SIS Limited (SIS) Earnings Call Transcript & Summary

It's a great pleasure to have with us the management of SIS Limited to discuss the business impact on -- of COVID-19. From the management side, we have Mr. Rituraj Sinha who is MD; and Mr. Vamshi who's the Chief Strategy. I hand over the call to Mr. Rituraj. Over to you, sir.

Good afternoon, everyone. Thanks for joining this call in short notice. We have been receiving a lot of inputs and queries about the impact of COVID on our business. And this call is basically with the purpose of addressing questions and queries that you may have. Just as opening remarks, I can say that 3, 4 things. First up on top, our International business so far is not adversely impacted. In fact, our Singapore businesses, which were -- first, we see COVID impact in the month of January itself. The January and February performance for Henderson business in Singapore is better than previous year. And this is largely because the demand for services in condominiums and conceal services outside buildings have seen an uptick with more additional service requirements that the Henderson business has handled. So that's the first thing I wanted to point out. The permanent contracts are not adversely impacted. Business has actually seen such demand on the international side. As far as the India business is concerned, all 3 service lines: security, facility management and cash logistics are witnessing unprecedented increase in demand. Security, in the last 2 weeks, most locations, our security workers, our security guards and supervisors have been called upon to undertake services like thermal screening. They are also involved in various other COVID prevention practices that could range from ensuring masks and issuing hand sanitizers, et cetera to various things. Our facility management business has potentially seen the largest demand uptick in [indiscernible]. Today, there is a greater demand from our customers for additional chemicals, more fumigation, more frequent cleaning of their premises, especially high-touch points. Even on the gas side, we see desperate requests from the banking sector and the government itself to ensure continuity and 0 disruption on availability of cash across ATMs to avoid any further aggregation of the problem. So all in all, India business is witnessing an unprecedented uptick in demand, and we are struggling to cope with that. We are working additional shifts. Our managers are working round the clock. We are trying to keep our people safe, and we are trying to deliver the best we can for our customers. The third aspect that I wanted to address is the aspect on the preparedness in general. We had a big advantage that SIS Group has international operations. Effectively our awareness of COVID started in the month of January itself when it started affecting Singapore business. That actually gave us a heads-up. We started with our COVID strategy team in India as early as late February itself. We started with additional supplies provision because we were anticipating issues. So procurement of additional chemicals, procurement of masks and basic equipment like that. And I think that 10 days lead time that we took before COVID really became a big reality in India, has really helped us prepare ourselves for customers. Today, we are able to clearly see that customers are showing a very strong dependence on FM provider, security provider. In fact, most of my senior leadership team today is busy joining customer calls. When customers have internal calls, they are inviting our experts to be on those calls to get reassured about how we are ensuring better preparedness at the reception desk. Fever check at the reception desk outside the building to prevent infected persons from entering. Most HR managers and facility managers are extremely concerned about ensuring to their own top leadership and their employees at large about the hygiene services part, what extra is being done in terms of fumigation, cleaning and all those other things to reassure their own respective employees of that building or that customer, that the management is proactively doing all they can. So definitely, I think, there is a massive pressure on SIS leadership team, but we are doing our best. And last and -- and summary, I would say that we don't -- I mean, there is nothing that COVID or COVID-like situations won't impact. I think ultimately COVID will have implications for all businesses, including SIS. But potentially it will impact services, which are essential services, critical services like security, facility management and cash logistics, which will potentially impact these services the least, and it will impact these services potentially last. So that is my 3-week assessment of what's been happening since 1 March. We're ready to take questions. I'll request Vamshi to also state some opening thoughts before we can get into questions, please.

Yes. Thanks, everyone, for joining the call at short notice. I understand all of you have been busy with multiple calls with companies and various investee companies. So I think this is a good time, I thought, to take a quick briefing from the management team at SIS about unfolding situation. As Rituraj has just outlined, we've been pretty [indiscernible] handling various customer requests and demands, getting people retrained, deployed, ranging from procurement material. So all of us have been extremely tied up for the last couple of weeks or so. But I thought let's take the time off to at least speak to the investors and analysts, and hear out any concerns you have and how the management can address. So I would leave the floor open to questions now. And please ask anything which comes to mind and we'd be glad to answer.

[Operator Instructions] We take the first question from the line of [ Sameer Raj from Nippon India ].

So from the opening remarks you made, what I understood is there is no negative impact on business at all. In fact, there are positive or above. So is that the correct impression, which I'm taking?

Based on what we have seen as on February results, no impact of COVID negatively on February results of SIS India business or SIS International operations. Are you asking March? As regards to March, I think we believe this is the demand uptick. We believe that there should not be negative impact. There is no material evidence of that. However, we will have to wait for the March results to be out.

Fair enough. So basically, we are hearing all over, that government is asking malls to close down. They're asking multiplexes to close down, and they're asking a lot of institutes also to close down. So because of that, a lot of institutes are removing temporary workers, and so demand for security is still there, I guess. So you're seeing no signs of negative or above on our business from the early signals which you have got in March so far?

Let's try just for the benefit of everyone, this is a very relevant question. Even when a school closes down or a mall closes down, they do not remove security. That is not what is done. You have to understand that a closed mall with all the valuables lying inside shops actually needs to be protected closer. Second, even in a closed down operation like a mall, school or a large campus, educational establishment, even if it is closed, there is always people working inside. There is need to do fewer checks, et cetera, et cetera. Sanitation work has not stopped. In schools where we have -- we had services of facility management, this -- the requirement of those services have actually been enhanced. There could be a one-off instance like I can tell you that PVR cinemas -- customers, it might contribute 0.0-some-percent of overall revenue of SIS. But it's just one of our customers that has asked us to reduce services because the cinemas are not functional. Having said that, the workers who have been reduced there have been more than adequately consumed at the various hospitals, various other public establishments where we have contracts. So we don't have a single person sitting idle. We are, in fact, running severe deficiency because of additional unplanned shifts, and most of our workers are working over time. I hope that's sort of gives you a color.

We take the next question from the line of Brijesh Ved from BNP Paribas.

My question was regarding your employees. And have you faced any kind of attendance issue or anything of that sort given that there has also been a slow movement of people around some of the larger cities now?

No. I think very relevant question, Brijesh. We are most concerned about the welfare and continuity of the 312 branch officers and the staff that keeps them operational and the 230,000-odd employees who actually do cleaning and security and other jobs. So we are taking measures to keep them sort of secure as much as we can with everything from distribution of vitamin C tablets to hand sanitizers and masks and gloves and whatnot. But coming to your point very specifically, I think we did have some absenteeism when the DMC Corporation issued the circular 3, 4 days back, saying 50% work. We did have some people trying to abstain. However, that has been quickly fixed and it has helped greatly, that the Prime Minister in his address yesterday acknowledge the service of cleaners and security and all that type of workers. He categorize them as critical workers. And also the plan to applause the contribution of people like these on Sunday at 5:00 p.m. Since the morning, we've been trying to get this word out through WhatsApp and all the other communication mediums to the 200,000-odd people just to allow them to feel a little appreciated and also a little bit more responsible towards the general wellbeing of society. So as of now, we don't have absenteeism. People are actually working overtime. And I think what the Prime Minister said yesterday has boosted morale and helped tremendously entire sector, not just SIS.

Sure. That's great to hear. And another question I had was in terms of the receivable cycle. Have you seen any changes so far in the month of February or in particular because March is something that would accrue in April?

So the collection at February, our DSOs remain where they are. I mean, let me reinforce the fact that in the security and [indiscernible] industries in India compared to our top 3 competitors, SIS company have the best DSO track record versus a G4S, versus a CMS versus a BVG or a UBS, our DSOs are significantly better. And [indiscernible] that was the case. However...

You haven't seen any -- sorry, go ahead.

However, I -- we all must acknowledge that our customers are not working at full capacity at the moment. Before we are paid, there are processes to be followed like compliance checks, like various other documentation checks that need to be done before our invoices are cleared. There could be delays at the customer end in executing, undertaking those things. However, I again think that the Prime Minister stress to take contractors, especially the low-paying, low-salary contractors, the request that the Prime Minister made yesterday, that will stand up in good stead. Also, I believe that, Brijesh, on the other side, I see this to be a very useful thing for SIS because the smaller competitors are struggling. They are struggling for supplies. They are struggling already for raising bandwidth. They are struggling for execution in this pandemic life situation. I think the jury is out. I think that it was smaller operators, the less organized operators struggle with their wages in early April, result of 5, 10 days slowdown in the payment processing by clients, it could actually prove to be a massive trigger for customers to -- from the smaller and cheaper service providers to the larger, more reliable and more financially stable providers like SIS. So I think this could, in some way, in the longer term or also in the medium term, bring more positive views. But I think that there will be some impact on our collection cycle. I would be amazed if there isn't any. But I don't see that as a permanent issue. I think customers will continue to prioritize payment of hygiene workers above payment of other outsourcing partners. We will not delay payment of hygiene workers and security workers because it's a critical business continuity measure for each of our customers.

Right. That's very clear. And my last question was on Australia, if you have any updates to give?

Well, the first call that I did this morning was with the Australian management team. Like I mentioned, the Singapore business, Jan and Feb results are positive. The MSS and SXP results in Australia have shown no negative impact for the months of January and February. We have had one contract cancellation, which is of event contract. Formula One Grand Prix has been canceled as you would already know. However, because the cancellation happened on the date of the event itself, we had fully mounted and [indiscernible] that contact, and we believe basis feedback from customers that we will be completely compensated because they did not cancel 1 month in advance. They canceled on date of the event itself. As of right now, on the International business side, I do see that event business will get impacted.

[Operator Instructions] Next question is from the line of [indiscernible] from Nippon Life Asset Management.

Rituraj, I wanted to ask -- I mean, obviously, you said the requirement of security personnel has been quite stable till now. But on the facility management side, I mean, the hygiene part and the temperature taking part becomes so important for the organizations. Do you see an uptick there on the facility side?

Like I said, I see -- if I was to order, every business has seen demand uptick. Security, cash and FM, but facility management has seen the maximum demand uptick, followed by security, followed by cash logistics. Let me reinforce the fact that a crisis environment like COVID has established very clearly that security workers and hygiene workers are the first line of defense for any manufacturing site or office. The security guys standing outside your gates, he's the guy doing the fever check to prevent the affected person or potentially affected person from entering the premises. He is clearly the first line of defense. The facility management worker is the guy who's continuously cleaning and rubbing all the lifts and the railings and the doorknobs and the work desks and the pantry and the washrooms to ensure that people find it safe to continue to come to office or to live in their own RWA. RWAs itself are in panic mode. Every RWAs we work for is in panic mode about security, not allowing maids and other staff to enter without fever check. They are paranoid about facility management services within the building itself in the society. So clearly, there's demand uptick across businesses. And facility management is clearly the one facing maximum demand uptick. But even security and cash are witnessing increase in demand. No reduction overall.

And we'll take the next question from the line of Kashyap Pujara from Axis Capital.

Ritu, just one quick question. Is there a marked difference between customers in Metro Tier 1 locations and how semi-urban or rural locations and factories are looking at on the impact of COVID? Because what we sitting here feel so far is that it's more of an urban issue and not much of a broader India issue. How would you kind of measure up the impact across India, especially in semi-urban and rural locations?

Well, there is no denying that larger metros like Bangalore, Mumbai, Delhi was, of course, to be impacted as the customer demand uptick was first witnessed in these centers. But Kashyap, SIS Group companies predominantly work for corporates. We don't work for small client. We are -- I mean, more than 250 of the BSE 500 are SIS clients. These are large multinational organizations, large Indian organizations. Even if they have a manufacturing site somewhere in the interior of Bihar, they have all taken measures for COVID prevention at their premises for business continuity, irrespective of the fact that a remote corner of Bihar may not impacted immediately. And not as much as Delhi for sure. But because our customers are mostly national customers, we see that the demand is circulating to the smaller centers very rapidly. And it's not equivalent to Delhi, Bombay, Bangalore, Hyderabad, Chennai, but I don't see that rural India or semi-urban India or smaller India -- smaller centers are unaffected. There is clearly a demand uptick there as well.

Sure. And just one more extended question. While you discussed about our staff in security in FM being in a critical role and will be on duty and not absent. But just in case, if we go into a situation of a multicity lockdown, then would there still -- would you still expect the absenteeism to not crop up? And would it still -- I mean, essentially the idea is that we have to pay up salaries, but if people don't report to work, how would you kind of tackle that situation hypothetically?

Well, that situation hasn't risen as yet. So I mean, I don't have a example to give you. But as of right now, we don't have any reason to believe that people are looking to sit at home. In fact, people are -- I mean, to be very honest, people are picking up the additional shifts that they are being offered. So I can see a reverse psychology, where people are looking at this as an opportunity to do the extra shifts because SIS has obviously in line with labor laws, we had a overtime cap. Now for the last 10 days, we are relaxed the overtime cap. And we've just said that this is a emergency situation, this is a national crisis. Whoever is willing to work can work extra hours, as many days as we can afford to without putting himself at additional risk. We have seen people picking up incremental hours very rapidly. So that's what's happening right now. The question that you asked, I don't know the answer to that. If India goes into lockdown, a lot of things will happen, which are completely unprecedented. And I would not actually try and guess what the future might behold, particularly in times like this. But as of right now, there is no evidence of absenteeism or people sitting at home and demanding pay.

Sure. So basically, underscore a point that you've always said that the difference between security FM business versus staffing business and the countercyclical nature of our business is clearly getting pronounced. We are actually gaining business, whereas staffing companies are actually losing it. So any thoughts on this front?

Well, I wouldn't want to comment directly on any company here. But I have always maintained that there is a fundamental difference between staffing and service group solution businesses like us. The fundamental reason why somebody keeps a staffing service provider is for circumstances like these, where we may need to curtail or [indiscernible] operation in a big way, and he doesn't want liability of a permanent employee. That is clearly not the case in our line of work. We are, as Prime Minister himself reiterated yesterday, we are an essential service. If all the 100 -- I mean, there is close to 50-plus lakh security guards. If all private security guards were to be put at home today, it would cause a massive disruption in the security of establishments across the country. Similarly for the 40-odd-lakh facility management and cleaning service providers, small and large companies. So I think security and solutions and services are clearly not comparable. Even within services, security and facility management is essential services. Even within the services domain, this is essential services. Therefore, I believe this will be the least impacted and last to be impacted, even in a worst-case scenario.

[Operator Instructions] Next question is from the line of [indiscernible] from [indiscernible]

Pretty clear from your comment. Just one question regarding the Aussie dollar. That has been volatile with everything else. That just has a translation impact on your business, right? Actual cash doesn't need to move every quarter?

No. Certainly not. Cash does not move every quarter for sure. So this is just a translation impact. There's no impact on results of business overall.

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

So just wanted to understand, the large part of COVID impact has been only in the month of March and it clearly highlights that, that was really good for us. So I just wanted to understand, apart from the near-term impact of COVID, do you see a material change in our guidance what we've guided upon in terms of the cash flow conversion and growth rates [indiscernible] et cetera. Is there a material change in the guidance that we've talked about in these points? And more importantly towards the near-term, have we -- apart from the 1 contract for Formula One, have you seen any other customers rolling back in terms of the number of associates that they require?

Hello?

Yes, Mr. Rituraj. Aditya, you can just ask the question again. I think he missed it.

Okay. So 2 questions from my end. One is just wanted to understand that given that we had a good FY '20, is there a material change in the way we are looking at our long-term guidance in terms of organic growth or cash conversion or [indiscernible] Is there a material change there? That's question #1. And question #2 is, apart from the Formula One issue, have there been any clients who have rolled back the number of associates that you -- that have been impacted, so to say?

Well, thank you, Aditya. I mean, honestly speaking, I don't think anybody has been thinking long-term or results for the last few weeks at least. So there's nothing new I could add to what I have already said before repeatedly. The SIS business has 3 metrics that we run our business on. We want to continue to deliver 20% year-on-year growth, 20% return on equity and 50% free cash to EBITDA. So these are the 3 metrics. This is the basis on which I set KPIs for my SBU head, and they in turn check KPIs for their zonal and regional heads. So there is no change in that. And if at all there is any change, I mean, we haven't thought about it as yet, so I couldn't really comment. Your second question was about event size, I suppose?

[indiscernible]

Sorry?

Have you seen any rollbacks in the number of associates that our customers are required?

Well, I can't hear you very well. Sorry.

Let's move to the next question, please.

We take the next question from the line Alok Deshpande from Edelweiss.

Yes. Am I audible?

Yes. Yes, I think you are. I can hear you, yes.

Yes. Rituraj, so a couple of questions. Rituraj, I just wanted to get some more color. You briefly mentioned that some of your competition and especially the smaller players haven't been able to cope up with the surge in demand? Clearly looks like a sort of it will be turn out to be an event, where your brand will sort of gain more in goodwill. So just I wanted to understand what has helped SIS in this scenario in terms of servicing clients better?

Well, like I said in my opening remarks, Alok, I think what helped us greatly was the fact that we started experiencing corona and its implications in January itself with Singapore. So it allowed us adequate time to actually absorb what happens in this environment and what customers' demand and what preparation you have and things like that. And that's why we started our corona preparedness in terms of designing training content, securing additional supplies, getting our advisories ready for internal safety of staff, advisories ready for various other things well in time. I think that lead time has really helped. As regards to the some smaller players, I mean, I'm only basing my comment on the fact that 3 things seem to be happening. In a lot of places, our customers, like I was stating an example to somebody earlier as well. We are conducting training -- we were conducting training yesterday at a residential society in Noida which is not secured by SIS. It is actually secured by some other provider. Because one of our key customers reside in that building, he requested for training and other preparatory work to be conducted at his society also and just like we did at his customer location -- at his business location. Now when instances like that happen, it clearly shows that the customer is struggling to get the desired outcomes from its smaller providers, and therefore engaging larger providers like SIS to fill the gap. We've also had instances which are pretty interesting. For supplies, we have instances where our own competitors or what we can term as friendly companies have approached our branches for sharing of training content and sharing of supplies because they don't have enough fever checking devices. They didn't buy early enough. So we are even assisting them actually in larger interest. So I think when all these types of things happen, it really goes to show that both customer and competitor are acknowledging the fact that the market leader has additional resources and better preparedness, greater capability. I think ultimately when dust settles, this will also encourage a lot of customers to review whether smaller and cheaper approach to service provider selection, whoever is smaller, therefore, cheaper, whether that is a good, sustainable approach to selecting your service provider. So yes, it should help our market share case if the business does not get impacted beyond a point of repair as an economy, not just a side, but as the entire economy. One has to still see what happens out of corona in the next few months.

Sure. Sure. No, this is very helpful, Rituraj. And that sort of leads me to my second question also. I think we are too early in this whole issue, but I just wanted to get a sense of, last time this kind of crisis happened on an economy level or a financial level, when we go back to 2008, '09. I just wanted to understand what had happened at time in terms of your India business, you had already -- you already had Australian business in your group that time. What was the experience like that 2009, 2010? If you could just tell us about that?

Well, I mean, if you look at just the empirical evidence of our results, the revenue didn't shrink. One, for sure. I can't remember exactly the clear implications on profit. I will have to check and come back to you. But what would be really useful, Alok, the best answer to that question is to look at the listed results of Securitas, Group 4 plc, Prosegur over the last 30 years. If you look at the results of these 3 listed companies for the last 30 years, and try and see for yourself in the global environment, in the middle of a GFC or a [indiscernible] or even other instances of [indiscernible] what has happened to these businesses? I mean, the nature of this business is countercyclical. It's extremely resilient. It is a very basic service. It's like -- its essentially like roti, kapda, makan, security, safai. It's the same bucket. You can't live without some groceries, you can't live about -- it's like that, and that globally demonstrated. I think you should look at international peer [indiscernible]

Yes. Sure. No, so we did look at G4S and the Securitas, in GST time, it was quite resilient. It just that we didn't have any idea about the Indian part of it. But yes, I mean, you're right. I mean, if you go back to 15, 20 years, I think they look quite resilient. So that does prove, I mean, empirically I would just not...

I can very well check and come back to you. But it's not a comparable number. Because SIS at that point in time, I think in 2008 was probably a INR 200 crores or INR 300 crores business in India. Maybe, if I'm really off my mind [indiscernible] it was certainly sub INR 500 crores operation in India for sure. So I mean, comparing that to a INR 500 crores a month operation, I mean, it's not like-for-like comparison. So I don't want to sort of misrepresent in any way or misguide. Best is to compare with global comps, which are equal scale operations.

Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference call to management for closing comments.

I'll request Vamshi to kindly summarize because he's been getting a lot of queries and questions from you guys as well. So just Vamshi, could you round that up, please?

Sure. Thanks, everyone. Thanks, Rituraj. I've been speaking to many of you individually over the last few days, and I've been having multiple calls with the analysts and investor community. Hopefully, you had many of your concerns addressed by Rituraj. But even post the call, if any of you want to reach out for any specific questions or any information that you want, you all have my contract to reach out. I'm always available. And thanks to Aditya and Kasaph for moderating the call.

Thank you. On behalf [Audio Gap]