SIS IPO crosses the halfway mark, subscribed 58% on Day 2

NEW DELHI: The initial public offering (IPO) of Security and Intelligence Services (SIS), received bids for 58 per cent of the total issue size on Day 2 of bidding process.

By 11.15 am, the issue had received bids for 30,85,038 shares compared with the total issue size of 53,16,187 shares.

The quota limit for retail individual investors as subscribed 3.5 times on BSE. The quota limit for non-institutional investors was subscribed 2 per cent whil QIB quota was yet to see bidding.

The company, which provides security solutions and business support services across India and Australia, has already raised Rs 350.81 crore from 18 anchor investors including ADIA, Reliance Capital Trustee and Birla Sun Life Trustee Company.

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“SIS stands to gain from operating leverage. At a P/E of 65.2x of its FY17 earnings. We believe that SIS demands a discount to its domestic peers. We assign a subscribe rating to the IPO,” GEPL Capital said in a note.

The issue comprises of fresh equity shares aggregating up to Rs 362.25 crore and an offer for sale of up to 5,120,619 equity shares by the selling shareholders. The company has fixed Rs 805-815 price band for the three-day issue that closes on Wednesday.

Listed peers included TeamLease Services, whose IPO was subscribed 66 times in February. Quess Corp is another listed peer for the company. Quess’ IPO was subscribed 144 times in June-July 2016.

Centrum Broking said that the valuations for the issue appears high given the financials -- revenue growth of 15 per cent annually over FY13-17 primarily aided by acquisitions, EBITDA margins at 4.5 per cent and RoE of 18 per cent.

"These IPOs got significantly over-subscribed and the stocks are currently trading at high valuations (EV/EBITDA of 40/52 times FY17 and P/E of 97/34 times FY17, respectively). If the same happens with this issue despite growth being lower than peers, the listing could be at a premium to the offer price," the brokerage said.

Abhishek Lodhiya, senior equity research analyst at Angel Broking believes that the issue at the upper price band of Rs 815, issue is valued at 61 times FY17EPS (at pre issue marketcap), which is at 36 per cent discount to Quess Corp (96 times FY2017EPS).

"Moreover, SIS has better ROE of 16.4 per cen compared to Quess Corp's 13.6 per cent. Furthermore, at 10.3 times P/BV, 26.2 timesEV/EBITDA, SIS’s valuation looks attractive compared to Quess Corp’s valuation of 13.1 times P/BV, 50.4 times EV/EBITDA. Hence, we recommend 'subscribe' rating on the issue," Lodhiya said.