SIS India IPO analyst calls: Expensive but subscribe


Ahead of the opening of SIS India IPO on Monday, SIS India has placed 4,304,432 shares to anchor investors at INR815 per share – the upper band of the price band. The CX Partners-backed company’s public offer has also received generally positive recommendations from analysts and brokerage houses. Although SIS India IPO analyst calls have been positive, some analysts have said that the offer’s valuations are on the higher side and leave limited scope for further appreciation. This was something we also highlighted in our review. Here is a quick glance at major analyst recommendations.

Angel Broking recommends investors to subscribe to the IPO, adding to positive SIS India IPO analyst calls on the basis of a discount to Quess Corp. “At the upper price band of `815, issue is offered at 61x FY17EPS (Pre issue marketcap), which is at ~36% discount to Quess Corp (96x FY2017EPS). Moreover, SIS has better ROE (16.4%) compared to Quess Corp (13.6%). Furthermore, at 10.3xP/BV, 26.2xEV/EBITDA, SIS’s valuation looks attractive compared to Quess Corp’s valuation of 13.1xP/BV, 50.4xEV/EBITDA. Hence, we recommend SUBSCRIBE rating on the issue,” said Abhishek Lodhiya in his report.

Ajcon Global has also recommended a subscribe rating to the IPO citing several factors. “At the upper end of the price band of Rs. 815, the IPO is valued at 65x at FY17 EPS on post issue basis. There are no immediate peers as such in the listed space. However, considering the Company offers services it can be compared to Quess Corp which is valued at 96x on FY17 EPS. With due consideration to factors like a) diverse portfolio of private security and facility management services, b) leader in providing security services in India and Australia , c) second largest cash logistics service provider in India, d) leading position in facility management services in India, e) we expect significant growth of 50 percent + CAGR in PAT over the next two years, f) intellectual property rights with significant geographic footprint, g) gigantic scale achieved in a fragmented market, h) DE Shaw and CX Partners invested in the Company for a long time instills confidence on corporate governance, we recommend investors to “SUBSCRIBE” the issue,” noted Ajcon Global’s report on SIS India IPO.

GEPL Capital assigned a subscribe rating to the IPO while noting that it deserves a discount to its peers. “Security and Intelligence Services (India) Ltd (SIS) stands to gain from operating leverage. At a P/E ratio 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,” said the IPO note.

Motilal Oswal threw its weight behind the offer with its positive SIS India IPO analyst calls. The brokerage house said that premium valuation is justified given its leadership positioning in industry and robust business model. “SIS is the second largest security service provider in terms of revenues with strong presence in 630 districts covering close to 12k customer premises. With increase in need of security services led by growing demand from both Corporates and residential housing, we believe company is well positioned to take the advantage of same. Further with 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 ~INR2.6bn 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. Hence we recommend SUBSCRIBE for long term investment,” noted the brokerage house.

Adding further to positive SIS India IPO analyst calls is Sushil Finance which forecasts the company will be able to leverage its leadership position in the expanding market. “The Company is growing at 1.5x times the industry growth, thereby taking away market share from unorganized sector. Looking at the financials, revenue has grown at CAGR 15% in last 5 years and profit at CAGR 19% in 5 years. Issue price of Rs.815, EPS is calculated at 12.76 & P/E comes to around 63x. As per reports of Frost and Sulivan the Electronic Security Services Market in India is expected to grow at 26% for next 3 years. Given the huge predictable growth potential we recommend investors to invest in the IPO,” said its report.

Choice Broking has advised investors to exercise caution, although it has also put subscribe rating on the IPO. “At the upper price band of Rs815 per share, the issue is demanding a P/E multiple of 65.3 (FY17 EPS post issue) Based on our quick estimate, we arrive at an FY18E EPS of Rs19.1, which translated into an one year forward P/E multiple of 42.6(x), as compared to Quess Corp at 60.3(x) and Teamlease at 29.9(x) indicating that the issue is fully valued leaving limited space for further upside. Thus considering all these parameter we are assigning ‘Subscribe with caution’ rating to the issue,” said its analysts in the report.


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