security and intelligence services (india) ltd.omkar tanksale –manager ... ♦ mss provides...
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13 JAN 2020
Security and Intelligence Services (India) Ltd.
Initiating Coverage
Y/EMarch
Net Sales(Rs Cr)
PAT (Rs Cr)
EPS (Rs)
Change (%)
P/E(x)
RoE(%)
RoCE(%)
DPS(Rs)
2018 5,833 163 23.7 81.0 - 20% 20% 2.1
2019 7,093 215 31.2 32.0 28.1 18% 14% 1.6
2020E 8,848 299 43.6 39.5 22.1 21% 13% 3.3
2021E 10,798 390 56.8 30.3 17.0 22% 16% 4.3
2022E 12,168 454 66.1 16.4 14.6 21% 17% 5.0
Guarding wealth with minimal risk
Sector: Consumer Services
Price performance
Target Price:
CMPPotential Upside
MARKET DATA
No. of Shares
Market Cap
Avg. daily vol. (6mth)
52-w High / Low
Bloomberg
Promoter holding
FII
13 JAN 2020 Company Report
BUYRs 1,190
Rs. 983::
: 7.33 Cr.
: Rs. 7,210 Cr.
: 21,199
: SECIS IN
: 10.8%
Security and Intelligence Services (India) Ltd.
Shareholding patternFinancial Summary
Source: Company, Axis Securities, CMP as on Jan 10, 2020.
Sep.-19Q-o-Q
Chg (%)
Promoters 74.3% -
FPIs 10.8% 22
MFs / UTI 6.1% (6)
Banks / FIs 0.1% -
Others 8.8% (15)
21%
Omkar Tanksale – Manager – Research - | [email protected] | (+91 22 4267 1737)
: Rs. 996/702
: 74%
40
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160
Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20
BSE Sensex Security & Intel
3
Investment Rationale
We initiate coverage with BUY rating and a target price of Rs. 1,190 i.e. 21% upside.
Security and Intelligence Services (India) Ltd (SIS), is a leading security services company in India and Australia with
leadership positions in cash logistics and facility management services. The SIS group has expanded its footprint not just
across 29 Indian states, but also across a widespread network in Australia and Singapore with an unremitting spirit of
innovation and a dynamic and multifaceted portfolio of services that offers clients enduring value. SIS operates mainly into
four segment areas viz. Security Services – India, Security Services – International, Facility management and Cash Logistics
services. It also provides Electronic Security Solutions, Alarm Monitoring and Response and Pest Control services as a part
of its various business verticals.
Company Report
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
13 JAN 2020
Expanding India Security
Services
A Leading player in the security services, Facility Managements and Cash logistics
Strong foot prints of Facility Management
Services
Rising demand for Cash Logistics services
Increasing demand for
security services in Australia
Robust Infrastructure and Superior technology
driven process
4
Robust Business Structure
Company Report13 JAN 2020
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Company Services
Security Solutions - India
Security Solutions- International
Facility Management Services
Cash Logistics Business
170 branches
More than 23% market Share
59 branches
68 branches
1,54,700
9,000
58,300
1,512 + Vans
No of BranchesNo of
employeesCompany Logo
SIS has successfully diversified its business to facility management and cash logistics to reduce dependency on security services.
Diversifications will help SIS to retain the clients for longer term and also will help to strengthen the relationship among them.
SIS is also in a pole position in security services in domestic market which is one of the fastest growing segment in India with ~20%CAGR
rate. Its international business MSS security services also has largest market share in Australia private security services market.
SIS has established a wide network, a wide range of services, an understanding of each service line, strong brand, and capabilities to
successfully render services across a broad spectrum of customer segments. All of these are assets for the company in its quest for growth.
They have helped SIS enhance its credibility with customers, thereby strengthening its market position.
5
65%
8%12%
15%
Manned GuardingSecurity SystemsCash SolutionsOthers
65% 35%
Unorganised Organised
Investment Rationale
Company Report13 JAN 2020
Increasing global market share Increasing Indian Market Share
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Source: Company, FICCI & Axis Securities
Security services in India is growing with robust momentum
♦ The security services market in India is witnessing high growth mainly aided by improved economic environment, increasing concerns about crime and terrorism, inadequate
public safety measures, and growing industrial zones.
♦ Indian security market has grown more than 20% CAGR over last decade. Many new players were added and their operational capabilities enhanced.
♦ The security services in India is likely to grow at a rate higher than the current growth rate of 20% on account of growing concerns for security, exponential rise in number of
banks and expanding ATM network, technological advancement and higher penetration of foreign players through FDI.
♦ As per the statistics published by Bureau of Police (Research and Development India) actual police personnel to population ratio was 1:712 as against the sanctioned
strength of 1 police officer for 547 people. A large workforce in the private security space can be utilized to make up for the low police to citizen ratio, with careful policy
interventions to identify non-core areas of police and security functions that could be outsourced to such agencies—for example, senior citizen monitoring, outer periphery
guarding of prisons and other government establishments, event security and police verification etc.
0
150
300
450
2002 2011 2019 2023E
(In
US $
bn)
North America Western Europe
Asia Pacific Others
2019 2023E
50%
50%
Organised Unorganised
6
0
50,000
100,000
150,000
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250,000
FY18 FY19 FY20E FY21E FY22E0
1,000
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FY18 FY19 FY20E FY21E FY22E
(Rs
Cr)
Investment Rationale
Increasing Revenue Stable Operating Margins Consistent Employee Addition
Source: Company, FICCI & Axis Securities
Expanding India Security Services
♦ SIS is one of the leading security services provider in India, with 177 branches and 1,54,700 employees across India. The company is covering more than 14,800 sites in
29 states of India. SIS has highest penetration in terms of Indian demographics.
♦ SIS India business is growing rapidly and consistently with CAGR of 25% over the last two years. The India security business contributed around 40% to the top line. In FY19
the segment contributed around Rs.2,696 crs and Rs. 879 crs. in Q2 FY20 and is likely to continue the growth momentum of 23% CAGR over next two years, aided by
growing demand for security guards across industries, commercial centers and offices.
♦ The company also has definitive inorganic strategy to attain higher growth and to increase the market share. The recent acquisitions SLV and Uniq businesses have reported
healthy contribution to revenue and EBITDA (6.4% EBITDA margin in Q2 FY20).
♦ The India security services segment employed more than 1,54,700 security guards as at the end of Q2FY20 (grew more than 19% CAGR in last two years).We believe
increasing top line contribution from Indian security business will help to generate more operating efficiency.
13 JAN 2020
Security and Intelligence Services (India) Ltd
Company Report
0%
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6%
8%
0
100
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400
FY18 FY19 FY20E FY21E FY22E
(%)
(In
Crs
)
EBITDA EBITDA Margin
Sector: Consumer Services
Revenues (Rs Cr) - India No of Employees - India
7
Investment Rationale
Company Report13 JAN 2020
Increasing market size of security market in Australia
Security and Intelligence Services (India) Ltd
0
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Market Size
18%
18%
7%6% 6% 3%2%
40%
MSS Wilson SNP
Secure Corp ISS Southern CrossProtection
Spotless Others
Market Share in Australia
Increasing demand for security services in Australia
♦ The Australian market for security services has grown at a CAGR of 5.8% over 2010-15 and is projected to grow at a CAGR of 5.4% from 2015-20.
♦ The commercial and industrial segments have largest demand and they are growing steadily. This segment comprises customers from the mining, retail, office, financial
institutions and commercial buildings sectors, and accounted for 48% of security services revenue in FY19.
♦ SIS’s wholly own subsidiary MSS security services is one of the leading private security provider in Australia providing services across different verticals such as Aviation,
Commercial property, Energy & Resources, Government, Industrial Logistics etc.
♦ Overall growth in the sectors like Healthcare, Industrial growth is likely to be by more than 3.4% in next two years. Australian security services demand is likely to outpace
the growth in the other sectors.
Source: Company, FICCI & Axis Securities
Sector: Consumer Services
8
0
2,000
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12,000
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FY18 FY19 FY20E FY21E FY22E
0
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FY18 FY19 FY20E FY21E FY22E
(Rs
Cr)
Investment Rationale
Leading Security services provider in Australia
♦ Managed Security Services (MSS) is the largest private security services provider in Australia with market share of 16% in organized security market in Australia. The
company also provides mobile patrol services through SXP (Southern cross Protection) which is also Australia’s largest mobile patrol services provider.
♦ Australian security services constituted around 43% revenue to the SIS top line. The revenue from MSS grew 24% CAGR in past two years. EBITDA margins also remained
steady at 6% in the previous period and likely to continue in the forth coming period. MSS also consistently added its employees to meet client demand.
♦ MSS provides security services to clients across industries like airports, ports, government, manufacturing industry, financial institutions etc. Client concentration is typically
higher in Australia with the top-10 consumers constituting 40-45% of segment revenues though client churn is very low. Demand for security services from Aviation likely to
remain strong given rise in air traffic and passenger movement as well as rising demand for guards at airport terminal.
♦ MSS provides security services for various leading events like Australian Open and F1 Grand Prix and the commonwealth games held in Australia.
MSS Revenue growth Operating Efficiency Consistent Employee Addition in Australia
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
0%
1%
2%
3%
4%
5%
6%
0
50
100
150
200
250
300
FY18 FY19 FY20E FY21E FY22E
(%)
(In
Crs
)
EBITDA EBITDA Margin
Source: Company, FICCI & Axis Securities
Sector: Consumer Services
Revenues (Rs Cr) - International No of Employees - International
9
37%
34%
24%
5%
Facility Owners
Service Providers
Procecurers
Facility Management Associations
Investment Rationale
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Facility management structure in India Indian Facility Management Market Size
Source: Company, Axis Securities
11%
26%
24%
22%
17%
Central West North East South
Facility management Industry growing exponentially
♦ The Indian Facilities Management services market is one of the fastest growing sector aided mainly by initiatives taken by Central government like ‘Swach
Bharat’, rising number of business parks, IT parks and SEZ etc. Facilities Management services is estimated at Rs 5,00,000 crore and is slated to grow at a
CAGR of 20% to 25% over FY20E to FY23E. Organized facility market is valued at Rs. 75,000 crs. and expected to grow at Rs. 1.5 lakh crs by 2023E.
♦ Key customers within Facilities Management include businesses in the Industrial and Manufacturing, IT/ITeS, Retail, Commercial Space, Hospital, Hotel,
Government, Railways and Educational sectors.
♦ Aviation and Energy along with other sectors are also two areas where we will see growing demand of the facility management. With schemes like Udaan,
there are many airports coming in smaller cities and that is going to be key drivers.
♦ Cleaning services contribute around 50% of the total facility management services market, followed by pest control and other facility management services
(such as office support, gardening and landscaping, laundry & guest house management, food and pantry services) at 20% and 30% share respectively. The
cleaning services are also likely to grow at higher momentum aided by strong demand.
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E
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E
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E
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E
(Rs
00
0’ C
r)
Property Cleaning Security Catering Support Others
0
25
50
100
125
150
10
0
20,000
40,000
60,000
80,000
100,000
FY18 FY19 FY20E FY21E FY22E0
200
400
600
800
1,000
1,200
1,400
1,600
FY18 FY19 FY20E FY21E FY22E
(Rs
Cr)
Investment Rationale
Source: Company, Axis Securities.
Revenue growth Operating Efficiency Employee Addition
Strong foot prints of Facility Management Services
♦ SIS’s Facility management vertical comprises of cleaning and janitorial services for its clients; for commercial property offices, the services include repair
services like electrical services, air conditioning maintenance, plumbing, water management etc. These services are one of the highest growing business
vertical with rising demands across business verticals and different parts of the country.
♦ SIS also has a small Pest and Termite control business within facilities management called SIS Terminix, which was set up as a joint venture between an
affiliate of Terminix, SVM Services (Singapore) Pte Limited (SVM Services) in August 2011. Terminix has licensed various operating materials, processes,
recipes, information, hardware, methods mechanisms and knowhow to SIS Terminix.
♦ Revenues from Facility management has grown at a CAGR of 35% in last two years and have reached revenue of Rs314 crs in Q2 FY20. Facility
management vertical operating margins are expected to be remain around 6% in the medium term.
♦ Facility management is one of the fastest growing vertical because of the growing demand for rising offices, commercial properties, IT parks etc.
13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Company Report
0%
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4%
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8%
0
40
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160
FY18 FY19 FY20EFY21EFY22E
(%)
(In
Crs
)
EBITDA EBITDA MarginRevenues (Rs Cr) – Facility Mgmt. No of Employees - Facility Mgmt.
11
Investment Rationale
Company Report13 JAN 2020
Global Cash logistics market (By services) Increasing number of ATMs in India
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
18
36
0
10
20
30
40
2017 2023E
(In
Lakh
s)
Growing Cash Logistics services- High Entry Barriers
♦ SIS is India’s second largest cash logistics services provider in terms of revenue and market share. SIS has pan India presence, while its domestic peers
have regional presence.
♦ The banking inclusion initiative, growth in banking infrastructure, and increasing ATM installations in the country are major drivers for the cash logistics
services market, which for FY19 was valued at Rs 3,500 crs, growing at a CAGR of 19.3% since last four years.
♦ Cash logistics services comprise three functions: ATM replenishment, cash-in-transit (CIT), and cash pickup and delivery (CPD). Cash logistics service
providers also provide other services such as bullion transit and cash processing and cash vaulting services.
♦ Private cash logistics companies are estimated to carry Rs 15,000 crs. every day in more than 8,000 cash vans. They are also estimated to hold more than
Rs 4,000 crs. at any point in time in their vaults on behalf of banks and other financial institutions.
♦ With high risks and low error tolerance, competition is highly restricted and involves a small number of companies that have proven credibility. The top five
to six companies dominate more than 80% of the market.
# Cash Management is projected as the most lucrative segments.
Cash Management
Cash - intransit
ATMServices
2017 2025
200
400
0
100
300
($ b
n)
12
Investment Rationale
Company Report13 JAN 2020
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Demand scenario across business verticals in India Demand scenarios of services in India
29%
4%
38%
29%
Government Residential
Industrial Comercial
55%
35%
10%
Private Security Companies
System Integrators
OEM'S
Rising demand for electronic security services in India
♦ SIS has a strong focus on technology enhancement in terms of providing upgraded security services like turnkey services, surveillance solutions etc.
♦ SIS has built various technology solutions to improve its productivity and operational efficiency. Sales force productivity is managed through “SalesMaxx” a
tablet based productivity tool which helps keep track of deal pipeline and funnel as well as quote generation.
♦ The electronic security services market in India recorded growth at CAGR of 25% from FY16 to FY19. The segment is projected to grow at a CAGR of 34%
between CY18 and CY20, to reach Rs 17,000 crs (approx.) by FY23E.
♦ We believe that SIS to be the largest beneficiary of this strong growth as it is the market leader in providing electronic services in India and has a record to
invest in new products.
25%
3%
42%
30%
GovernmentResidentialIndustrial
45%
42%
13%
Private Security Companies
System Integrators
OEM'S
2019 20192023E 2023E
13
Extensive training infrastructure spread across India
SIS has 19 training institutes in India, comprising state-of-the-artinfrastructure and providing up to-date courses that make it possible totrain more than 25,000 guards a year securing SIS’s personnel pipelineand ensuring prompt deployment.
Largest trained manpower supply chain in India with integratedcapabilities in sourcing, training and deploying a large manpower base.
Graduate Trainee officer Programme (GTO)
Average experience for top 400 employees at SIS is over 9 years.
Approximately 47% of the 170 security services branches are headedby GTO graduates.
Benefits of Integrated Supply chain
It gives edge over its competitors as there is no formal training for securityguard in India.
SIS also gets better control over both service quality and service supplychain which will help retain the existing clients and acquire new clientsacross industries and verticals.
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Source: Company, Axis Securities
14
26 superior technology enabled processes
Recruitment Training & Development Operations Performance Measurement
Strong Technological linkages from…
SIS is continuously investing in superior technology to stay ahead of its competitors along with investing in technology to increase productivity and operating efficiency.
Investing in Technological upgrades to achieve its strategic objectives and to remain competitive in the private security field.
Deployments of technology initiatives on a cost effective and timely basis with constant introduction of new and enhanced solutions for its clients.
SIS has strong feedback and development program for its employees to increase the efficiency and thereby increase the clients retention for the longer term. This process also help to provide services as per their requirement across industries.
SIS has strong and unique systems that provide scalable business and helps in boosting operating leverage over longer term.
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Source: Company, Axis Securities
15
Superior technology enabled processes
Operating System Purpose
♦ Service Quality Assurance and Operations Productivity platform
♦ Workflow automation, data analytics, real time customer reporting and PMP linkage
♦ Employee performance score, peer group ranking and transparent, quantitative pay review system.
♦ Basis for talent development, promotions, transfers and separations
♦ It is ERP generated monthly balanced scorecard
♦ Version of the balanced scorecard, through which we measure KPIs and review those on a monthly basis for all our branches
♦ Automated Recruitment Kiosk -Product Quality and Consistency
♦ Enables enforcement of quality standards and detailed product quality metrics
♦ Sales force Productivity and Margin Control
♦ Targeted at enhancing sales productivity; real time margin validation pre quote generation, incentive linkage
PMP
Seven Finger Model iOPS
Sales Maxx
Automated Recruitment Kiosk
Operational & Reporting Systems Tied in to the ERP System
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Source: Company, Axis Securities
16
Superior technology enabled processes – Pilferage locking system
Oil tanker is digitally lockedwith pass code and marked oillevels.Drivers are unable to open thelock in transit.
Customer directly receives theOTP based authorization codeto open the digitally locked oiltanker.
The Oil marketing Companyand client can track the tankermovements on real time basis.
Only client can unlock thetanker lock by using the uniqueOTP received on his mobile.
Customer receives all thedetails like track no, Invoiceno. on his mobile.
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Source: Company.
SIS has developed pilferage locking system for oil marketing companies which is currently on testing mode and has great potential ahead.
17
Business Structure
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Security ServicesIndia
Security ServicesAustralia
Facility Management Services
Cash logistics
Services Offered Security SolutionsRange of Services from
guarding Cleaning and repair Services
Cash management
AirportsFacility operation and maintenance Services
ATM related services
Specialized Security Services
Pest control Services
Branches 170 - 77 -
Employees 1,54,700 9,000 58,300 1,512 vans
Market Share 20% 14%
CompetitorsPremier Shield,
TOPS, G4SWilson Security, ISS,Secure Corp
Bharat Vikas, ISS, Quess Corp
Secure value, CMS, Writer Safeguard
Revenue contribution 39.1% 43.2% 15.0% 2.7%
Operating Profitability 6.1% 5.5% 6.60% 9.50%
Share of consolidated EBITDA 35.5% 40.1% 16.9% 7.0%
Source: Company, Axis Securities
18
Strong footprints in geographies and robust business network
The company has presence in almost all the districts and states in Indiamaking it one of the leading security service provider in India.
The company has robust domestic network with 312+ branches in 29 statesand towns which cater to 630 district. The company has more than 20regional offices and 20 training academics.
Its Australia business has also very strong presence and has highest marketshare in organized security market with more than 20% market share.
In Australia, SIS has 9,000 employees with 1,057 customer base and 9,700+ mobile patrol customers.
The recent acquisitions in Singapore and New Zealand will enable SIS todeepen footprint across the new and emerging markets in the Asia Pacific(APAC) region, with a larger suite of security solutions.
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Source: Company, Axis Securities
312+
branches17,800+
Sites
7,335+ Customers
2,25,000+ Employees
19
Porter’s 5 Forces Analysis
Threat of New Entrants (Medium)
Lot of local players are entering thesecurity business.
In house services may grab outsourcingopportunities.
Competitive rivalry (Medium)
Higher entry barriers in the Securityindustry have led to high concentrationin the industry.
Threat of Substitutes (Increasing)
Emerging local players which providesecurity services taking away SISadvantage to a certain extent.
Bargaining power of Suppliers (High)
Intense competition and higher attritionrates in the security staff may putpressure on employee expenses.
The multiple players are available andthis could put pressure on billing rates.
Bargaining power of Buyers (Increasing)
Company Report13 JAN 2020
Source: Company, Axis Securities
Long term relationship withmarquee clients helps SIS togenerate business.
Adapting new technologies asper the demand across verticalsand trained staff put SIS inleadership position.
SIS has adopted newtechnologies keeping serviceportfolio different from otherplayers.
New technology transitions willkeep bargaining power intactfor the company.
SIS invests periodically in newtechnologies and trains its staffto keep them ahead in themarket.
SIS has come up with gratuitybonuses so that it can reduce theattrition rate
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
20
Strong domain focus
Diversification of business ( from services to technology, facility
management)
Presence across 29 states in India, with a strong foothold in Australia
and Singapore.
Strengths
Threats
Weaknesses
Opportunities
SIS is focusing more on
acquiring new client base
across industry and across
India.
Acquiring newer technology to
transform itself to a complete
solution providing company.
Threat from local players
Unorganized sector may
eat market share
High competency from
limited partners
Further penetration in security domain and in verticals
Increasing awareness about security services.
High brand value will help generate faith among clients
for longer run.
SWOT
SWOT Analysis
Company Report13 JAN 2020
Source: Company, Axis Securities
Single domain
dependence.
Higher attrition rate
Lower contract tenure.
Higher dependency on
clients
Increasing brand value
will help to get more faith
among clients.
Strong client addition will
help diversify across
verticals.
Reducing client specific
dependency
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
21
Niche Business segment makes business model sustainable
Among business security services it provides services to wide rangeof industries including Automobiles, IT&ITeS, Healthcare, BFSI, SteelIndustries etc. The diversified business structure reduces thedependency over one particular customer base, reduces thevulnerability to economic shocks from business vertical and makesbusiness structure more robust.
The company has also developed the capabilities to providecustomized services across business verticals which help them tostrengthen the long term relationship with the client.
SIS has Diversified customer base across government organizations,business entities and household services.
SIS has a strong employee base which ensures its commitmenttowards clients for services provided.
No of Employees
Consistent growth across segments
De-risking Client concentration risks
Company Report13 JAN 2020
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
10%9%
10%
14%
9%5% 5% 5% 6%
27%
Government Automobile IT/ITeSBFSI Steel Industry FMCGHealthcare Hospitality UtilitiesOthers
0
2,000
4,000
6,000
FY18 FY19 FY20E FY21E FY22E
(Rs
Cr)
Security Solution- India Security Solution- International
Facility Management Cash Management
0
50,000
100,000
150,000
200,000
250,000
FY18 FY19 FY20E FY21E FY22E
Security Solution- India Security Solution- International
Facility Management
22
36%
47%
13%
4%
Broad based revenue growth
SIS has reported robust revenue growth in last few years, owing to a
differentiated business model. The growth has been broad based across
all the verticals, geographies, and set of clients.
Revenue has grown sequentially at CQGR of 4.6% in last eight quarters
and CAGR of 22% in FY16 to FY19.
It grew over 15% in Security Solutions -India , Security Solutions –
International, Facility Management, Transportation, Utilities & Geospatial
segments. The momentum continued during Q2 FY20 and the same is
likely to continue for FY20E and FY21E. Among these verticals Security
solution in India and Facility management has seen good traction backed
by strong customer base, high efficiency and customized services to its
clients across industries.
This industry leading growth was due to its focus on select sub-verticals
where it specializes in terms of domain knowledge and capabilities.
Management is confident of being at the top quartile of revenue growth
at 15% - 20% for FY20 backed by strong client base, robust demand
momentum and strategic acquisition of new technologies.
Rising contribution from Security Services – India and Facility
Management likely to boost the operating margins as they are
considered high profit business as compared to Australian security
services.
Consistently delivering double digit YoY growthRevenue growth
Increasing revenue contribution from profitable business segments
Company Report13 JAN 2020
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY18 FY19 FY20E FY21E FY22E
(In
Crs
)
45%
35%
15%
6%36%
47%
13%
4%
Security Solution- India Security Solution- International
Facility Management Cash Management
2019 2022E
23
Stable operating margins
Improving return ratios Better margin Stability and Sustainability
Du-pont AnalysisStable operating margins
13 JAN 2020
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Company Report
SIS has been successful in delivering operating margins due tobetter service mix and better client acquisition. The company hasfocused on increasing India Security business which is highmargin business and also increasing facility managementbusiness.
Higher services standards , efficient use of resources help SIS toretain the clients across industries. SIS is also leveragingsignificant scale and pan India foot print.
SIS is also investing in the newer technologies, which helps toimprove the productivity and enhance customer satisfaction.
0%
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200
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800
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FY17 FY18 FY19 FY20E FY21E FY22E
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Cr)
EBITDA EBITDA Margins
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100
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300
400
500
FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(%)
(Rs
Cr)
NPAT ROE ROCE
DuPont Analysis FY18 FY19 FY20E FY21E FY22E
Net Margins (%) 2.79% 2.91% 3.38% 3.61% 3.7%
Asset turnover (x) 4.04 3.09 2.90 3.12 3.16
RoA (%) 11.3% 9.0% 9.8% 11.3% 11.8%
Leverage (x) 1.76 2.00 2.16 1.99 1.81
Return on Equity (%) 19.9% 18.1% 21.3% 22.5% 21.4%
24
Valuation Charts
Company Report
Key Risks Rise of local players could gain the substantial market share and thus
put the pricing pressure on SIS. Security services industry is very competitive in nature higher
competitiveness could put pressure on pricing and thus ultimatelyoperating margins may get affected.
Higher employee cost led to the higher operating expenses. Thesewage hikes can affect the operating margins negatively.
Currency volatilities especially US$-INR and GBP-INR and GBP-US$,could impact revenues.
Electronic surveillance systems could reduce the demand for humanguarding and may impact the business demand.
Slowdown in the domestic economy led to a slowdown in thebusiness as it is largely depending on these economies.
13 JAN 2020
12mth forward P/E band
Valuation Security and Intelligence Services (India) Ltd is well positioned in the
security services industry owing to its well established brand withsubstantial market share and growth in demand for the services across allthe segments.
We estimate the company to grow at a CAGR of 19% and earnings atCAGR of 28% over FY19-FY22E.
The company has announced sub division of equity shares from Rs. 10/share to Rs. 5/share which would be effective from 16th Jan 2020 (RD).
We value Security and Intelligence Services (India) Ltd at 18x FY22E toarrive at price target of Rs 1,190 (pre sub-division price) giving anupside of 21%.
One year forward P/E chart
Source: Company, Axis Securities
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
0
10
20
30
40
50
Aug
-17
Oct
-17
Dec
-17
Feb-1
8
Apr-1
8
Jun-
18
Aug
-18
Oct
-18
Dec
-18
Feb-1
9
Apr-1
9
Jun-
19
Aug
-19
Oct
-19
Dec
-19
PE Mean Mean+1Stdev Mean-1Stdev
0
200
400
600
800
1000
1200
1400
Aug
-17
Oct
-17
Dec
-17
Feb-1
8
Apr-1
8
Jun-
18
Aug
-18
Oct
-18
Dec
-18
Feb-1
9
Apr-1
9
Jun-
19
Aug
-19
Oct
-19
Dec
-19
Price 5x 10x 15x 20x
25
Financials
YE March FY18 FY19 FY20E FY21E FY22E
Net sales 5,833 7,093 8,848 10,798 12,168
Cost of goods sold 4,802 5,820 7,328 8,904 10,033
Contribution (%) 17.7% 18.0% 17.2% 17.5% 17.6%
Advt/Sales/Distrn O/H 719.1 908.4 991.2 1,209.4 1,362.9
Operating Profit 312 365 529 684 773
Other income 35 18 8 22 24
PBIDT 347 383 536 706 797
Depreciation 56 66 127 146 162
Interest & Fin Chg. 92 94 152 149 147
E/o income / (Expense) 1 0 (2) 0 0
Pre-tax profit 199 223 256 411 488
Tax provision 24 (5) (44) 21 34
Associates (12) (14) 0 0 0
Profit after Tax 163 215 299 390 454
Other Comprehensive Income 0.0 (7.9) 0.0 0.0 0.0
PAT after Comprehensive Income 163 207 299 390 454
YE March FY18 FY19 FY20E FY21E FY22E
Total assets 1,790 2,796 3,297 3,632 4,064
Net Block 248 346 287 208 114
CWIP 5.3 8.5 7.5 7.5 7.5
Investments 847 1,757 1,731 1,714 1,696
Wkg. cap. (excl cash) 147 264 353 638 872
Cash / Bank balance 543 420 919 1,065 1,374
Capital employed 1,790 2,796 3,297 3,632 4,064
Equity capital 73.2 73.3 73.3 73.3 73.3
Reserves 956 1,178 1,468 1,825 2,239
Minority Interests 1.4 0.3 6.0 7.8 9.1
Borrowings 737 1,510 1,692 1,683 1,675
Def tax Liabilities 22.4 35.1 57.2 42.6 67.5
Profit & Loss (Rs Cr) Balance Sheet (Rs Cr)
Source: Company, Axis Securities
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
26
Financials
YE March FY18 FY19 FY20E FY21E FY22E
Sources 720 1,154 618 476 589
Cash profit 311 374 578 685 763
(-) Dividends 18 11 26 34 40
Retained earnings 294 363 552 651 723
Issue of Equity 4.5 0.1 0.0 0.0 0.0
Change in Oth. Reserves 322.2 142.3 30.1 (3.1) (3.7)
Borrowings 212 744 166 (8) (8)
Others (113) (96) (130) (164) (122)
Applications 720 1,154 618 476 589
Capital expenditure 450.1 1,042.6 39.6 50.0 50.0
Investments (29.4) 146.4 0.6 0.0 0.0
Net current assets 184.3 94.4 79.0 279.7 229.2
Change in cash 114.9 (129.5) 498.9 145.9 309.9
Closing Cash 543 420 919 1,065 1,374
YE March FY18 FY19 FY20E FY21E FY22E
Sales growth (%) 27.7 21.6 24.7 22.0 12.7
OPM 5.3 5.1 6.0 6.3 6.3
Oper. profit growth (%) 41.4 17.1 44.8 29.4 12.9
COGS / Net sales 82.3 82.0 82.8 82.5 82.5
Overheads/Net sales 12.3 12.8 11.2 11.2 11.2
Depreciation / G. block 165.1 67.2 (213.7) (186.1) (171.3)
Effective interest rate NA 12.9 17.3 16.7 16.5
Net wkg.cap / Net sales 0.05 0.06 0.06 0.07 0.08
Net sales / Gr block (x) 18.0 15.0 16.4 17.8 18.0
RoCE 20% 14% 13% 16% 17%
Debt / equity (x) 0.39 0.52 0.46 0.36 0.30
Effective tax rate (%) 13.0 (2.5) (17.1) 5.0 7.0
RoE 20% 18% 21% 22% 21%
Payout ratio (Div/NP) 9.0 5.1 7.5 7.5 7.5
EPS (Rs.) 23.7 31.2 43.6 56.8 66.1
EPS Growth (%) 81.0 32.0 39.5 30.3 16.4
CEPS (Rs.) 31.8 39.7 62.0 78.0 89.7
DPS (Rs.) 2.1 1.6 3.3 4.3 5.0
Cash Flow (Rs Cr) Ratio Analysis (%)
Source: Company, Axis Securities
Company Report13 JAN 2020
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
27
Disclaimer
Company Report13 JAN 2020
Instead of a company visit, we have done a conference call with the company’s management.
Security and Intelligence Services (India) Ltd
Sector: Consumer Services
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business ofproviding Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed publiccompany and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital,Stock Broking, the details in respect of which are available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) fordistribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Omkar Tanksale– Manager - Research, MBA (Finance), author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report accuratelyreflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specificrecommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or its Associates mayhave beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL areengaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in thisreport. I/we or my/our relative or ASL or its associate does not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-monthperiod.
Any holding in stock – NO
5. ASL has not received any compensation from the subject company in the past twelve months. ASL has not been engaged in market making activity for the subject company.
6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates may have:
i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or;ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report;
ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.
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This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered inany way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ASL. The report is based on thefacts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly availablemedia or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy,completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer documentor solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive thisreport at the same time. ASL will not treat recipients as customers by virtue of their receiving this report.
28
Disclaimer
Company Report13 JAN 2020
DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation
UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events
NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock
Disclaimer:
Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s specific circumstances. The securities and strategies
discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific
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This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as it deems necessary to arrive at an independent evaluation of
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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements
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ASL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that ASL may have a potential conflict of
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The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The Company reserves the right
to make modifications and alternations to this document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views
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Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 022 – 4050 8080 / 022 – 6148 0808, Regd. off.- Axis House, 8th
Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Compliance Officer: Anand Shaha, Email: [email protected], Tel No: 022-42671582.
Security and Intelligence Services (India) Ltd
Sector: Consumer Services