SIS - SIS LIMITED Share Price

In the Q4 FY25 earnings call for SIS Limited, management provided an optimistic outlook for the future, highlighting growth across all segments and financial metrics. The consolidated revenue reached an all-time high of INR 3,428 crores, representing a 9.3% year-on-year increase. Specifically, India Security revenue was INR 1,435 crores (up 9.6%), Facility Management (FM) recorded INR 587 crores (up 12.9%), and International Security reached INR 1,424 crores (up 7.7%).

Management noted that EBITDA grew by 10.1% to INR 165 crores, achieving a record EBITDA margin of 4.8%. The India Security segment achieved an EBITDA margin of 5.6%, and FM's margin improved to 4.7%. International Security's EBITDA margin reached 4% with an EBITDA of INR 57.6 crores, reflecting 8.6% growth quarter-on-quarter. The operating PAT was INR 83 crores with a margin of 2.4%, indicating a significant year-on-year growth of 52.9%.

However, a reported PAT of -INR 223 crores was attributed to a non-cash goodwill impairment charge of INR 306 crores for past acquisitions. Despite this, ROCE improved to 14.3% from 12% in the preceding quarter.

Management reported a reduction in net debt to INR 429 crores, down from INR 889 crores, leading to a net debt-to-EBITDA ratio of 0.7, the lowest since June 2021. DSO improved by 5 days to 65 days.

Looking forward, management does not provide explicit guidance but suggests a consistent quarterly CAGR for revenue and EBITDA of approximately 15-16% over the past seven years. The focus remains on four key metrics: revenue growth, margin improvement, free cash generation, and higher return ratios. Additionally, management expects to maintain operational efficiency and explore organic growth opportunities, with an emphasis on not relying on M&A for growth.

Earnings Call Q&A Highlights

Question from Heet Vora (Guardian Capital Partners):
With the order wins in Australia, is this a recurring number or a one-off win?

Answer from Rituraj Sinha:
This is recurring revenue. Our international business typically sees annual recurring revenue wins in the range of AU$40 million to AU$50 million. Over the last year, we booked AU$150 million in permanent revenue, which will positively impact not just FY '26 but also subsequent years.

Question from Heet Vora:
Are most of our low-margin contracts behind us?

Answer from Rituraj Sinha:
Yes, in India's Security business, the contract churning is done, resulting in margins at 5.5%-5.6%. In FM, we're nearing 5% margins; by next quarter, we expect significant improvements. Internationally, margins are recovering to 4%-4.5%.

Question from Heet Vora:
Any updates on labor laws or wage hikes?

Answer from Rituraj Sinha:
There's uncertainty as implementation of the labor codes remains awaited. While we hope for swift adoption to reset wages for security workers, current national security issues may delay this.

Question from Heet Vora:
Can you provide guidance for the upcoming year?

Answer from Rituraj Sinha:
We don't offer formal guidance, but our listed performance indicates a revenue and EBITDA CAGR of around 15% over the past seven years.

Question from Gopinath (PNR Investments):
Why was there a goodwill write-off this quarter?

Answer from Rituraj Sinha:
Our auditors conducted their regular impairment testing. It revealed that acquisitions made before COVID did not perform as expected, necessitating an INR 306 crore write-off aligned with past projections.

Question from Gopinath:
Is this a recurring issue, or are all impairments now accounted for?

Answer from Rituraj Sinha:
This was planned as we noted last year regarding deferred impairments. We believe we've accounted for all necessary impairments, particularly for Henderson, SLV, and Uniq.

Question from Chirag (Keynote Capital):
What is the remaining goodwill of INR 700 crores related to?

Answer from Brajesh Kumar:
The INR 700 crores is primarily for MSS, DTSS, and RHPL acquisitions. Our auditors found no other entities requiring impairment based on the current assessments.

Question from Subir Sen (Aditya Birla Sun Life):
What are management priorities for this financial year?

Answer from Rituraj Sinha:
Our priorities center on revenue growth, margin improvement, free cash generation, and higher return ratios. We aim for faster growth while improving EBITDA margins and operational efficiencies in line with our KPIs.

Question from Gopinath:
What contributed to the recent order wins in Australia?

Answer from R. S. Murali Krishna:
These results stem from investments in business development over the last few years. Contracts in defense and local Sydney trains were particularly impactful. Such high-level order wins are not an annual occurrence.

Question from Amit Kumar (Determined Investments):
What is the share of solutions business in India Security and FM compared to last year?

Answer from Rituraj Sinha:
In Security, the share is still under 10%, while in FM, it's approximately 30%. We focus on solutions that provide outcomes rather than manpower alone, which influences our margins and growth trajectory.

This provides a detailed view of the major queries raised during the earnings call along with the respective responses from SIS Limited's management.