Buy Updater Services; target of Rs 400: Motilal Oswal

Motilal Oswal's research report on Updater Services

UDS reported revenue growth of 13% YoY/3.2% QoQ to INR6.5b, below our estimate of 18% YoY growth. EBITDA margin came in at 6.3% (est. 4.0%), up 60bp YoY. IFM margin rose 30bp QoQ to 4.0%. BSS margin declined 20bp QoQ to 6.7%. Consolidated adj. PAT stood at INR254m (up 97% YoY), above our estimates. UDS is shifting its business mix by increasing its focus on the higher-margin Business Support Services (BSS) segment while leveraging the diverse business lines of its subsidiaries. In 1QFY25, the revenue contribution of IFM/BSS segments stood at ~65%/35% vs. 70%/30% in 1QFY24. The company anticipates organic growth of over 20% in BSS and expects the revenue contribution to rise to 40-42%. We estimate a revenue CAGR of 23% for BSS over FY24-26, indicating a strategic move toward higher-margin opportunities that could drive overall revenue growth and profitability. Meanwhile, we expect the IFM business to clock a 13% CAGR over FY24-26, with PBT margins stabilizing at 4-4.5%.

Outlook

We expect a CAGR of 17%/32% in revenue/EBITDA over FY24-26E. With visibility of healthy earnings growth over the medium term and strong value from BSS business, we reiterate a BUY rating and a TP of INR400 (premised on 18x FY26E P/E on adj. EPS). Our TP implies a 25% upside potential.