My key reasons are:
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Simple asset light business, diversified across services offered and country it operates in.
Having 3 main revenue streams and 4 countries to operate in helps hedge the company risks of being over dependent on single source and facilitates in creating economies of scale . Timid growth in one of them can be countered by other verticals. 15 to 20 % growth achievable in normal circumstances in foreseable future. -
Even after being the largest player in Security Solutions and second largest in FM the market share is only 6-7%. A huge market size waiting to be tapped. As India enters the next growth phase, more businesses will provide the opportunity.
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Good Inorganic growth(acquisition and joint ventures) track record with Henderson, Uniq, SLV, Terminix, prosegur, SXP,MSSSecurity ,DTS .All these M&A have upticked the top line and bottom line and increased the geographical reach.
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Inelastic Demand: when the businesses around the world were completely shut and opening up slowly due to covid waves SIS still grew(7%) and sectors like FM recovered to the pre covid levels in Q3 itself. Company has maintained its goodwill and contracts among its clientele in tough business scenarios.
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Stopped the cash logistics services in some ATMs contract where the margins were being affected leading to inefficiency (Good management step, to discontinue verticals hindering the business )
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Bought it at fair Valuations(430 levels). Solid balance sheet, Good return ratios and consistently increasing cash flows. Debt used in buyouts has been decreasing substantially.
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Company aggressive and ambitious in increasing sales team for acquiring new clients. Research and development has also been happening for FM and security verticals. Technological assistance will help SIS to deploy less personnel. EBITDA levels may even reach 20% for FM for specific contracts
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Good pay, employee satisfaction and holistic culture imbibed, in a sector dominated by unorganized players. Was a part of top 50 firms to work for in India by GPTW.
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Management commentary: Personally liked the annual reports , not over ambitious in setting goals, and future plans. Vision 2020 was almost executed on most fronts. Expecting to double its market share till 2025.
Competition and Employees:
SIS holds a dominant position in all the country it operates in all three businesses (cash logistics ,security, fm). There is no big entry to barrier, but I believe Learning costs which it incurs cannot be mirrored on a large scale by small players.as the industry changes is a major tailwind. GOI in upcoming quarters is gonna come up with Wage and Labor laws, Which is gonna benefit organized players like SIS. Company’s CEO in an interview informed that all SIS contracts are based on back to back pass through arrangement so if wages increase by whatever % they increase their contract costs and pass on the costs . This labour and wage laws enactment will also begin the paradigm shift from unorganized to organized sector .
Another major advantage that Sis has its quality of its services offered. From being in top 10 players in FM in 2015 to second biggest player in FY2021and holding a dominant position in cash logistics ,company has grown both inorganically and vv. Upon researching about the reviews of SIS came across an instance of a residential building ending its contract with sis due to high cost however the new company was not able to deliver the needful so SIS was again deployed to the task. Can conclude SIS has sort of distinguished itself from the mediocre players even if it charges a premium . Companies and residential buildings don’t compromise on that part. So they do enjoy a brand advantage which will only get better.
Employee cost: SIS Ebitda margins have been in correlation with global peers(6%). The business sis operates in is not of boasting high margins but the less capital deployed helps it in achieving stable RoCe of near around 20%. Post Covid coupled with strained margins numerous small players will find it hard to compete with cash rich SIS which has been consistently investing in its resources and technology to improve customer experience. With digitalization can see reducing their costs on various fronts
Australian business. The Australian business suffered a de growth due to lockdowns and covid wave in Q2 and margins collapsed due to vaccination programs, increasing training and sales costs. However I believe it is transitionary and last few quarters of the Australian market show that. The roce of Australian market has been 70 %(claimed)
Political Connections: Though it has been highlighted before in this thread ,it is surely a thing to take note of but I don’t see any big red flags as of now. No major developments has been made till now.
PS: Views may be biased 