CMP (NSE) 12:12, 15 Jun

432.00 15.23.65%




Misc. Commercial Services

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Last updated on

02 Nov, 2020

We raise FY21-23ii EPS by 7-15% after SIS’s 2QFY21 earnings topped our estimates on the back of improved margins. The primary driver of the earnings beat was a sequential improvement in margins across the Security Services business segments – both India and International.
Strong cash generation over the quarter has helped reduce net debt before lease liabilities by ~Rs2.1bn to Rs3.5bn. Management target to operate at an OCF-to-Ebitda of >50%. While the Security Services (India) business is seen returning to pre-Covid levels by 3Q, the Facilities Management segment is expected to get back to these levels only by 4Q.   
The relatively defensive nature of its businesses is an advantage, and the company’s market leadership position and execution capabilities are added strengths. We also see chances of market share gains for industry leaders like SIS in the post-Covid world, especially after Parliament has passed the new labour codes. Near-term growth may also pick up as the festive season kicks in. Besides, at 18x FY22ii P/E, valuations are not demanding, while our estimates suggest that EPS could nearly double over FY21-23. We remain positive from a longterm perspective.
Technically, SIS is currently trading in a narrow trading band and is on a verge of giving a Channel pattern breakout on the weekly chart. The stock has given a short term falling trendline breakout on the daily chart with an uptick in volume, indicating a bottom formation. If the current rally accentuates the way it should, we expect SIS to trend higher and test our immediate target price of Rs423.

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