SIS IPO kicks off; can it eclipse success of Quess or TeamLease?

NEW DELHI: Security and Intelligence Services (India), the second largest security service provider in terms of revenues, kicked off its initial public offering ( IPO) on Monday.

Can it eclipse the success seen by peers TeamLease Services (66 times subscription to its February IPO) and Quess Corp (144 times, June-July 2016?

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.

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.

Here's what brokerage said on the issue:

Angel Broking: Subscribe
Abhishek Lodhiya, Sr. 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.

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

It noted that a tremendous market interest was seen in IPOs of companies with similar business models such TeamLease Services and Quess Corp.

"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.

Motilal Oswal Securities: Subscribe
The brokerage said that the company is well-positioned to cater to an increased demand for security services from both corporates and residential housing due to its strong presence in 630 districts covering close to 12,000
customer premises. The broking firm is pinning hopes on increase in penetration of ATM of existing banking and demand from new emerging small finance banks is likely to bode well for cash management business.

"Post this issue, the company’s debt is likely to come down by about Rs26 crore, which will boost earnings in FY18. At
higher end of price band, the issue is available at P/E of 65.3x post issue (61.4x pre issue) for FY17. We believe premium valuation is justified in context of leadership positioning in industry and robust business model," Motilal Oswal Securities said.

IIFL: No rating
In a note IIFL noted that SIS has made various acquisitions and entered into strategic partnerships to expand and strengthen its offerings.

“Recent inorganic moves especially Dusters Total Solutions, has swelled its debt to Rs 760 crore in FY17 from Rs 450 crore in FY16. This increase as resulted in a 57 per cent rise in interest burden in FY17,” the brokerage said.

That said it noted that the debt may come down significantly as the company intends to prepay it from the ..

Ajcon Global: Subscribe
This brokerage noted that SIS has diverse portfolio, leading position in facility management services and is the second largest cash logistics service provider. The brokerage expects the company to log in excess of 50 per cent compounded annually growth in PAT over the next two years.

Factors such as intellectual property rights with significant geographic footprint, gigantic scale achieved in a fragmented market and DE Shaw and CX Partners being investors in the Company for a long time, instills confidence on
the company's corporate governance, the brokerage said.