SIS Limited (SIS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Q3 FY '20 Earnings Conference Call of SIS Group. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vamshidhar Guthikonda, Head of M&A and Investor Relations. Thank you, and over to you, sir.

Thank you, Margaret. Glad to have all of you onboard for the earnings call for the third quarter results for FY '20 for the SIS Group. I hand over the call to Mr. Devesh Desai, who is the Group CFO, for his opening remarks. We already uploaded the earnings presentation to the stock exchange and to our website. And over to Mr. Devesh Desai.

Thank you, Vamshi. Good afternoon, everyone. A very warm welcome to our Q3 FY '20 earnings call. Along with me, I have our Group Managing Director, Mr. Rituraj Sinha and Mr. Vamshidhar Guthikonda, who is the President of M&A and Investor Relations. I hope everyone has had an opportunity to have a look at our results, which have already been uploaded on our website and on the stock exchanges last evening. We are extremely happy to report a strong performance by the SIS Group during the quarter ended 31st December 2019, and also for the 9 months ended on that date. Our consolidated revenues for the quarter stood at INR 2,178 crores, which is a quarter-on-quarter increase of 4.3% and a year-on-year increase of 18.6%. We crossed USD 100 million in revenue for the month of December, which is a major milestone for the group. This was $100 million of monthly revenue. We ended the quarter at a monthly revenue run rate of INR 726 crores, which places us on a strong footing for FY '21. With this, we have now achieved a quarterly CAGR of 5.8% revenue growth over past 11 quarters since we listed in August 2017. This reiterates the predictability and scalability of our business model, and we are very proud of the execution capabilities of our team, which has achieved this continuously despite a broad economic slowdown over the last 3 to 4 quarters. There has also been a margin improvement across all business segments and business units. And in this quarter, we generated INR 134 crores of EBITDA, which represents a 36% growth year-on-year and an 8% growth quarter-on-quarter. The EBITDA has grown at a quarterly CAGR of 7.2% over the past 11 quarters. Our margins, especially in our Security Solutions International business has staged a good uptick. And this has also been packed by historical low in the DSOs across the entities in our International business. The India security and facility management businesses continue to operate between 6% to 6.5% EBITDA margin, which is the range we have been trying to maintain. As far as returns and cash flow metrics are concerned, we are glad to have generated a 23% return on equity and 20.5% return on capital employed, both on trailing 12-month basis. These represent a 700 bps increase and 190 bps increase, respectively, over the same quarter in the previous year. Considering that we have acquired many businesses during this time, both international and in India and increased our capital employed to consummate these acquisitions, having achieved these significant increases on our return metrics just shows our execution skills and also our successful acquisitions across India and international and also reiterate our asset-light model. Our strong collections during the quarter resulted in our free cash flow to EBITDA for the group going up to 80% as compared to 75% during the previous quarter. Our leverage levels have, therefore, also improved from 1.4x net debt/EBITDA in Q2 to 1.2 in Q3. Our balance sheet, therefore, gives us a good platform for future organic and inorganic growth. With these opening remarks, I would like -- now like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Aditya Bagul from Axis Capital.

Congratulations to the entire team on a good set of numbers. Vamshi, the first question I had was essentially trying to understand our transition from moving from a products to a service to a solutions-based offering. If you could give some more examples as to what we are doing? I mean we know the oil and gas project happened last year. But what are the new sort of projects that we are doing here? What is the contribution of these solution-based offerings that we are doing? And if you could just highlight what is the margin differential between that and our steady-state business?

Aditya, I'll have Rituraj answer this call.

Yes.

That's a pretty good question. Yes, I mean, there is a -- there is often a big confusion that people have between staffing versus services versus solutions. So let me just give you a broad understanding before I get into the details of what we are doing. So the evolution of any space and ours as well, you're basically on manpower supply, you're providing input. So headcount supply is what our business was, like it is even today for general staffing companies. Then in an input-based model, you're not responsible for what the guy does on the job. You provide a receptionist. What he or she does or what the accountant you provide does or what the guard or the editor headcounts you provide does is not your responsibility. It's just a headcount provision. The industry in the last 10 years has completely moved. Our industry, security, FM has completely moved to an outcome-based service level agreement model, which means that our customers are no longer buying headcount. They are seeing what their deliverables are. They are engaging our services for access control, material management, visitor frisking. They are defining what job they want us to do rather than defining a headcount. So we are not simply able to provide the people and say, "Okay, I provided you x number of staff outside Axis building and please go figure out what you want to do with them." They are need -- they need to be trained. They need to deliver the function of checking, inspecting or doing whatever, issuing passes or baggage scans or whatever. And that's what I -- my payments happen on. It's an outcome-based model. Where the industry is going now and where SIS is sort of trying to lead is what we term us solutioning. Solutioning is basically doing a SLA model or an outcome-based model, with much greater use of technology. So as you've seen in the case of oil and gas, we mentioned last year. In the security domain, we picked up some major customers, who will look at solutioning and moving one step forward from just a service -- SLA-based service model. So we started out with oil and gas, pipeline security. We have illustrated that last year, we took up city gas networks because India is going to go big on city gas infrastructure. So we picked up that problem, what you need to do on city gas. We solved that problem for IGL. We did pipelines for GAIL. Then oil tankers, when oil moves from the bunks to the gas stations and things like that, they have a problem of pilferage, they have a problem of mismatch between their RP systems and physical fuel balances on the truck and in the tank of the fuel station. So we try to solve the security and loss prevention aspects of that. We did that with HPCL. These are all instances that we have spoken about and Vamshi will be very happy to share with you videos and short presentations to explain what we've done on the oil and gas side. What we are doing now is on the BFSI side. We believe that the banking sector is under acute pressure. They are looking at optimizing costs in every which way. And the banks have a massive bill of security. You will have a guard outside a bank branch, you'll have a guard outside an ATM. If you just take how many guards and cameras banking sector uses, it's an exorbitant number. It's a very, very big buyer, BFSI is one of our largest customers. We are looking to these provisioning through banks. How can banks manage their [Technical Difficulty]

Really sorry to interrupt you, Mr. Sinha, your voice is breaking up, sir.

Okay. Can you hear me better?

At the moment, we can. It was breaking for last few seconds, so I would request you to repeat yourself.

I'll just repeat that. So what we are trying to do, BFSI being one of our largest customer segments. We are trying to do solutioning for them now on the security side, which basically means that state ATM security, I'll give you a very practical example. There used to be guards outside ATM. Now the guards are being replaced by cameras. Cameras with sensors and also are 2-way communication. What we are trying to do now is to take e-surveillance to the next level called ATM cluster solution. What we are doing is we are automating even controls of air conditioning, signages, shutter up and down. So going beyond just e-surveillance or security into a more operation and maintenance type deal. We are blending housekeeping because ATMs need to be kept clean. We are also taking up the job of running a control and command center, which is tracking ATM cash outage and alerting the cash agency to refill cash on time. So we are going beyond just plain -- providing the guard or providing the camera.

Right. So I get your point, Ritu, and that's a very interesting avenue to explore. The bare question that I had was actually for doing multiple of these solutions. We would have to have some amount of equipments, which we have to keep at our client's offices. So how does the services business -- or sorry, the solutions business compare to our existing product business in terms of margins or ROCE? How would you think about that?

So first up, we try and do these solutions on a solve-and-scale strategy. So we try and solve the problem of ATMs for a large customer, like we're trying with SBI right now. And if that goes well, then we scale it up to everybody else. We do this strictly on an OpEx model. We don't want to do it on CapEx because recurring revenues is our core thinking, right? So rather than selling the equipment or the technology, we try and do it on an OpEx model, including the AMC components that gives us revenue predictability and visibility. It also gives us in most cases, unit level margins of greater than 20%, which is almost a 5% greater than a vanilla service contract that we do for clients. So definitely, this is margin accretive. And it's also a big differentiator, I think. This is something where our industry is very fragmented. Organized operators put together, don't even control 40% of the market. 60% is still unorganized. So you have to differentiate. You have to be able to do things that the other guy can't do, to be able to move away from the cheapest provider site. And solutioning is a great way to do that, as we have tested in the last 3 years. And not just on security, this is happening also on the facility management side. So on health care, we are doing a lot of projects. Right now, Coronavirus is the topic that everyone is discussing. We are introducing, in our part of our TFM solution, ways to disinfect hospitals and safeguard against such viruses. Railways, we've spoken about earlier, how we are solving the problem for railways. So I think solutioning is the way forward for us across segments.

Great. That's very helpful. And if I may just ask one data point question. Mr. Devesh, we've talked about our finance cost, and there were 3 sort of components to that. Is there a chance you can help us understand what was the broad breakup? The interest burden, which included cost with regards to our future payouts, and what we paid for with regards to the SLV and the increase in working capital?

You want a break down of the finance cost between all these 3 components?

Yes. The INR 38 crore amount. If you could just help me break that down into 3 parts.

Can I -- can we send that to you...

Yes, I'll just send that to you after the call. Let me...

[Operator Instructions] The next question is from the line of Vidit Shah from India Infoline.

Just want -- could you share some light on the additional stake that you're going to purchase in SLV against the initial payment? There are some remarks made in the note, but just in terms of how the agreement was structured and what is expected to happen going forward?

Yes. So -- okay, it's Vamshi here. So as we had indicated earlier in various discussions, we have a structure in our M&A transactions, where we want to protect our downside pretty strongly. So that in any event of shortfall over what we had initially estimated for a target's growth or projections. As against that, if there is any shortfall, we have provisions to clawback certain equity. So as a part of that, I mean, all our transactions we did last year, whether it's SLV, Uniq or even our international acquisitions have these kind of structures. So under that, we had that agreement with SLV, which in the adjustment for that came up last month. So for the amount we paid last year, the advance of INR 50 crores, which is between September '18, we had got 51% for that. For the same amount that we paid, we'll be getting around 17% -- or 16% to 17% odd for the same amount that we paid. And promoter has excised his put option for the balance stake of 33%, which he is left with. And the payment towards that would be in the range of INR 30 crores to INR 35 crores. We're just finalizing those definitive documents over the next week or 2.

Okay, understood. So this would lead to a reduction in the borrowings or NCI put option line and the finance costs going forward. Would it?

Yes, yes. In fact that would mean it for all the acquisitions. As soon as they are paid out for the final tranche, that line would go out of the statement, essentially the other noncharacter nationality.

Fine. That's helpful. Also, could you just help me with the organic growth in the international business? So you've given the number to be around 2.5%. But just in terms of the performance of Henderson, Platform 4 and Triton over the quarter, it would be helpful just to know how these acquisitions are doing.

So just to -- from Q3 to -- you want the organic growth from last year Q3 to this year Q3?

Yes. So that's -- I think you've given in your press release to be around 2.5%.

Yes.

On revenue.

Yes.

But -- on revenue, yes. But if you could just help me out with the performance of the individual acquisitions in Q3, so Henderson, Platform 4 and Triton, the contribution of these companies to the revenue?

Okay. So last year, in Q3 FY '19, these 2 acquisitions were not in our group. They came in effective 1st March 2019. So this -- in this quarter, Henderson had a revenue of SGD 75 million, and P4G had NZD 17 million. No, wait a minute. Just give me a minute. That's SGD 15 million for Henderson, and NZD 3.5 million for P4G.

SGD 15 million, 1-5, is it?

Yes, 1-5.

Sure. And just lastly, the improvement in the DSO days in the international business, is this a seasonal thing wherein greater collections are happening over the last quarter of the calendar year? Or are these new levels sustainable going forward?

So actually, just to reiterate, actually, our Q3, historically, used to be a slightly weaker quarter because of the extended Christmas break where people go on -- where our financial people and also the clients and payments people usually go on leave. So Q3 historically, was a weaker quarter for collection, but this year has been a pleasant surprise for us. So we ended with a historic high in terms of collections and DSOs are down to 45, 46 days there.

Sure. So these levels you believe are sustainable as well going forward?

See, on an average, we try to maintain between 46 to 49 days of DSO in Australia. You could have seasonal ups and downs based on the time of the year. 45 is on the lower side, 46 to 49 is something which is more sustainable in all 3 levels.

[Operator Instructions] The next question is from the line of Sameer Chuglani from Edelweiss Securities.

This is Alok Deshpande here. I just had a question on the M&A strategy going forward. So obviously, last year, we saw a series of acquisitions, where you guys were trying to fill in gaps in terms of the geographical -- where the gaps are there. But going forward, how are we looking at the acquisition strategy?

Well, Alok, I've mentioned this before. M&A is a part of the development of businesses like ours globally, so we are not doing anything out of the ordinary. We're just following like a global template of sorts. However, we will not be acquiring, as stated earlier, for growth. We are principally acquiring for consolidating market share or penetrating a customer segment where we are underrepresented or to acquire a service capability that we currently do not possess. So that's an ongoing activity for us, and that strategy doesn't change. This -- with or without M&A, we are looking at a 20% growth year-on-year and a 20%-plus ROE. These are the 2 metrics that we work with. This is what we want to maintain. And this is not essentially M&A dependent. In fact, M&A dilutes the ROE. So I don't know if that answers your question.

No, sure, that's helpful. Just a little bit more on that, that -- but as we stand, as far as the facility management business is concerned or the security business is concerned, do you -- what the top of a mind you see as a gap in terms of a geography or the kind of services maybe in facility management? Is there any big piece that, sort of, we are missing in that, that will sort of complete the picture?

I mean without getting into too much details, I mean, I think the broad point that Alok, you'll have to function is that our Vision 2020, the 5-year plan that we just concluded, was about getting into market leadership, about becoming #1 in security, cash and FM. We are #1 in security, now displacing G4S after 29 years. They were leaders in India. We are looking to become #1 in India on the FM segment in the next 2 to 4 quarters basis our current pipeline and projections. Now what next? The next thing for us is clearly to get market share in the U.S. and other parts of the world, mature markets, market leaders hold 15%, 20%, 25% market share. In India, even as we are the largest operator, we hold barely 4%, 4.5% market share. So there is a lot of consolidation of market share that is ought to happen in India, and that's why we went to the biggest security market in the country, Bangalore, and we acquired Uniq. Or we went to NCR, which is, again, a very, very big and a fast-growing market for security. And we acquired the market leader, SLV. So the same thesis and the same strategy will continue to play out with an ambition over the next 5 years to get to a 15%, 20% market share across security, FM and a higher percentage market share in cash.

Sure, sure. That's very helpful, Rituraj. And just one question regarding this same point which you -- obviously, you've gone past G4S now and become a market leader. In terms of scale, will it allow you to have a bit of pricing power going forward since you've become the -- now there is, obviously, in the last 10, 15 years, that reputation has built up, scale has built up. So will it allow better pricing power with your larger customers? Or you think that, that will take some time?

Pricing power is not a function of market share as such, pricing power is a function of brand. It's a function of solutioning capabilities and a lot of other things as well. So as of right now, I can only tell you that G4S has been market leader for 29 years, and their EBITDA margin is almost 2% higher than ours. So they operate at 8% plus. It also is because they have a lower cost structure, they operate India with 79, 80 branches, whereas we operate India with 170 branches in security alone. But I do believe that if you just look at the industry marker, the market leader does generally maintain a higher margin line. So over a period of time but, I still would like to caution that SIS will maintain a 6% to 6.5% on the EBITDA margin line despite accruing greater margin -- sorry, greater pricing power simply because, Alok, we have a commitment to continue to invest in growth. So we want to build more branches, more capabilities, spend more in technology, do more solutioning. Our -- we are far more focused on 20% market share than creeping 1% on the EBITDA margin line. So I'm just being very honest and upfront about that.

Sure, sure. This is very helpful, Rituraj. Congratulations to you and your entire team for an excellent set of results.

[Operator Instructions] The next question is from the line of Dipan Mehta from Elixir Equities.

Congratulations...

Sorry to interrupt you, Mr. Mehta. May I request you to please speak on the handset mode. There is an echo from your line.

Yes. Congratulations on good set of numbers. About a couple of quarters ago, we had some additional expense on account of a new large contract win, which we had undertaken. So now, how is that progressing? And if you could refresh our mind here, name the company as well.

Well...

From Q2 of last year, right? FY '19?

Yes.

That was Cognizant.

So that was Cognizant, and while SIS does not want to comment on specific contracts, we simply brought out that particular contract and related costs because that single contract is the largest that SIS has currently in India. And for that certain terms of contract resulted in a lot of pre-op expenses, which showed up on one quarter and impacted. That is completely one-off and unusual. Since then, we have reached many, many contracts, which has shown up on our revenue line, but you wouldn't have seen any great impact of pre-op expenses. So you should take that as an aberration more -- rather than something that will happen regularly. That contract is stable, continues to run just fine.

Sir, second question is regarding client concentration. If you can give us some data point for Australia and for India, the largest client or tough 3 or 4 or 5 clients, if you have such information?

Yes. So I don't want to give individual names. But in India, as we've always stated in our annual reports, where we give full disclosure there. The top 10 customers account for around 23%, 25% of our revenues. And in Australia, it's around 40%, the top 10 customers. So the client concentration is -- it's not very significant.

[Operator Instructions] The next question is from the line of Ankit Gupta from IndiaNivesh PMS.

I joined late, maybe I have missed it. Can you tell me the cash tax paid in the last 9 months?

Cash tax. Just one minute.

Cash. So are you talking of current tax or cash tax?

No, no. Tax paid in the cash flows, not the accounting tax.

We don't do 9-month cash flows, we only disclose 6-month and 12-month cash flows. If you want, specifically, we'll have to compute this, work on it and then send it you separately.

Pardon, sir?

If you want this number, we'll have to work on it and send it to you separately, as we don't compute 9-month cash flows and such detail.

Okay. No, issues. And sir, regarding the accounting tax, till which year it will be negative?

Well, the negative in India stand-alone and in the consol is largely on account of the benefits we get on 80JJ. But we believe as long as 80JJ is there, there will be some deferred tax advantage and current tax advantage we will continue to enjoy. Now it will only work as long as 80JJ is there on the statutory books.

And it is only in India, right? For Indian operations?

Yes. And benefit is not available in other countries we work in.

[Operator Instructions] The next question is from the line of [ Nitin Shetty ], an individual investor.

I just wanted to know that there has been a few changes in the labor laws. If you see, about the contract laws and employment, I'm not up to date about that. Can you just tell us what changes have happened? And how it impacts us? Or what changes are happening in the future?

So [ Nitin ], for the last 4, 5 months, the government has accelerated the pace of labor reforms. Earlier, we had 44 labor legislations for covering minimum wages, payment of wages, bonus, gratuity and various other Investor Relations related laws. The government wants to collapse a bunch of these laws into 4 overarching legislations. So to start with, they started with 4 of these separate legislations being bundled into the code on wages, which was cleared in July, August of 2019. So this was the first one and probably the most important one. What it aims to do is bring a lot of formality into the way the entire labor organization is structured and how they are tracked. Currently, for instance, what happens is people who are tracked under the Minimum Wages Act. And if a company says that I have 100 people who are being paid minimum wages, the bonus legislation has separate regulator, separate authority, and they'll say that I have like only 70 people who are being paid bonus. What will happen now is there'll be a single portal, through which everyone will have to make these disclosures. And they'll be -- and they'll not be able to be noncompliant or abate some of these other legislations, which people sometimes used to ignore, like some of the smaller player noncompliants they used to go easy on their bonus payment or gratuity payment because they were all not a single portal to track and manage these different regulations. But now what it enables is it gives us a level playing field. And it reduces the cost differential, which these noncompliant players have. So that's going to be a big change. The other big change, which is still to come about is essentially the actual minimum wage, which has to be announced under these rules. I think that is still being discussed. Once that comes through, what will also happen is there'll be a national floor wage being established because currently, there are many states, which are -- which pay quite low, even, say, it's like Gujarat, which are economically well advanced, they pay a very low minimum wage. But what a national floor wage will do, establish a particular floor below which you can't pay. So many states would have to rise above that number. And that will also help a great way in attracting and retaining good workers. And also, over time, spur the move towards some more technology and solution-led services.

Great. Another question I had was I see a lot of guards were just shifting and jumping companies every time they get a wage. Do you guys have like some sort -- like in the tea garden in Assam, most of the tea garden owners, they have some sort of an internal, let's say, a CIBIL for guards, a sort of, even one good guard that behaves in a company, that intelligence is shared between other companies. Do you'll have anything like that?

No, no. Yes, I think most people when they leave the industry or the firm or SIS, they leave the industry. They don't go to join a competitor. Like the reason is that we are already paying minimum wages, and we're paying all the statutories like PF, bonus, gratuity, et cetera. So it's not like if they go to another player, they'll get a 20% jump. Right? So there's no practical reason for people to leave the company. So very often or so, most of the time, I think they go back to their village to do either farming or open a small store or do some other small business on their own. It's not necessarily going to another competitor.

The next question is from the line of Sameer Chuglani from Edelweiss Securities.

This is Alok here again. Just had one more question. Can you give some outlook on what's happening with the growth in Australia? So obviously, the organic growth you mentioned was about 2.5%, excluding Henderson and New Zealand business. But how should we look at it in terms of the next year or so? How do you guys look at it?

Well, Vamshi, let me take that. So Alok, international growth, as we have indicated earlier. In India, we have maintained a growth which is close to 3x GDP in the last 10 years. Internationally also, we have maintained a growth, which is in the range of, at least, 1.5, 2x GDP. So I think the same forecast continues going forward for Australia as well. So we are looking at a 5% to 7% growth on an organic basis in Australia. But obviously, Australia puts out a lot of free cash as well. So there's always small bolt-on things like Triton or BaaS that we have spoken about in New Zealand, they are fairly small acquisitions. They are $5 million, $10 million acquisition by revenue, not by acquisition value. So I think it should be that 5%, 7% organically and maybe a little bit of top up, but not much. The good news is that SIS is now more than 60 -- close to 65% revenues coming from India as we look forward. And we had indicated this at the time of IPO as well that the revenue mix India to overseas will change very rapidly. And that's happening. India is simply outgrowing the international businesses, despite the fact that they go pretty well for their domestic markets.

The next question is from the line of Harish Kumar from Ernst & Young.

Congratulations for the entire team for stellar results of the Q3. Sir, I have a couple of questions. First one is on the new tax regime. What is the call on the new tax regime for the company? And the second one, can you throw some light on the 80JJ benefit? And what is the quantum you have recognized in the deferred tax?

So as far as the new tax regime is concerned, we will take a decision at year-end. So the decision will be reflected in the Q4 and the annual results, which we hope to declare sometime in April or early May of 2020. Your second question was on the quantum of 80JJ benefit. Now the detailed quantum and the detailed working again will be disclosed in the annual results. What happens on a quarter-to-quarter basis is we create an estimate based on the effective tax rate. These taxes are what we're required to do under the accounting standards. And exact competition will be made at year-end. And in the annual report, there'll be full disclosure on that.

Okay. And what is the probability that we might use this 80JJ, even if at all, we are going into the new tax regime on the MAT credit, which is there? So do we need to write-off? Or what is the call on that?

In the new tax regime, the 80JJ benefit continues even if you adopt or opt for the new rate or the new lower rate. So we expect that the 80JJ benefit competition will continue to accrue to our benefit, irrespective of which path we choose to go.

Fine, but on the MAT credit?

MAT credit, yes, there is a potential issue on the MAT credit, and that's what we're trying to work out as to what's the opportune time to actually move to the new regime. And that's why we said we'll take a call at Q4.

Okay. And currently, what is the MAT credit lying in our financials, sir?

I'll have to check that and get back to you.

The next question is from the line of Meet Jain from Prithvi Finmart.

Sir, my question is regarding the debt profile of the company. Gross debt has been increasing since March quarter and it's currently around INR 1,200 crore levels. And we have a cash balance of around INR 600 crores. So are we planning the repayment of our debt?

What was that question?

Are you planning to repay some of the debt? Just one minute.

Most of the debt is on account of working capital. And so obviously, that gets -- that fluctuates during a month based on the cash collections and cash payouts. We don't plan to repay any working capital debt. As far as the long-term debt is concerned, there are 2 major components of long-term debt. One is the INR 150 crore NCD in India, which is just taken in April 2018. And the other is a line we have from NAB in Australia, which is also -- which was renewed by us in April '18 and used primarily for acquisition financing. So as and when we have surplus cash, we pay down the debt in NAB. We did so last year. We paid down around $30 million debt in NAB. And we will have a look at the cash flows next year in FY '21, and we will then decide whether a pay down is required or not.

Okay. I asked this question because our cash balance has increased in international operations from INR 293 crores to INR 391 crores, along with debt. So in the internationals, we have a gross debt of about INR 490 crores, with a cash balance of around INR 391 crores. So like we have cash balance to pay out some of our debt, like from NAV itself.

No, see, let me just -- Devesh, just give me a second on that. So I think one thing that you will have to understand is that the Australian debt, the cost of that debt is 5%. And the cash that we've parked there also accrues some interest. So the net cost of the financial facility or the credit line in Australia is negligible from Indian standards. Okay, that's one part. So that's also one of the reasons why we don't square off the debt. We can take all our cash balance and repay back debt. But effectively, this is quasi equity for us because the Australian debt extended by National Australia Bank is secured by more than $30 million of EBITDA and close to $20 million of free cash that the Australian business generates on a recurring basis. If we square off the debts, suppose we were to do what you said. If we pay back all the debt, we will end up paying a huge amount of taxes in Australia.

Okay, right.

So from a tax balance perspective, it would be a disaster, actually. That's the reason why the Aussie debt situation looks what it looks like. Second and more important thing that I think a lot of people seem to be missing is the debt profile in India. The debt profile in India is 80% or more of working capital. And that's again, nature of business, every new contract that I get, I have to fund working capital for wages and PF and ESI and GST for 2 months. So with growth of 20%, you will have an escalating working capital situation. That's the nature of business. But I think the more important thing that must be taken into account is that, one, that overall, on a consol basis, SIS continues to maintain a 1.2x net debt to EBITDA. So we are not overly leveraged or 1.2x is, I think, a fair utilization of the balance sheet. A balance sheet and an asset, which generates like, for example, Q3, current quarter, we reported 80% OCF to EBITDA. So for a cash generating business, 1.2x net debt-to-EBITDA gearing is not extreme. So I think that's the way you need to look at. It's also nature of business led. A lot of people have asked me the question that some of the other staffing companies have different numbers. That's because they first collect and then they pay wages. We pay and then we collect. So that's difference in nature of business, our working capital intensity will be higher, and that's a fact that cannot be changed. But then you also need to appreciate that, that's also the reason why we pull a 6% EBITDA margin versus competition in staffing arena, which pulls a 2% EBITDA margin. So you have to compare apples-to-apples.

Absolutely. And like as you said, the other companies have -- models separation, they are more of a collect and pay. So is it beneficial for our company to adopt that model also? It will reduce our working capital? Or is it possible for our companies to do that?

We have no plans to do that, and that's not possible in our line of business. We are a service company, getting into a solution, we are not a staffing company, we cannot become one. This is stepping down on the value chain. So that's not possible. You should not factor that.

The next question is from the line of Vidit Shah from India Infoline.

I wanted to understand a bit on the facility management EBITDA margins. So they are probably at an all-time high of 7.2% and have increased healthily this quarter. So what has really driven this improvement in margin specifically? And what sort of margins -- what is your outlook on the future as well?

Yes. So let me take that question. So yes, facility management has had a fantastic quarter. The growth of facility management over the last 2, 3 years have been one of the highest among all our business verticals. And it continues even this quarter. And in terms of EBITDA margins, also, the entire segment has been on a steady uptick over the last year or so because especially in this quarter, we had a couple of our group companies, which were earlier a bit below the average, especially on our organic business, SMC, which started like 10 years back. It was operating at 4%, 5% kind of EBITDA margins earlier. It managed to increase its EBITDA margin to over 6%. That was a very creditable achievement, which increased the overall average for the group. Dusters continues to retain its historical trend of EBITDA margin of around 6.5% to 7%. But our overall outlook for the segment continues to be as it was earlier, which is a 6% to 6.5% bucket. Yes. And as I've -- as we had also indicated earlier, our Terminix business continues to do well. Earlier, it was loss-making, but a couple of quarters back, it broke even and continues to be a good contributor to the EBITDA. But all said and done, we think there'll be ups and downs in margins, but our overall outlook still remains as we told earlier that between 6% to 6.5% is going to be a sweet spot for margins.

[Operator Instructions] The next question is from the line of Pankaj Bobade from Axis Bank Securities.

Just wanted to understand, you talked about solutionizing -- solutioning business. So what is the current contribution of that segment to our top line? And how do you see planning ahead?

Well, at this point in time, the solutioning revenues are fairly small. On the security side, it won't even add up to double-digit as a contribution to overall revenues. We will start, hopefully, next year onwards reporting some of this data and also sharing, which we have the right opportunity. But as of right now, the solutioning revenue, what we do for city gas network security or pipeline security or HPCL, oil tanker security or even about banks, there's -- it's not a very large share of revenues. We believe it will increasingly become a more prominent share of revenues in the next 2 to 3 years. But this is something that has just started off maybe 1.5, 2 years back. So I think it's still in development phase.

Well, in that case, will it be contributing -- will it be having better EBITDA margins going forward? As we see the share of solutioning business increasing in total India business, do -- would we see improving EBITDA margins on consolidated basis, I mean, India business?

Well, like Vamshi has already indicated, we advise all of you to look at our margin profile to be between 6%, 6.5%. But having said that, you're absolutely right, as the solution business is at a higher margin than the SLA-based service business. As the share of the solution businesses grows up with overall revenue, margin profile will get an uptick. That is absolutely correct. But then please don't start building that into your models just as yet. That's -- I'm saying that with great clarity because we will continue -- we are a business that is investing in growth. We look at building more and more new solutions. So the idea is to replow the extra margins in doing something to build out for the future. Our goal is very clearly set. Our goal is 15%, 20% market share in the Indian security market, 15%, 20% market share in the Indian FM market and 40%, 50% market share in the cash segment. So we are building for revenue growth. So you must be factoring that as well.

[Operator Instructions]

Probably, if there are no other calls, probably -- or any questions, we can end the call right now.

Sure, sir. Would you like to add any closing comments?

Yes, I'll have Devesh have -- address the analysts for the closing comments.

Thank you, Vamshi. I just want to close by saying that at SIS, we continue to invest in people and technology and in solutions. On the back of the series of global reform announced over the past few months, the pace of formalized vision is only going to accelerate. And coupled with the steady change in customer behavior towards more tech-based solutions, we are completely confident of maintaining our pace of growth, increase our differentiation and, accordingly, increase our market share in all our segments over the coming years. With this, I would like to conclude. I would like to thank everyone for joining on the call. I hope we have been able to respond to your queries adequately. Where we have indicated we will send the information separately, Vamshi will try and do so as soon as he can. For any further information, I request you to get in touch with our Investor Relations team. Thank you very much, and have a good day.

Thank you. On behalf of SIS Group, that concludes this conference. Thank you joining us, and you may now disconnect your lines.