SecUR Credentials – unique service offering makes it a play on rising employment


(kaustubhkale) #1

SecUR Credentials (Securcred), is a small company that is listed on the NSE SME platform. It is a company into background check (BGC) industry. It is India’s first and only listed player in this space. I think the company forms a part of an interesting industry which has a long runway ahead.

Mcap of 120cr. CMP INR238. Company recently came up with an IPO in November 2017 raising funds aggregating to INR30cr. IPO price INR205 (600 lot size).

Screener link: https://www.screener.in/company/SECURCRED/
Company website: http://secur.co.in/

About SecUR (website + prospectus):
SecUR Credentials is one of India’s largest background check companies with pan-India coverage and operational capabilities in 14 countries. 15 years of management experience and a 300+ workforce has powered our ability to weld innovation with technology and streamline the background screening process. As a result, our services have been integrated into HR systems for over 350 large companies across 30+ industries.

A thought-leader in the background verification space, SecUR verifies half a million resumes each year and that number is only growing. The key to our continued success is in our DNA; which is defined by our passion for business, innovation in products and processes, and customer focus.

Reach: Pan-India reach extending to all 39732 Pin codes

Innovation: Seamless authentication of information across geographies and institutions through innovation in both technology and processes.

Currently, we are an end-to-end screening services provider to various corporates in the country. We are one of the very few India-based BGC companies to be a member of the prestigious US-based National Association of Professional Background Screeners (NAPBS), APAC Chapter, which is the umbrella body of the largest BGC companies around the globe. We can provide background screening services, for organisations not just in India, but across the globe through our NAPBS connections and have provided our service in countries such as US, UK, Philippines, Srilanka to name a few. Our Company is headquartered in Andheri, Mumbai, with branch offices in Mumbai, Delhi, Bengaluru, Hyderabad and Chandigarh. We can cover every PIN code of the country through our intricate hub and spoke model, which multiplies the geographies we cover through the above branch offices.

Prospectus extract on the background of the company:

Our Company was earlier engaged in the business of providing insurance services and human resource solutions provider. During FY 2015 we recorded Nil revenues since our erstwhile promoters were preoccupied in their other ventures. During FY 2016 we received a single order from Reliance Life Insurance Company Limited. They were our single client during FY 2016. On July 26, 2016 our Promoter, Pankaj Vyas, took over the management and control our Company by acquiring then existing 100% paid-up equity share capital of our Company from our erstwhile promoter CRP Risk Management Limited. Post this change our company was transformed into a Company is engaged in the business of Background Screening (also known as BGC - Background Check) and Due Diligence.

Core focus areas:
Core focus areas

BGC Corporates:

  • Background screening of employees
  • On-boarding processes
  • Exit Management
  • Employee support service

Checks conducted by the company:

  • Education
  • Employment
  • Criminal
  • Identity
  • Database and media
  • Residential
  • Reference
  • Credit check
  • Drug test
  • Psychometric test

BGC Individual:

  • India’s first B2C background screening product
  • Allows individuals to self-certify their CVs
  • Shifts onus of responsibililty of clean resumes from employer to employee

Due Diligence:

  • Due diligence for Senior Management hires
  • Due diligence for partners / suppliers
  • Due diligence for investments
  • KYC services

Competitive strengths:

  • Wide Range of Services
  • National player, with global footprint
  • Process: ISO/IEC 27001:2013 certified
  • Focus on long term revenue stream

Business Strategy:

  • Extension of target client segments
  • Expansion of service and geographical offerings
  • Use of SecUR Number to redefine the market space
  • Strong Industry vertical based focus

What gives confidence on their abilities is the kind of clientele that they have:
Clientele

SecUR number - can be a decent opportunity in future, if they scale up big time (website):

'More That 30% Of Candidates Lie On Their Resume’s About Past Employment Details, Salary, Residential Address Or Criminal Record An Inflated CV Causes Damage To Your Bottom Line, Month-On-Month, While The Candidate Is Still In The System One Wrong Hire Can Tarnish The Work-Place, Its Productivity, And The Entire Company’s Reputation

When, on an average, there are 118 candidates applying for one vacancy, a pre-verified resume showcasing the authenticity of the candidate’s claims is a breath of fresh air. Add to that the fact that background screening in India is a trend that is catching on, especially in start-ups for whom valuations mean life or death. Any HR will attest to the value of a pre-verified resume and the ease it brings to the hiring process.The Secur Number is a 10 digit code which enables this benefit by providing a comprehensive verification report that meets industry benchmarks for background checks. Accessible online, this report will aid one in going the extra mile with their prospective employer by showcasing one’s integrity. The employer can then easily access the report with the help of the 10 digit number and download all the authentication proofs in the report.’

Technology - Symphony 3.0 (prospectus):

Currently we are using the software “SYMPHONY 3.0” which is a proprietary integrated workflow software of CRP Risk Management Limited that seamlessly directs, tracks and controls the flow of work at SecUR. It is built on a Java Platform, and offers real-time, online movement of processes, as well as information. Symphony 3.0 has been audited and approved by most of our large IT clients from a n information security perspective. We have entered into a Memorandum of Understanding dated August 28, 2017 with CRP Risk Management Limited for buying the SYMPHONY 3.0 Software along with its database for an aggregate consideration of 797.03 Lakhs. CRP Risk Management Limited had developed in-house workflow software, which is currently in its version 3.0, named Symphony. This JAVA-based plat form is the essential glue which holds together all the operational delivery processes, and ensures that these processes deliver the promised output to the client.

There is a tremendous amount of data which is stored in Symphony 3.0. This is the result of all data being accumulated over a period of close to 10 years, as part of the BGC process being delivered by CRP to its clients. Also, because of the inherent design of the Symphony architecture, the database needs to be acquired in tandem with the software application, as it cannot be extracted from the software.

The key components of this database structure are briefly described below:

Education data accumulated over 10 years: Over the past 10 years, as a systematic and thorough effort, the CRP team had accumulated close to 3 crore education records which have been made part of the Symphony database. These education records include a lot of education record archives from colleges and Universities across the country, which have been acquired and digitized with a lot of effort, and at great expense. On a regular basis, the Operational delivery team accesses this data for conducting education checks, as this process is online (and hence faster), and at no incremental transaction cost. Re-creating this database will not just be cumbersome and expensive.

Symphony 3.0 is also home to another key component of our business IP: All the database of educational institutes – colleges, universities, training institutes, schools – along with the process of verifying education records from them is stored in the form of a Master Database in Symphony. This Master Database extends to all the corporates and employers, who have ever been contacted, along with the detailed process of these employers provide verifications. (Detailed information about the software can be found in the prospectus).

Need for background check (website):
Employee related frauds such as inflated salary slips, exaggerated past designations and misleading academic history can cause damage to the bottom-line month on month while the employee is still in the system. Criminal history, questionable political affiliations and a negative personality can cause severe damage to a company’s reputation and future earning potential. Therefore, it is imperative that companies safeguard themselves by performing background checks on all hires.

Interesting reads:

Emerging trends (prospectus):

While the growth of the background screening industry in India over the past decade has by itself been very exciting, the future holds even more promise. A part from the clear growth drivers of the Indian economic growth story, and the increasing number of sectors adopting it as a good HR practice, we are seeing some clear trends which will give an added impetus to the Indian background check industry.

  • Expansion across sectors, and organization sizes
  • Extension to contract and other support staff
  • Prospective employers asking for a 360 degree view
  • AADHAAR, and its implications for employee screening
  • Adoption of employee screening by Government and its affiliated institutions
  • Ancillary extension, such as Education sector

To summarise:

About the company:

  • The only listed BGC company
  • Technology and innovation driven
  • Good clientele as mentioned above
  • Serves over 350+ large companies across 30+ industries
  • 300+ employees
  • Verifies 5lakh+ resumes every year
  • Reaches 39732 pin codes in India

About the numbers:

  • FY17 revenue/EBITDA/PAT – 10.2 cr./2.74 cr./1.81 cr.; Q1FY18 – 5.9 cr./1.79 cr./1.25 cr.
  • Short history but company looks decently placed in an interesting industry.
  • Low base, size of opportunity large and niche product offering.
  • 1QFY18 revenues have been more than half of FY17 revenues.
  • At this pace they might conservatively exceed revenues of 15cr and PAT of 3cr for FY18. However, I am looking at this more from a very long term horizon. It is close to 120cr mcap right now.
  • I believe EBITDA margins on a steady state basis can be 25-30%.
  • Valuations - very difficult to assess for a small company with such a short history - so will leave it upto you to judge.

Summary of financials (INR lakhs):

Risks/Concerns:

  • Company started operations recently hence has a short history of performance.
  • Company still small in terms of revenue.
  • One of the objects of IPO was to buy out Symphony 3.0 software.
  • Any slowdown, tepid growth in hiring / human capital across industries.
  • Receivables are high.
  • Typical risks associated with SME companies - liquidity is low, lot size is high and others.

All the above details have been taken from public material, largely their prospectus, website.

PS: My personal view is given the low base, large opportunity size and niche product offering, it is a play on jobs growth and ever increasing jugaadisation.

Disclaimer: This note is not a research report but assimilation of information available on public domain and it should not be treated as a research report, investment advice or Buy/Hold/Sell recommendation. I am not registered with SEBI under the (Research Analyst) Regulations, 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”. It is safe to assume that I might have the company in my portfolio and hence my point of view can be biased. Investors are advised to do their due diligence and consult a qualified financial advisor prior to taking any actual investment or trading decisions.

Holding disclosure: Invested


(Jatin Soni) #2

Authbridge is biggest company in this industry with 25% market share and projects to grow 60% CAGR for next few years.

Some reports on the industry’s annual trend.

https://www.authbridge.com/annual-trend-report/

One of the bigger risk to the industry seems to be the use of Aadhaar which reduces the verification process from 7 days to just 15min and also saves almost 60% of the cost.

http://www.gizmodo.in/techgig/employers-are-using-aadhaar-based-verification-for-hirings/articleshow/61144257.cms

would like to have some inputs on this.


(dhrubo) #3

The difference that I understand is AADHAR is doing physical/identity verification - ex that the person does exist and enlisted in the AADHAR database and maybe his phone number and address are verified. Well and good.
But I do not think police in India is asking for AADHAR from criminals yet. So it cannot do a criminal verification. In future employers may be able to do employment duration verification and even education verification also. However, AADHAR does not know about my resume yet so that verification it cannot do. Also, AADHAR is not yet able to do social media verification viz Linkedin recommendations, Udemy training etc.

Now if I review the list of checks conducted by the company, AADHAR actually does have an impact today or in future.

  • Education --> will be impacted by AADHAR, already I know schools asking for AADHAR to issue ID cards
  • Employment --> will be impacted by AADHAR
  • Criminal --> Not sure
  • Identity --> already impacted by AADHAR
  • Database and media --> Is this social?
  • Residential --> AADHAR impacted
  • Reference --> Nope
  • Credit check --> AADHAR impacted
  • Drug test --> Possible to link with AADHAR
  • Psychometric test --> Not impacted

So in my opinion, several items are getting impacted by AADHAR in not so distant future or are already impacted. This is a big risk. Also there is another major company Authbridge and others. Export potential to developed countries are minimal as I am sure there are already companies working in this field. Also its not a unique idea and they have not built their software. Instead they are relying to software from a 3rd party. I am sure its a s/w backed by big data and analytics. There is not much competitive advantage in my opinion because may be as I type some one is building a software with smart AI, data science alogrithm to come out with a much superior s/w to check resumes. Can these big HR players enter this? Yes they can anytime by using the same software.

** These are just my point of views.
** DS - not invested.


(Dhiraj Dave) #4

There is already National Academic Depository in place which would soon make major part of this company business under threat in my opinion.


(kaustubhkale) #5

Thank you so much for the data points, articles - I shall go through the same. I am still trying to gauge the industry size and opportunity, in terms of some points to understand it. While I do think the size and potential is decent - I am trying to corroborate with numbers.

Aadhaar like @dhrubo said can either disrupt or only facilitate this. For example, Aadhaar might not exactly tell if a particular person has a particular criminal record (atleast at the moment) - this can be a possibility few years down the line. By then, I think companies in BGC would rather take Aadhaar into their stride and use this facility to provide a refined service. Please do let me know your views on this.


(kaustubhkale) #6

I am not too sure and convinced why HR players would find this space interesting - also companies have an onus to do a BGC I think - which they can outsource to SecUR and other companies in the industry. HR players are by default expected to do some round of checks for their staffing services? What about employees hired by the department of company themselves or some other agency? Just thinking aloud.


(kaustubhkale) #7

Shall study this, Sir. Thank you.


(kaustubhkale) #8

Also, I think they now own the software - Symphony 3.0. They bought it out from IPO proceeds.


(dhrubo) #9

That is a good news. But as a shareholder can you confirm this with their investor relation team.

@kaustubhkale - you are right that HR companies may not be interested in this business and would prefer to outsource. Then the question that comes up is it because its work outside their domain expertise or the
size of the opportunity is not significant enough to warrant attention?

I would like to thank you for bringing this stock to the attention.


(kaustubhkale) #10

It is given in the prospectus and have mentioned it in the long post above.

This is the question that I am also finding an answer to. I think it is probably more out of their domain expertise - staffing is more of ensuring people get hired and quicker, any such BGC work would be counter productive or slow down their main business?


(Jagadish) #11

The prospectus says they have entered into MOD to buy the software (from CRP Risk Management Ltd) and paid advance.

However, they also mentioned in key risks that the promoters have litigation with the company (CRP Risk Management) that owns this software.

The disputed amount is very close to the advance they paid to buy the software.

Can anyone confirm if they already own the software with credible source of information?


(Sarabjeet Singh) #12

Interesting points, Thanks Kaustub for starting this thread.

Points mentioned about Aadhaar disruption are thought provoking.

My thought process is that we had PAN/DLs etc which are similar to Aadhaar in many ways except that these don’t have bio metrics.
Bank Accounts and Many Insurance policies are also linked with PAN.

But does that enable companies to rely on any of these for background verification ? No, I guess.

As someone rightly pointed out criminal/Employment/Current Address etc cant be relied solely on Aadhaar. Even for address verification
how can someone rely on Aadhaar as people do change places and Aadhaar address may or may not be updated. Banks are not giving loan just on the basis of AAdhaar, how can assume MNCs to rely on this while hiring their employees.

On top of that , How difficult would it be for some to get multiple Aadhaars ?

(A little old news but highlights the risk http://indianexpress.com/article/trending/man-arrested-for-getting-aadhar-card-made-for-dog/)

SecUR does detailed background check and once that person’s details are there in their database then next time if some other company approaches them
for verification then they can do it much faster and cost to them would be much lower as they incurred while doing that first time.

Scope for the BGC market IMHO is huge.

  • Companies does that for their employees
  • Societies do it for new tenants
  • Colleges do it for their students
  • Common people can do this for their servants
  • Going forward with online matrimony expanding, even parents can avail their services for the BGC of their would be son/daughter in law.

I had once called them just to check their charges per verification. They have some minimum ~1000 ( in which they do basic screening like address etc) and on top of that they keep adding for additional
services like Employment/criminal etc verification.

Disc : Invested


(kaustubhkale) #13

I don’t think the promoters have litigation with CRP. It is just that the promoters have some kind of litigation which is as a result of them being with CRP earlier. So I don’t think it is a case of SecUR v/s CRP by any chance.


(dhrubo) #14

@kaustubhkale - i believe we have to quntify the market size, competitors and what this company is doing extra to sieze that opportunity? and what are its clients customers outside India ? What is the growth expected there. Difficult to get information but worth a try to fully assess the investment opportunity.


(kaustubhkale) #15

US BGC industry size is about USD2.5-3b. Jobs is about 125m and adds about 0.2m average each month.

Source Quora: In India, about 11.45m are formal private sector jobs (data for 2011-12 though). About 400m are in the informal sector which includes jobs also like farmers, farm labourers, daily wage workers. Data from this site - https://data.gov.in/resources/employment-organised-sectors-public-and-private corroborates that we had about 11.5m in private sector in 2011.

I read this somwhere on the internet too: In 2015, the Wall Street Journal reported that while the Indian workforce grows by 12 million each year, only 5.5 million jobs are created annually. And as the fourth industrial revolution advances, new skill requirements will further challenge its youth. (I believe this would be total = private + public + unorganised probably).

Also some data here - Naukri Job Speak Index - http://www.infoedge.in/pdfs/jobspeak-report-dec-2017.pdf

This says - private sector jobs are about 19.2m. http://www.ima-india.com/pdfs/the-india-employment-report-sample-slides.pdf

Overall, the articles suggest that new jobs created in India has been dismal in the past few years. However, I think for BGC it is not just new jobs but even existing job changes and switches that are relevant too.

Please do highlight if any data quoted looks absurd or irrelevant.


(kaustubhkale) #16

Some links for reading:


(Sarabjeet Singh) #17

There has been no news about this company for a while and stock price continuously declining … Any idea whats going on … does mkt know something that we dont ?


(kaustubhkale) #18

SecUR Credentials FY18 results analysis - 30May2018 - http://kaustubhkalecapital.com/2018/05/30/SecurFY18results


(kush_gangar) #19

Very good results…Company should start declaring dividends also from next year onwards


(rahulshares) #20

I believe trade receivables of 15cr on a revenue of 36cr is exceptionally high. And IMO, this seems a specialized services provider providing BCG check for new hires where the credit cycle should generally be 30-45 days. How do you come to 120 days?
In SME companies we should have a sharp hawk eye focus on cash flows. With such high receivables, working capital will go for a toss. Good part is no debt but then if Receivables are at elevated levels, it raises questions on genuineness of sales. I dont see this business where you will have stretched receivables.