SIS Ltd’s growth momentum coming back, will get back to pre-Covid EBITDA: Rituraj Sinha

In FY22 your revenues went up by 10.2 per cent but EBITDA slipped 4.3 per cent. What factors led to a dip in EBITDA?
FY2022 was a landmark year for SIS Group. We crossed Rs 10,000 crore annual revenue mark for the first time in our history. The gross margin continues to remain stable at pre-Covid level, but the EBITDA margin dropped because of the following three reasons. First, we incurred large expenditures for protection and mitigating measures for Covid-19, such as expenses on medical needs and vaccination for our frontline workforce. Also, additional one time compensatory payout to employees for catching up on FY21 appraisal increments. Second, in FY22 with economy opening up, all the cost saving elements -such as reduced office rentals, meeting related travel, hotel accommodation, training etc. – induced due to lockdown in FY21, have started to come back in the system and these costs are now getting reflected back in the P&L. Third, we are also investing in growth levers such as adding people in our sales team, restarting opening branches, because we believe every crisis is followed by a fresh opportunity, a period of

charge growth.

At the end of FY22, Covid related costs are now literally negligible, as the vaccination exercise has been largely concluded. Also, this Q4 FY22 was one of the strongest quarters of growth for the group with highest ever quarterly revenues of Rs 2,648 crore. With the growth momentum coming back, it is a matter of getting the business volumes back in shape to get back to pre-Covid EBITDA.

Looking back at the last 2 years of Covid, has it proved to be a tailwind or headwind for the business?
The beauty of our business line is that our offerings are sector agnostic and hence all our businesses have reported growth in the last 2-year period of Covid.

We were amongst very few companies in India to report a YoY revenue growth during the Covid period. We reported an almost 7% year-on-year revenue growth in FY21, the year when the economy contracted. And also witnessed more than 10% year-on-year revenue growth in FY22. The testimony to the fact that the last 2 years of Covid has proved to be a tailwind for SIS business is that our monthly revenue which was ~ Rs 720 crore in Mar’20, has grown to more than Rs 924 crore at the end of Mar’22. This equates to 31% growth in monthly revenues during the last 2 years of Covid period.

What does the order pipeline look like for FY23?

As the economy is reopening, we are witnessing growth. Our existing customers across the segments are going back to full scale operations and also adding new capacities, therefore resulting in expansion of our business volumes with them. At the same time, new customer acquisition is happening across segments like- oil and gas, power, mining, healthcare, manufacturing, BFSI, logistics and transportation, etc. We are also witnessing increased leads from retail, hospitality, IT and various other sub sectors which saw deeper Covid impact are now coming back to full operations as pre Covid.

SIS is looking forward to FY2023 being a year of revival and going back to our pre Covid levels of exponential growth. We are very bullish about the situation, and we clearly hope that we do not have any disruptions in FY2023.

Do you think that the international business would be able to recover quickly this quarter?
SIS’s International security business comprises four entities – MSS and SXP in Australia, Platform4Group (P4G) in New Zealand and Henderson in Singapore. As of Q4FY22, we continue to be the market leader in Australia and are also among the top 3 players in New Zealand and Singapore.

International security delivered an exceptional result in FY2021, on the back of a lot of Covid related temporary work outsourced by Governments, such as Services to Quarantine hotels & isolation facilities, Vaccination centre management etc., which came at higher margins. We all are aware that these developed economies witness single digit growth in normal years and in FY2021 the Australian and New Zealand economies shrunk but international security business delivered 20% Year-On-Year growth at more than 6% EBITDA margin. Further, FY2022 was normalization towards pre Covid levels and so obviously the growth rate and EBITDA margins have standardised.

The way to look at our international business is to go back and look at the FY2020 numbers. We believe that the international business will ultimately revert back to the FY2020 pre Covid broad range and mostly it should happen over the course of FY2023.

Among the three segments, where do you see the highest growth coming from in the next 2-3 years?
Our security business has been resilient across the geographies we operate in and is in growth mode. The quarterly revenues for India security business crossed Rs 1,000 crore for the first time in our history and this is a major milestone. Our cash logistics business has been the most

business vertical and had its best growth ever during Covid period itself. The business has reported highest ever quarterly revenues and EBITDA in Q4 FY22. Moreover, with cash in circulation going up to a record level, the cash logistics business will continue to have exponential growth. Covid has proved to be a watershed moment for our FM business. The mindset of customers is moving from facility management for cleaning to facility management for hygiene and disinfection and health and safety. General consciousness increase in this direction is basically resulting in a higher spend per square foot. FM business reported 23.7% revenue growth in FY22. All our businesses are in growth mode and clearly poised for tremendous growth.

Do you see more pressure ahead in terms of wage inflation?

For SIS group, wage inflation is positive development as it aids in employee retention and as well as profit accretion for business. Also, SIS contracts are built on pro rata pricing arrangements, which implies that wage increases are passed through to customers.

What are your plans for Terminix? How serious are you about growing the pest control business?

SIS group views pest control as an essential component of the Facility Management portfolio. With this view, after entering FM space in 2010, subsequently in 2011 we had entered a joint venture with Terminix to provide pest control and termite solutions in India.

This business has demonstrated its ability and importance during Covid period, as it recorded strong 25% revenue growth and higher gross margin by customising services and offering specialised/ ad-hoc services in the face of tough conditions.

We are very happy with the 100% acquisition of Terminix stake in the business and now it’s a 100% subsidiary of the group. We would continue to invest in the business and are committed to make it market leader in the pest control business segment in facility management in India.