Bought at 440 initially, have averaged at 430 levels(looking to add up on corrections)
2 closest comparable peers of SIS are Team Lease(TTM PE-350) and Quess Corp(TTM PE -213).
Both of them have lower return ratios ,scalability and weak cash flows vis a vis Mcap.
Sis is consolidating near 460-490 from months. You can look on technicals making sure it dosn’t run up I think it will come back to late 400s
My DCF value in base case scenario about an year ago came out to be 395.
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I have the stock for some time now at different levels, and sitting on 25% gains, but considering the holding period, this has underperformed both the mkts and my portfolio. But all through last few yrs, this hasn’t disappointed in terms of results and execution, hence I am keeping the faith. What I think irks the market is the political connection, but I think that is priced in. If you look at 12m fwd P/E ratio, it has come down from 35x to 21x over last 5 yrs, in spite of good execution. I think way to approach would be 20-30% kind of EPS growth, which will translate to share price returns in a steady state, and then someday it will inch up to P/E ratios of ~45x where Teamlease has been trading at, in spire of being an inferior business. That will be needed for it to become multi bagger.
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Thanks for the reply guys, but I was just wondering whether 5% OPM is sufficient? I mean you can get 5% return on FDs, that too tax-free. So if 5-6% OPM for this company is here to stay, what’s the point of running the business when you can just put your money FD or other debt instruments?
Thanks Simar. This question is probably more in the stock learnings territory than about the stock. There are multiple assumptions of confusing margins with FCF, not considering growth, valuations etc, which probably best not to answer here.
Hi,
Please don’t look just at OPMs when thinking of returns. ROCE would be more Precise which is 20% because of high asset turns. In the long term, returns are measured by return on capital employed by the firm and not just the OPM.
Going by your logic, any company earning less than 5% OPM should be shutting shop.
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Hello,
Is any of the competitors a public company so that I can compare the business? I read 2-3 big players in the game but all are private. Any way i can get the financials of any competitor firm?
Also, looking at the balance sheet, it appears that the company is taking debt and storing it as cash & equivalents. I am not able to understand this point. Why would the company issue bonds and put the cash as an investment in debt instruments? Can someone put a light on this?
You can compare SIS with few globally listed peers including Securitas AB and Sohgo Security Services. Also you can see BVG India - they had recently filed DRHP (more focused towards providing Facility Management services).
In India, their top competitors would include Topsgrup Services and Solutions, Securitas Intelligence and G4S India (their financials are not available on MCA/ Tofler/ VCCEdge).
Well, this is something that concerns me as well. Whilst the part that gets a lot of eyeballs is the ~16%/14% sales/EBITDA CAGR over FY12-21 and decent RoCE track record along with cheap valuations, there are few more concerns (which could keep the valuations cheap) that investors need to be aware of like:
- Increasing trend of miscellaneous expenses (13% in FY21 vs 7% in FY17)
- Myriads of acquisitions - where they could end up overpaying and which could fall apart
- Poor track record of capital allocation - with a significant portion deployed for interest payments itself.
- Slowdown in pace of growth as they enter into more mature markets.
Hope this helps, Simarjeet!
Margins should not be compared to returns. Profit margin is on a base of revenue while returns should be seen on base on invested capital. There are many businesses like retail which run on thin margins but earn good returns.
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Re-iterating few points that are worth highlighting which I believe could keep the valuations cheap for a prolonged time:
Whilst the part that gets a lot of eyeballs is the ~16%/14% sales/EBITDA CAGR over FY12-21 and decent RoCE track record along with cheap valuations, there are few more concerns (which could keep the valuations cheap) that investors need to be aware of like:
- High leverage (and consequently, high finance cost continuing to dent profitability) despite huge cash and bank balances.
- Increasing trend of miscellaneous expenses (13% in FY21 vs 7% in FY17)
- Myriads of acquisitions - where they could end up overpaying and which could fall apart
- Poor track record of capital allocation - with a significant portion deployed for interest payments itself.
- Slowdown in pace of growth as they enter into more mature markets.
Although, things can change if the above get addressed (which could result into institutional investors coming on-board) and management executes flawlessly on Vision 2025 along with value-accretive acquisitions.
Hope it helps!
On a side note, there are a lot of other fundamentally superior and clean businesses that one can invest in (although most unlikely to be found at trading at low multiples - which is fine as long as the earnings compounding happen at a healthy pace).
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my schuttlebutt is saying they are continues gaining mkt share , yeserday at mall very good balanced security, one month before travelling in train staff of cleaning department is sis, may may i biased . invested , not sebi register
EBIDTA was down.Explanation give…EBITDA margins were stable through Q3 FY22.
This is despite significant additional expenses in
the quarter on the pay revision, one-time
discretionary incentive payouts, and expenses
towards health, medical assistance and
vaccination of our employees. More importantly,
the gross margins have also been stable
underlining the pricing power of an essential
service with its customers and building on the
advantage of being the market leader. Without
these additional expenses (including one-off
expenses of Rs. 5.1 Crs), EBITDA would have
been 5.4% for the quarter and higher on a q-o-q
basis on a comparable basis.
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SIS Limited Q4 FY2022 Earnings Conference Call
May 05, 2022
Adding on to this,
I’m okay with the 30+ subsidiaries which have been audited by some other auditors with audit reports being furnished to the current auditor.
But does anyone have any idea about why 3 subsidiaries haven’t been audited by anyone at all? (Given that they contribute a significant amount to the bottomline). Also does anyone know what these subsidiaries are? @suru27
FY21:
FY22:
FY22 has two subsidiaries like this contributing 95cr PAT.
Edit:
FY21 numbers seem close to that of Henderson Technologies PTE Ltd.
Now clubbing this with Henderson’s current owners wanting to sell out 3 years early, this further increases my bad feeling (also the flat nature of SIS’s stock price too doesn’t help alleviate discomfort)
Don’t see such comments by the auditor in FY20.
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SIS Ltd --CNBC Interview --MD Rituraj Sinha–10th Oct22 :
–International business contributes less than 50% of overall business , in the last 2 Qtrs some changes (1) Covid related temporary work is finished i.e high margin temp. contracts are now over & the routine contracts which were downsized during covid are back up (2) Major development is that Australia has seen highest minimum wage increase in the last 10 yrs which will augur well for us
–Higher wage revision is beneficial for you ? --contracts have inbuilt rise and fall clauses so we pass that on to customers , there is no renegotiation its a pass through but there will be a catch up as we will start paying minimum wage upfront & cust. process that with arrears & the new price becomes effective going forward. Reasons for why it will be good for us ? --(1) The revenue goes up (2) corresponding impact in EBITDA which on $value goes up (3) Higher wages result in better retention and lesser shortages which is good for ops and business continuity
–Margin improvement ? --The international business pre-covid was 4/4.5% margins & in international business will be the same now as well
–Overall Consolidated for SIS was 5.5/6% EBITDA Margin & we will settle around 5.5/6% going forward
–On India business ( 55/60% of total revenues ) you will see robust growth in security and FM. This Q2 have been very strong on growth side & significant margin improvement. So overall we are moving in this direction.
–FY23 outlook ? --Consolidated EBITDA margin will be 5.5/6% by Q4 due to India business improving , its margin profile and international business should also be able to do well due to price revisions.
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Anybody attended the earnings call? If yes, can someone summarize please?
Some important bits from con call
One time COVID related Contracts are off
Indian Security business growing
Facility Management biz also growing
Security Alarm / Monitoring/ Response contracts bring EBIDTA margins around 20%
As share of Solutions contracts goes up, revenue will go up without corresponding increase in manpower
Company enjoys economies of scale being among the two players with PAN India reach in Security industry.
Recession proof business. No client concentration risks as such
Company follows a Multi Brand Strategy, building a house of Brands and don’t want everything to be under SIS brand itself as all brands are synergized when it comes to backend operations.
2nd Largest Cash Management Business. Potential Spinoff possible in the future.
Discl: Holding and Adding. Forms over 5% of my pf
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Do you know the largest cash logistics company? Want to check its ebidta and what valuations are given
CMS Info Systems as claimed by them in some interactions , I remember this faintly. !
In the call, they were claiming to grow more than #1.
If its CMS Info then they have 27% ebidta which is way more than 15% of SIS
But yes, growth in SIS is more i.e. growing 30 - 40% compared to last year, and they growing at 15%
CMS is trading at 2.75x sales.
Going similar multiple of 2.5x (ebidta is half but growth is double) – SIS Cash business value can be: 500 x 2.5 = 1250 crores (out of total 5100 cr market cap)
UPDATE:
CMS is 3 time bigger and has long track record, consistently growing at 15-18%
SIS has grown with this rate in last one year only (but consistently in last 4 quarters). If they repeat this growth and progression it can be valued at 2.5x (1250 cr) otherwise 2x (1000 cr)
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