| SIS Limited | ||||||
| Rated amount enhanced | ||||||
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| 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 facilities and NCD programme of SIS Limited (SIS India).
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 recover to double digits in fiscal 2022, after moderating to mid-single digits in fiscal 2021, owing to strong recovery in domestic security and facility management businesses with curbing of restrictions especially in metro cities. Despite the Covid-19-induced lockdown impacting operations during the first quarter of fiscal 2021, the group was able to post revenue of about Rs 9458 crore in fiscal 2021, a 7% hike over the corresponding period in the previous fiscal. This is due to the essential nature of services offered by the group and higher growth in overseas business. Operating leverage in the India business, increasing margin profile of the international business and newly incubated companies turning profitable have led to strong margin upside, from 5.9% in FY20 to 6.2% in FY21. The same is expected to sustain at 5.5-6.5% in FY22 and in medium term.
The group has done sizeable acquisitions over the past five fiscals, which along with increasing working capital requirement with scale has led to consolidated debt more than doubled over last 5 fiscals ended 2021 however gross debt/EBITDA levels has improved during the same period. Going ahead, the group has an outflow Rs 224 crore in fiscal 2022 for purchase of incremental stake in some of its acquired entities, which is expected to be funded internally. Total Debt is expected to remain at ~Rs 1300 crore in FY22.
However, the group is not expected to make material acquisitions in the near term. Given surplus cash available with the group, and healthy annual cash accrual, gross debt/ earnings before interest, taxes, depreciation, and amortisation (EBITDA) and gearing levels are estimated to improve about 2 times and below 1 time respectively in fiscal 2022 against 2.51 times and 1.13 times in fiscal 2021. |
Analytical Approach CRISIL 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 has amortized goodwill on acquired businesses over 10 years.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The SIS group is the largest security services provider (41% revenue contribution) and the second largest facility management (14%) and cash logistics (4%) players 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 ~Rs 10,600 crore in fiscal 2022 from Rs 3,700 crore in fiscal 2015, at a CAGR of ~19%. 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 (82% of fiscal 2021 consolidated revenue), facility management (14%) and cash logistics (4%). The diversity is expected to further improve given the higher growth in facility management services segment. The customer base is also fairly diversified with total client base of around 7,500 and no single customer contributing over 4% to overall revenue. Further, contribution from Government institutions is less than 10% of the revenue.
Also, 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 in the wake of the 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.
The operating margin has consistently remained in line with industry average at 4-6% during fiscals 2015 to 2021, 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 20 in-house training academies. This is also reflected in a reasonable return on capital employed ratio of over 10% during the eight fiscals through 2021. Further, despite a high client base, debtor days have remained in the range of 40-60 days over the last 4 fiscals through 2021 and the same is likely to remain rangebound with marginal increase in fiscal 2022.
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.
Financial risk profile is likely to improve, supported by steady cash accruals and limited acquisitions proposed. The group's net worth was sizeable at Rs 1,310 crore as on March 31, 2021 and is estimated at Rs 1354 crore in fiscal 2022. The same was boosted by the initial public offering done in fiscal 2018. Strong turnaround of acquisitions along with efficient working capital management helped in maintaining healthy financial risk profile over the last few years.
Due to sizeable investments of ~Rs 900 crores in the last 3 fiscals ended 2021, Gross Debt/EBITDA and gearing levels are elevated at 2.51 times and 1.13 times as on March 31, 2021 against 2.11 times and 0.76 times as on March 31, 2018. However, with completion of balance stake acquisitions in fiscal 2021, the same is expected to improve to 2.18 times and 0.97 times respectively as on March 31, 2022.
Further, healthy liquidity with cash and equivalents of Rs 1,181 crore and unutilized limit of Rs over 200 crore as on September 30, 2021, provides comfort. SIS India has policy to keep Rs 400 crore cash surplus for working capital purpose in Australia. Gross debt/EBITDA is expected to remain below 2 times in the medium term due to healthy cash accruals of Rs 400 crores per annum and limited capex/new acquisitions. Any debt funded acquisition will remain key monitorable.
Weaknesses:
The security services industry in India is working capital intensive. However, SIS India has receivables of around 48 days as on March 31, 2021, 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.
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.
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 of Rs 10-15 crore per annum in form of equity, loans or guarantees, till they scale up and can manage on their own. The flagship company has invested Rs 26 crores in its subsidiaries, associates and Joint Ventures in fiscal 2021 bringing the total investment to Rs 524 crores as of fiscal 2021 in these entities. Though cash logistics business has seen improvement in operating margins in fiscal 2021, its sustenance and turnaround in other investments will remain a key monitorable. |
Liquidity: Strong Liquidity should remain healthy. Cash accrual is expected at over Rs 400 crore in fiscal 2022, sufficient to meet the yearly debt obligation of Rs ~50 crore. Bank limits were moderately utilised at 63% during the third quarter of fiscal 2022. The group also has 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 332 branch offices, 20 regional offices and 20 training academies. It has a trained workforce of 2,40,462 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-/Positive/CRISIL A2+') 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, 2021, 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 PAT of Rs 127 crores on sales of Rs 4810 crores against PAT of Rs 166 crores on sales of Rs 4325 crores 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: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Jan-2022 in line with the lender-wise facility details as on 07-Jan-2022 received from the rated entity.
Criteria Details
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