Buy Security and Intelligence Services; target of Rs 600 : Motilal Oswal

Motilal Oswal's research report on Security and Intelligence Services

Security and Intelligence Services (SECIS) is among the largest business services providers in India, with leadership across Security Services, Facilities Management, and Cash Logistics. It is also a leading security vendor in the stable markets of Australia, New Zealand and Singapore, which complement its fast-growing India business. SECIS' core businesses offer both high growth - due to low formalization and high fragmentation - and resilience to macro cycles on account of their essential nature. This makes SECIS a unique combination with dual characteristics of defensive and growth businesses, which we see as its key differentiator. Additionally, we see limited risk from competition owing to its unmatched pan-India presence, strong infrastructure, and diversified business mix. SECIS' 25% revenue CAGR over FY17-20 has been a function of (i) 30% growth in the India Security business, (ii) 16% growth in the International business, and (iii) 48% growth in FMS. We expect a 14%/18%/28% CAGR in revenue/EBITDA/PAT over FY21-23, driven by a) an increase in formalization, b) the further opening up of the economy, c) market consolidation, and d) SECIS' strong execution. Given the multi-dimensional opportunity, we initiate coverage on SECIS with a Buy rating, valuing it at INR600 per share (36% upside), derived by assigning the International business an 8x forward EV/EBITDA multiple (in line with global peers) and DCF on the India business.

Outlook

We value SECIS at INR600 per share using Sum of The Parts, with EV of INR625 using 1) DCF for India Security business (INR329), 2) EV/EBITDA multiple of 8x (INR166) on the International Security business (in line with global peers), and 3) DCF for Facilities Management business (INR130). Adjusting for net debt per share of INR25 gives us our Target Price of INR600/share.

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