MOSL: SIS (Buy)-Recovery on the way; Attractive valuations
SIS: Recovery on the way; Attractive valuations; reiterate Buy
(SECIS IN, Mkt Cap USD1b, CMP INR482, TP INR600, 25% Upside, Buy)
- SIS reported a lower than expected performance in 1QFY22, led by underperformance in the international business (-4.2% QoQ) on account of lower revenue from the ad hoc business (also high margin) and two months impact of the lockdown on the India Security business (-2.3% QoQ). This led to a sequential decline of 2.7%. Consequently, EBITDA margin was lower than our expectations (50bp) on weaker revenue performance.
- While the increase in virus cases and accompanying restrictions impacted Apr and May’21, the rebound in Jun’21 (monthly run-rate of INR7.9b) should reassure investors of its ability to weather the impact owing to its business and geographical diversification. With the situation expected to further ease out over the next few months, we expect SIS to deliver 12% revenue CAGR over FY21-23E.
- We continue to see an uptick in growth in the India business (Security and Facilities Management) in FY22E, and estimate 17% CAGR in the India Security/Facilities Management business over FY21-23E. We continue to build in 7% CAGR in the Australia business over the next two years as an expected reduction in the ad hoc business should partially depress recovery in the normal business.
- SIS should reverse a large portion of the margin impact of the past two quarters as higher revenue growth and absence of COVID-related costs should act as levers to subdued margin. With growth returning in FY22, a major portion of the drag in Facilities Management should also go away.
- We see a gradual improvement in margin and expect a 20bp increase over FY21-23E. The positive operating leverage in the India business should more than compensate for the expected moderation in margin in the international business, which benefitted from the ad hoc business in FY21.
Security and Intelligence Services (India) Ltd. Security and Intelligence Services (India) Limited is an India-based company, which provides security and business support services. The Company offers solutions across various service lines, which include security services, such as security services India, security services Australia, cash logistics services, electronic security solution and alarm monitoring and response, and facility management services, such as facility management and housekeeping, and pest control. Its service offerings include janitorial services, mechanized hard surface floor care, event management, escort guards, general pest management services, ant control services, dog handlers, cash in-transit, cash pick-up and delivery, on-site and off-site cashiers, fire alarm, access control, fire suppression, home security, fire emergency, medical emergency, cockroach control services and rodent control services, among others. The Company serves various customers, including infrastructure, industrial and recreational.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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