EUR 120.00 For Business Accounts Only

MOSL: SIS: Strong revenue growth to continue in FY23

• SECIS reported an in line revenue (up 12.6% YoY), with margin 20bp above our estimate of 4.5%. PAT was higher at INR 8.25b on account of an income tax benefit under section 80JJAA.
• With an improving macroeconomic environment, the management commentary suggests a strong pickup in FY23, with an aspirational target of 20% revenue growth. Strong order book, increasing pipeline, and long-term tailwinds from a sector consolidation will help SECIS deliver 15% revenue CAGR (MOSLe) over FY22-24E.
• SECIS’ India business should deliver a strong 22%/30% CAGR in the India Security/FM business over FY22-24E. Conversely, its Australia business should see a modest 4% CAGR over the next two years as a reduction in the ad-hoc business will partially depress recovery in the normal business.
• Margin in 1QFY23 came in ahead of our estimate. With strong growth ahead, the management expects the India business to return to a normalized margin of 5.5-6% over the next two-to-three quarters. We see a slower improvement in margin over the next four quarters as the international business reverts to a lower margin profile (4.6% for FY23E). SECIS should revert to FY21 margin levels in the medium term, backed by positive operating leverage in the India business and stable performance in the international business.
• We have tweaked our FY23/FY24 EPS estimate by 2%/6% to account for lower margin in the international business. Given the multi-dimensional opportunity, we value SECIS at INR520/share (16% upside), derived by assigning 8x forward EV/EBITDA multiple to the International business (in line with global peers) and DCF to the India business. We maintain our Buy rating.

In line revenue; PAT beat on higher margin and negative ETR

• Revenue grew 12.6% YoY (est. 14.6%), EBITDA was flat (est. -4%), and adjusted PAT rose 59% (est. 16.9%) in 1QFY23.
• Increase in revenue was driven by a 40% YoY rise in FM and India Security Services (up 20%), while Australia Security Services was largely flat YoY.
• EBITDA margin contracted by 20bp QoQ to 4.5% (20bp above our estimate).
• Consolidated adjusted PAT stood at INR825m (up 59% YoY), above our estimate of 16.9%, propelled by negative ETR (down 10.7%) on account of income tax benefits under section 80JJAA.
• Net debt stood at INR6.87b (v/s INR7.2b in 3QFY22), implying a net debt/EBITDA ratio of 1.38x (as against 1.44x in 3QFY22).
• OCF/EBITDA ratio stood at 4.2% in 1QFY23 due to deployment in new large projects.