SIS IPO

Security and Intelligence Services (India) Ltd (SIS), incorporated in 1985 is a leading provider of Private Security, Cash Management and Facility Management services in the country. SIS, which is backed by private equity firm CX Partners, is the second largest security Services provider in India and also has good presence in Australia. , It offers various services such as security services, Cash Logistics, electronic security solution, alarm monitoring and control, facility management. housekeeping and pest control. The IPO consists of fresh issue of  Rs. 362.2 crore and offer for sale of 51.2 Lakh equity shares at price band of Rs. 805-815 .

Related Post:SIS IPO: Consolidated Brokerage views & Run up to IPO

Security and Intelligence Services (India) Limited: IPO  Details
Issue Opens Monday, July 31, 2017
Issue Closes Wednesday, August 2, 2017
Price BandRs.805 – 815
Bid Lot18 Equity Shares and multiple thereof
Issue SizeFresh Issue of Equity shares aggregating upto Rs.362.25 Crores and
 Offer for sale of 5,120,619 Equity Shares.
 Total 9,564,404 Equity Shares at Upper Band
Issue Size ( Rs.)779.58 Cr (Upper Price Band)
Issue Structure : 
QIB75% of the Offer  Rs.584.69 Cr
NIB15% of the Offer Rs.116.94^ Cr
Retail10% of the  Offer -Rs.77.96^ Cr
Lead ManagersAxis Capital, ICICI Securities, IIFL Holdings. Kotak Mahindra Capital, SBI Capital Markets, Yes Securities, IDBI Capital
RegistrarLink Intime India Pvt. Ltd.
About Security and Intelligence Services (SIS)

  • SIS was started by Shri RK Sinha in 1973. Mr. RK Sinha was a journalist who also covered Indo Pak 1971 war and SIS was born primarily from his desire to help ex service men with minor injuries get jobs. He is currently Rajya Sabha MP from BJP and was elected from Bihar
  • SIS is now ranked as the second largest security services provider in India, in terms of revenue and the fastest growing security services provider in India, according to Frost & Sullivan.
  • In 2008, SIS  raised capital from hedge fund, DE Shaw & Co to acquire the Australian arm of the guarding and mobile patrol business unit of United Technologies. 
  • SIS wholly-owned subsidiary, MSS Security Pty Limited (“MSS”) iis jointly ranked as the largest security services provider in Australia, it  provides a comprehensive range of security services ranging from providing trained security personnel for general guarding to specialized security roles in India and Australia. In Australia, we also provide paramedic and allied health, fire rescue services, mobile patrol, loss prevention and other related services.
  • In security services segment, security services (India) contributes 34.9% while security services (Australia) contributes 52.6% to total revenues
  • SIS Operates in three major business segments as depicted below: 

SIS IPO Revenue Mix

  • As of April 30, 2017, SIS has a widespread branch network consisting of 251 branches in 124 cities and towns in India, which cover 630 districts.  SIS employed 148,678 personnel in India and rendered security and facility management services at 11,869 customer premises across India.
  • In Australia, SIS operates in each of the eight states and employed 5,754 personnel servicing 245 customers, as of April 30, 2017. 
  • Promoters holding Post issue stands at 72.2%.

Objectives of Issue
  • Repayment/pre-payment, in full or part of certain borrowings availed by Company ( Rs. 200cr earmarked for this).
  • Working capital requirements (60 crore)
  • General corporate purpose

Financials

Financials  in Brief   ( fgures in Rs. Crores)
2017201620152014
Net Revenue from Operations4,567.103,836.203,550.603,097.70
Revenue Growth (%)19.05%8.04%14.62% 
EBITDA 223.4171160.2148.5
EBITDA Margin (%)4.89%4.46%4.51%4.79%
Profit Before Tax112.994.281.6102.4
Net Profit 90.564.648.565.4
Net Profit  Margin1.98%1.68%1.37%2.11%
Face Value10   
Share Capital68.76.26.26.2
Reserves474.4443.2385.3385.6
Net worth543.1449.4391.5391.8
RoNW (%)16.66%14.37%12.39%16.69%
NAV Per Equity share (Rs.)79.16658.357.6
EPS (Rs.) 13.3011.209.2010.10
IPO Price815
PE ratio61.28
P/BV ratio10.30
Post Issue Share Capital73.14
Earning on Diluted equity12.37
PE ratio (Post Issue Equity)65.87
Market Cap5961.30

Pros 

  • As per report of Frost & Sullivan, the security services market in India is expected to grow at a CAGR of 20% between the years FY2015-2020.
  • SIS is ranked as second largest security services provider in India,and its wholly-owned Subsidiary, MSS Security Pty Limited (“MSS”) is ranked as largest security services provider in Australia
  • SIS is the 2nd largest cash logistics service provider in India in terms of market share by revenue, number of employees, ATMs served and cash vans utilized, as of 31/03/15
  • SIS total revenue grew at a CAGR of 14.56% to ₹ 45,771.22 million for Fiscal Year 2017 from ₹ 26,577.00 million for Fiscal Year 2013.
  • The widespread branch network enables SIS to service a large number of customer premises and render customized services across India and Australia. With 154,000+employees serving in 11,500+ locations,
  • SIS wholly-owned subsidiary, MSS Security Pty Limited (“MSS”) iis jointly ranked as the largest security services provider in Australia,. Australian operations which now form a major chunk of SIS Revenues from security services has been growing at 7% in terms of Australian Dollar.
  • SIS has shown ability for inorganic growth as well and its facility management business has gained good traction after acquisition  of ‘Duster’.
Cons
  • SIS operates in services, cash logistics and facility management businesses which are manpower intensive and are prone to heavy rate of attrition.
  • Further this manpower recruitment is subject to several labour legislations and regulations governing welfare, benefits and training of the employees and could lead to several litigations initiated by former or current employees.
  • SIS provides manned guarding services where it is required to comply with laws relating to health, safety and welfare of persons at work, employment and workplace relations laws, as implemented by each individual state of Australia
  • To expand its business, SIS has been involved in acquisition of other companies in related fields which involve a significant number of risks with respect to potential benefits, under reported liabilities, delay in clearance etc.
  • For providing private security and cash management services in India. PSARA approvals which are valid for a period of five years are required. PSARA approvals pertaining to SIS operations in certain states have been suspended in the past.
SIS: Comparison with Peers
    SIS is at present mainly into providing manpower for security services and as such there is no comparable listed peer company. The nearest peers are Quess Corp which is highly professional company and is into IT staff augmentation services as well and is also a general staffing provider. Another company which can be thought of is Teamlease Services ( which has focus on providing  temporary staffing services) which is trading at P/E of 34 times FY 17.  A brief comparison of  SIS with these two players is as follows
Figures in Rs. Crore
SISQuessTeam Lease
Market  / Issue Price815896.751307.7
Revenues Fy17456741572991
PE ratio6193.3139.49
Price / Book Value10.313.86.04
ROE16.417.1816.65
Net Profit Margin1.982.732.18
EV/EBITA26.247.0136.31

Quess is known for its management acumen & is of a different  pedigree, belongs to Prem Watsa group of companies (Thomas Cook) and is likely to continue  enjoying higher multiples. Also its staffing services are at a higher end and have more scope for value addition

Assessment
  • Growing public infrastructure in the form of shopping malls, commercial complexes, smart city initiatives Airports, Banks is likely to translate into growing demand for security services.
  • SIS derives a significant portion of its total revenue from its security services business. However this revenue is derived from a range of industries operating in different sectors which gives a degree of stability.
  • While continuing to maintain organic growth momentum, SIS has been exploring inorganic route as well and has entered into number of tie ups and joint ventures. This has potential benefits as almost 52% of its revenue from security services which is its main area of operation  is now accruing from Australia. 
  • In August 2016, SIS acquired 78.72% of the equity share capital of Dusters, a company ranked 4th in facility management in the country. The company business in this segment has since seen good uptick.
  • Acquisition of Dusters has considerably raised debt levels of SIS and resultant high interest charges in year 2017. This is likely to come down after IPO and will be reflected in its bottom line.
  • At the upper end IPO price band of Rs. 815, the stock is available at a PE multiple of 61.28 x FY17 EPS and on diluted share capital the multiple stands at 65.77x on figures of Fy17. Thus SIS is not being offered cheap and possibility of making an initial listing loss or subsequent loss in the IPO  cannot  be ruled out mainly due to pricing as the fact that there is no other peer in the strict sense for price comparison. SIS pricing seems to have been highly influenced by Quess corporation which has a much better track record. Thus only investors ready to take risk may apply.
  • SIS management has shown good amount of dynamism which bodes well for the company going forward
  • IPO listing in recent past has seen lot of speculative activity. This varies from time to time and issue to issue. SIS is not witnessing much interest in grey markets. Being a highly priced IPO issue it is subject to risks.
  • I will also take into account the response in terms of subscription which the company gets from QIB & Retail  before applying in this IPO. At this stage Iam planning to take only some exposure to SIS IPO or could even avoid it due to stiff pricing despite good prospects. I Shall in any case post my final opinion  here before issue closing. In general Iam optimistic about long term prospects of company and market could rate it differently due to its unique business. 
  • Looking into decent response on Day 2. Iam putting some applications in SIS IPO even as it ability to give listing or short terms gains cannot be properly ascertained at this stage. 

Standard disclaimer: I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.