| SIS Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA- / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank loan facilities and NCD program to the of SIS Limited.
The rating reflects the healthy business risk profile of SIS India and its subsidiaries (collectively called as the SIS group), marked by established market position in the Indian and overseas security services markets, diversified service offerings, end-user, and customer base. The rating also benefits from the healthy operating efficiency supported by strong manpower sourcing capabilities, stable operating profitability, and longstanding experience of promoters in the security services sector.
The ratings also factor in the group's comfortable financial risk profile, backed by healthy debt protection metrics and capital structure despite debt-funded acquisitions undertaken. These strengths are partially offset by exposure to intense competition in a fragmented industry and moderately large working capital requirement.
Revenue growth is expected to continue on double digits in fiscal 2023 similar to 2022, owing to strong recovery in domestic security and facility management businesses The group was able to post revenue of about Rs 10454 crore in fiscal 2022, a 10.5% increase over the corresponding period in the previous fiscal. Revenue growth will be due to volume growth, addition of new customers and wage hikes which will get passed on to customers in H2 fiscal 2023. Operating margins have been impacted in H1 FY23 due to unprecedented wage hike of more than 4% in Australia, which is expected to be passed on to customers in H2 fiscal 2023. Overall operating margins are expected to remain at around 5-5.5% in the medium term. Operating margins had declined to around 5.3% in fiscal 22, however, have remained in line with pre-covid levels on account of expiry of higher margin covid contracts in Australia.
M&A activities were paused during covid to conserve cash, however, with economy coming back, M&A activities have restarted with acquisitions in the medium term expected to be funded through internal accruals and debt. As per policy of SIS group, acquisitions are done to fulfill gaps in terms of geography, product or service. SIS has acquired 100% shareholding of Safety Direct Solutions Pty Ltd. In Australia. Further SIS has also made an investment in Staqu Technologies Pvt. Ltd. By acquiring 10% shareholding with total investment of around Rs. 35 crore in Fiscal year 2023.
Debt of the company has increased in H1 fiscal 2023, primarily due to increase in working capital requirement. However, it is expected to moderate in H2 fiscal 2023, and overall debt is expected to remain at around Rs 1400-1500 crore for fiscal 2023. |
Analytical Approach CRISIL Ratings has consolidated the business and financial risk profiles of SIS India with its subsidiaries, joint ventures (JVs) and SIS Cash Services Pvt Ltd because of strong financial, business linkages and common management. SIS Cash Services (49% JV, consolidated under equity method by company) has been fully consolidated due to as an additional 2% shares are held by Indian residents to effectively give control to SIS India.
For arriving at the adjusted financials, CRISIL Ratings has amortized goodwill on acquired businesses over 10 years.
Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position and strong promoter experience The SIS group is the largest security services provider (37% revenue contribution) and the second largest facility management (13%) and cash management (4%) player in terms of market share in India. SIS is also the largest security services provider in Australia and over the years, has also increased its foothold in the country with market share of ~21%. Backed by the established market position, consolidated revenue of the group is estimated to reach around Rs 11,500 crore in fiscal 2023 from around Rs 6,154 crore in fiscal 2018, at a CAGR of around 13.5%. The promoters are associated with the security services industry for over three decades and have established longstanding relationship with clients. The group has a diversified mix of service offerings including security services (83% of fiscal 2022 consolidated revenue), facility management (13%) and cash logistics (4%). The diversity is expected to further improve given the higher growth in facility management services segment.
Group's business profile is resilient to economic downturns also reflected in positive revenue growth in fiscal 2021 compared to sharp contraction in economic activity. The product offerings including security and facility management services are classified as essential in nature and their demand is expected to be bolstered over the medium term as clients are expected to increase focus on cleaning, sanitization facilities along with security personnel post pandemic.
The security services segment is largely dominated by the unorganized sector in India and is also very fragmented. Within the organized sector which accounts for 35% of the overall market, the SIS group has strengthened its dominance over time, through organic and inorganic expansion, as well as by weaning away share from the unorganized players. Given the group's strong market position in all key segments and established sourcing capabilities along with prudent expansion strategies, the group is expected to report steady revenues and strengthen its market position in its key segments.
Healthy operating efficiency The operating margin has consistently remained in line with industry average at 4-6% during fiscals 2015 to 2022, driven by strong operating leverage and branch performance, improved productivity through deployment of technology for effective real-time monitoring, better client mix and solution selling. The company can recruit, train and deploy around 50% of its manpower requirements through its 22 in-house training academies. This is also reflected in a reasonable return on capital employed ratio of over 10% during the eight fiscals through 2022. Further, despite a high client base, debtor days have remained in the range of 40-60 days over the last 4 fiscals through 2022 and the same is likely to remain rangebound in fiscal 2023.
Benefits from premium positioning due to integrated nature of services slow and steady shift towards technology-based security solutions and continued productivity gains from operating leverage are likely to sustain and give an impetus to margins in the medium term.
Healthy financial risk profile Financial risk profile is likely to improve, supported by profitability and steady cash accruals. The group's net worth was sizeable at Rs 1,332 crore as on March 31, 2022 and is estimated to be around Rs 1534 crore in fiscal 2023. Strong turnaround of acquisitions along with efficient working capital management helped in maintaining healthy financial risk profile over the last few years.
Due to moderation in margins in fiscal 2022, Gross Debt/EBITDA levels are elevated at around 2.8 times as on March 31, 2022 as against 2.6 times as on March 31, 2021. However, with gross operating margins improving with improvement in scale and the same is expected to improve to around 2.5 times in March 31, 2023.
Further, healthy liquidity with cash and equivalents of around Rs 697 crore and unutilized limit of Rs over 300 crore as on September 30, 2022, provides comfort. SIS India has policy to keep Rs 400 crore cash surplus for working capital purpose in Australia. Healthy cash accruals of around Rs 400 crores per annum is expected to be sufficient for debt servicing. Any large debt funded acquisition will remain key monitorable.
Weaknesses Moderate working capital requirement The security services industry in India is working capital intensive. However, SIS India has receivables of around 51 days as on March 31, 2022, which is relatively better compared to peers. Gross current assets have been 90-120 days owing to build up of cash in the business over the past few years; they are likely to remain stable over the medium term. The receivables days is expected to remain in the range of 40-60 days in medium term as the group has tightened its collection efforts in Australia. Any sustained increase in debtors and hence working capital requirement with the increasing scale will be a key monitorable.
Exposure to intense competition and limited revenue diversity The security services industry comprises around 20,000 small to medium, unorganised players and only 8-10 national players. The consequent intense competition continues to constrain scalability, pricing power and profitability. Unorganised players hold around 65% of the domestic market and the share of organised players may increase over the medium term with more focus on compliance after the implementation of the Goods and Services Tax, stricter enforcement of minimum wage bill, and the Private Security Agency Regulation Act and the recently passed Labour Reforms bills which are likely to benefit SIS India over the medium term.
Weak performance of group companies In addition to the cash logistics business of the Group, which was facing losses, many other entities such as SIS Alarms and Monitoring and Tech SIS etc. are at an early stage of operations and may need funding support per annum in form of equity, loans or guarantees, till they scale up and can manage on their own. Though cash management business has seen improvement in operating margins in fiscal 2022, its sustenance and turnaround in other investments will remain a key monitorable. |
Liquidity: Strong Liquidity should remain healthy. Cash accrual is expected at around Rs 380 crore in fiscal 2023, sufficient to meet the debt obligation. Bank limits were moderately utilised at around 60% during the past 12 months ending October 2022. The group does not have working capital facilities for its Australia operations. |
Outlook Stable SIS India should continue to perform better than the overall industry owing to resilient business model, strong market position, efficient operating capabilities, and healthy financial risk profile. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Established in 1974 by Mr Ravindra Kishore Sinha, SIS India has been providing security services since inception, mainly manned guarding. It has grown over the years through organic as well as inorganic routes and operates in Australia (through MSS after acquisition of Chubbs Security in 2008), New Zealand (through P4G) and Singapore (through Henderson) apart from India. The SIS group has a pan India presence through its 374 branch offices, 20 regional offices and 22 training academies. It has a trained workforce of 2,70,000 employees.
Besides security solutions, the group also provides facility management and cash logistics services. Service Master Clean Ltd ('CRISIL A/Stable/CRISIL A1'), a 59% subsidiary of SIS India, provides cleaning services under a technical collaboration with Services Master Clean, the US-based industry leader. Few other companies in the segment rated by CRISIL are Dusters Total Solutions Services Pvt Ltd ('CRISIL A/Stable/CRISIL A1') and Tech SIS Ltd ('CRISIL BBB+/Stable'). The SIS group also offers cash management services through its joint venture, SIS Cash Services Pvt Ltd ('CRISIL A/Stable/CRISIL A1') and its subsidiary SIS Prosegur Holdings Pvt Ltd ('CRISIL BBB+/Stable/CRISIL A2'). The company got listed on National Stock Exchange and Bombay Stock Exchange effective August 10, 2017.
As on September 30, 2022, promoters & promoter group had a shareholding of 74% while balance 26% was held by public.
For the first six months of fiscal 2022, the group (excluding cash logistics) reported revenues of Rs 5461 crore and PAT of Rs 150 crore against revenues of Rs 4830 crore and PAT of Rs 128 crore in the corresponding period of the previous fiscal. |
Key Financial Indicators*
*CRISIL adjusted numbers | ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be placed |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 06-Jan-2023 in line with the lender-wise facility details as on 07-Jan-2022 received from the rated entity
Criteria Details
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