Q4FY23 Review SIS (I) Ltd: Margin recovery continues

5 May 2023 , 11:54 AM

SIS delivered a steady quarter – revenue and EBITDA grew ~3-7% QoQ. Both the domestic businesses (Security and Facility Management) improved margins sequentially, as SG&A costs have now stabilized. OCF-to-EBITDA for FY23 was ~53% (in line with internal targets). Strong cash generation during the quarter helped net debt improve by ~Rs. 1.3 billion sequentially. The company has repaid ~AUD15mn of debt in April 2023; this is likely to reduce finance costs in FY24. Management is confident of delivering robust growth within domestic businesses and improving margins back to pre-COVID levels. 

Decreasing share of International business will also help improve consolidated margins. Additionally, VProtect — which operates at ~15-20% margins — continues to grow strongly and has a robust order book.

Analysts at IIFL Capital Services have cut their FY24/25 EPS by 3%. Earnings seem poised for good growth over FY23-26, driven by double-digit revenue growth coupled with margin expansion within domestic businesses. At 15x/12x FY24/25 estimated P/E, valuations remain reasonable for a stock that has proven to be quite resilient in tough times and with robust growth outlook. Recovery in margins could likely trigger a re-rating. IIFL Capital Services’ SOTP-based Target Price (rolled forward to June 2025) moves up to Rs. 510.