Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SIS Ltd (BOM:540673, Financial) reported growth across all three business segments, with a 6.4% year-on-year increase in consolidated revenue.
- The international security segment achieved a 7% year-on-year growth, marking its highest ever quarterly run rate.
- Net debt was reduced by INR166 crores, bringing the net debt ratio down to 1.47% from 1.76% in the previous quarter.
- The cash logistics business achieved its highest ever quarterly revenue of INR177 crores, translating to a 13% year-on-year growth.
- Operational efficiency improved with DSOs reducing by 4 days, enhancing working capital management.
Negative Points
- EBITDA growth was marginal, with only a 0.2% increase, impacted by a 3.75% minimum wage revision in Australia.
- The international security business saw a slight decline in EBITDA margin from 3.4% in Q1 FY25 to 3.3% in Q2 FY25.
- PAT was down year-on-year due to the loss of benefits associated with carry forward losses from the previous year.
- The Indian security and facility management segments reported lower than expected growth, with the latter achieving only a 4.3% increase in EBITDA.
- The company faces challenges in improving margins due to existing customer contracts and SG&A cost rationalization.
Q & A Highlights
Q: Regarding the Australia business, will the margin compression affect customer retention and margins?
A: Rituraj Sinha, Group Managing Director, explained that the annual wage hike by Fair Work Australia is a routine event. The company passes the wage increase to customers within three to six months, usually by December. This process does not impact long-term profitability or client retention, and margins are expected to improve by Q3 and Q4.
Q: Is there any slowdown in the Indian market?
A: Rituraj Sinha noted that the company is pleased with the growth in India, with a 3.5% increase in security solutions and a 4.3% increase in facility management compared to the previous quarter. The company anticipates mid-double-digit organic growth in its Indian businesses.
Q: What is the expected return on equity (ROE) in the coming years?
A: Rituraj Sinha stated that pre-COVID, the company maintained a 20% ROE, which has decreased to 11-12% due to increased capital employed. The company plans to reduce capital employed and aims to achieve over 15% ROE by the end of the financial year, with a target to return to 20% in the next two years.
Q: Are there any acquisition opportunities being considered?
A: Rituraj Sinha mentioned that while M&A is part of the growth strategy, there are no immediate acquisitions on the table. The focus remains on organic growth, margin improvement, and better collections.
Q: Can you provide an update on the Singapore acquisition?
A: Rituraj Sinha reported that the Singapore acquisition is performing well, with annualized revenue increasing from $30 million to close to $50 million. The business is now stable and self-sufficient, with over $20 million in cash reserves.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
