuation impact of ~INR 6 crore from rupee-denominated bonds was also recorded.

Question: Are you planning to sell or demerge international businesses?

Answer: No. International businesses are integral to SIS's strategy, with improving performance (11.1% YoY revenue growth, 3.8% EBITDA margin in Q3). No divestment plans are under consideration.

Question: Will consolidated growth sustain at ~10%, or improve beyond this?

Answer: SIS aims for 2x GDP growth (~15%+), driven by volume expansion and potential wage hikes linked to labor reforms. Historical CAGR since listing is ~15%. Seasonal delays impacted India security growth (2.5% QoQ), but long-term targets remain intact.

Question: Are further receivables/goodwill write-offs expected?

Answer: No immediate plans. Audit committees review asset quality quarterly, but no material risks are flagged currently.

Question: How will margins improve to pre-COVID levels (e.g., 6% for India security)?

Answer: Focus on higher-margin contracts, SG&A optimization (+30 bps YoY in FM), and tech-driven efficiency (MySIS attendance system, SISCore platform). International margins (3.8%) are recovering via new wins and seasonal demand.

Question: Why is employee count stagnant in FM/security despite revenue growth?

Answer: SIS is not purely headcount-driven. ~30% of FM revenue is outcome-based (e.g., per sq. ft.). Tech solutions (e.g., VProtect alarms, drones) and non-manpower services now contribute 15"“20% to EBITDA, reducing reliance on staffing.

Question: Are Q3's international margin gains (3.8%) seasonal or sustainable?

Answer: Q3 benefits from events (e.g., Australian Open) but margin stability reflects operational improvements. Labor shortages in Australia/Singapore remain a hurdle; 4.5% pre-COVID levels are achievable with market easing.

Question: Why does cash logistics PAT lag EBITDA growth?

Answer: Higher tax outgo due to exhausted carry-forward losses (post-Q3 FY24). EBITDA margins (17"“18%) and PAT (~8%) are stable post one-off adjustments. DRHP for separately listing the business is progressing.

Question: What drives M&A strategy?

Answer: Acquisitions are strategic (geography/capability), not for growth. IRR thresholds (21% base case, 15% downside) guide decisions. No recent deals due to post-COVID valuation uncertainty, but pipeline reviews are active.

Question: Why does high debt persist despite cash reserves?

Answer: Debt (~INR 632 crore) funds working capital to ensure timely employee payments. Cash reserves (INR 1,000 crore) are entity-specific, with international cash restricted for local operations. Debt reduction remains a priority.

Question: How is depreciation calculated (~INR 160 crore annually)?

Answer: Depreciation covers tech infrastructure (e.g., VProtect devices), vehicles, and office assets. Details will be disclosed in earnings reports for transparency. Focus on improving PAT via debt reduction and margin expansion.