| Security and Intelligence Services (India) Limited | ||||||
| Suspension revoked; 'CRISIL AA-/Stable/CRISIL A1+' assigned to bank debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL AA-/Stable/CRISIL A1+' ratings to the bank facilities of Security and Intelligence Services (India) Limited (SIS India). CRISIL had earlier suspended the ratings on December 20, 2012, as SIS India had not provided information for the rating review. The company has now shared the requisite information enabling CRISIL to assign its rating. |
| Analytical Approach |
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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. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position and strong promoter experience 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 reached around Rs 8,900 crore in fiscal 2020 from Rs 3,700 crore in fiscal 2015, at a CAGR of over 18%. 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 2020 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 the first quarter of 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. * Healthy operating efficiency The operating margin has consistently remained in line with industry average at 4-6% during fiscals 2015 to 2020, 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 is able to 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 2020. Further, despite a high client base, debtor days have remained in the range of 40-60 days over the last 4 fiscals through 2020 and the same is likely to remain rangebound with marginal increase in fiscal 2021. 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 steady cash accruals and limited acquisitions proposed. The group's net worth was sizeable at Rs 944 crore as on March 31, 2020, and 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 2020, Gross Debt/EBITDA and gearing levels have elevated to 2.56 times and 1.41 times as on March 31, 2020 against 2.08 times and 0.74 times as on March 31, 2018. Nevertheless, healthy liquidity with cash and equivalents of Rs 722 crore and unutilised limit of Rs 114 crore as on June 30, 2020, provides comfort. SIS India has policy to keep Rs 400 crore cash surplus for working capital purpose in Australia. Total outside liabilities to tangible networth (TOL/TNW) ratio was moderate at 3.39 times as on March 31, 2020, as liabilities include sizeable future obligations (21% of total outside liabilities) related to acquisitions to further increase stake. With completion of stake acquisitions in fiscal 2021, TOL/TNW may improve to ~2.20 times as SIS plans to fund it through internal cash generated and cash surplus. Going forward, despite acquisitions payouts (for existing subsidiaries to take additional stake) of Rs 388 crore in the current fiscal, 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 * Moderate working capital requirement The security services industry in India is working capital intensive. However, SIS India has receivables of around 54 days as on March 31, 2020, 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. While receivables in the India business could witness an increase of ~5-10 days, as customers delay payments due to the covid-pandemic, 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 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 113 crores in its subsidiaries, associates and Joint Ventures in fiscal 2020 bringing the total investment to Rs 498 crores as of fiscal 2020 in these entities. Though cash logistics business has seen improvement in operating margins in fiscal 2020, its sustenance and turnaround in other investments will remain a key monitorable. |
| Liquidity Strong |
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Liquidity should remain healthy. Cash accrual is expected at over Rs 250 crore in fiscal 2021, sufficient to meet the yearly debt obligation of Rs 52 crore. The company has sizeable acquisition related payments of around Rs 388 crore in fiscal 2021, expected to be met through internal accrual and cash surpluses (Rs 722 crore as on June 30, 2020, on a consolidated basis). Bank limit of Rs 640 crore was moderately utilised at 83% during the 12 months through July 2020. The group also has working capital facilities for its Australia operations. |
| Outlook: Stable |
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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. |
| About the Company |
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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. |
| Key Financial Indicators* | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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