SIS Limited (SIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the SIS Limited Q1 FY '22 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vamshidhar Guthikonda. Thank you, and over to you, sir.

Good afternoon, everyone. A heartfelt welcome to our Q1 FY '22 earnings conference call. Along with me, I have our group aging Director, Mr. Rituraj Sinha; and Mr. Devesh Desai, the Group CFO. I hope everyone has had an opportunity to look at the results. They were uploaded to the stock exchange and to the website yesterday. At the outset, I'm quite pleased to see all our regular participants, analysts and investors on the call and glad to know that all of you have been keeping safe. We are extremely happy to report another quarter of strong and resilient performance by the SIS Group for the first quarter of FY '22. We made a solid start to the year with very minimal impact over the previous quarter despite extremely turbulent months we've seen in April and May. Our focus this quarter has been primarily on employee health and safety, while at the same time, ensure business continuity, both for the clients and for ourselves. We managed to get close to 2.3 lakh vaccinations done as of date and are targeting full vaccination, both doses to all our employees by September. Business has been steadily recovering from June onwards, with the FM segment, especially looking up after impacted FY '21. The India security vertical has had some sizable wins in the technology solution space, which as a part of our Vision 2025, as you would recollect, we had indicated that we would increase our solutions business, and the technology wins this quarter have placed a pretty sound footing in that direction. The International segment has been a slow tapering of the ad-hoc revenues over the last 2, 3 quarters, and that continues, but is pretty much on expected lines as we had communicated earlier. Margins have seen an increase over the previous quarter despite significant expenditure on EHS measures, vaccination, medical emergencies and other welfare measures that we instituted for the employees this quarter. Our OCF generation continues to be very solid, continuing the fantastic cash generation that we showed in FY '21. This quarter, we generated close to INR 116 crores of operating cash flow, which is around 96% of our EBITDA. This has actually, in turn, helped our net debt to EBITDA at a very solid 1.15x despite payouts to the M&A partners and the buyback that we did of -- amounting to close INR 301 crores altogether. In fact, if not for these payouts, our net debt to EBITDA would have been probably closer to 0.6 or something. So overall, I think the -- it's been a very good quarter for us. It showcases our business resilience on the P&L side. And on the balance sheet side, it demonstrates the very strong cash flow generation that we have done, continued return ratio in the 20% to 22% range and a very solid balance sheet coming from our strong net debt to EBITDA position. With those opening remarks, I open the floor for questions. And we'll wait for a couple of minutes for the question queue to be filled up. Thank you.

[Operator Instructions] The first question is from the line of Mukul Garg from Motilal Oswal Financial Services.

Rituraj, I wanted to start with the situation in Australia business. What kind of growth are you anticipating now that business is normalizing in the government ad-hoc business is going away? What -- how should we look at the growth in Australia business? And do you see any potential for a structural improvement in profitability from like 5.5% you have currently come to?

Thanks for that, Mukul. I'm glad to ask that question, allow me the opportunity to clarify. See, Australia had a record FY '21 result. If you go back and check the numbers, you will see that they reported close to 20% revenue growth in FY '21 and also a significant margin change from the historical levels of 5.5-odd percent to -- we were 6%, close to 6.5%. So what we are experiencing now and what we think will play out in the next quarter or 2 is a normalization back to pre-COVID levels. The quarantine work, the hotel quarantine work related to COVID will gradually taper off, but it will be duly compensated by the pickup in the retail segment, particularly the aviation segment and other such segments. So ballpark, I think we will see normalization of revenues, and we will see normalization of margin profile also to pre-COVID levels. Let me give you the key number to remember. Last year, roughly $40 million-plus of revenues in Australia came from temp work. And roughly the same amount, $40 million, $40-odd million was the lower volumes from existing customers. So it was very well balanced. So I believe that as one-off temporary COVID-related work tapers down over the next 2 quarters, the regular permanent contract volumes will pick up and it will settle down more or less in the next 2 quarters. And obviously, that will have a corresponding impact on the margins. Last bit on Australia is that they are sitting on a pretty strong pipeline of permanent contracts as tender work has picked up, RFPs have picked up in the first quarter. So one has to see how and when that comes through. And more importantly, you must remember that, in Australia, unlike India, contract starts have almost a 3-month time window. So even if you win a contract, the day you invoice is going to be close to 3 months away. So these are the key factors that you must keep in mind. But overall, I think Australia is heading towards normalization to pre-COVID levels, both in terms of revenue and margins.

Sure. And on the India's security side, last quarter, you had one-off costs because -- let's say, deteriorated closer to the end of the quarter. But even this quarter, costs looks like have not normalized to your historical margins. It continues to remain a bit low. So while we understand that as things -- economy opens up, your growth will pick up, how should we see the margin profile of the India security business?

So generally, I mean, by no means it's a good quarter to look at margin recovery given that April and May were completely washed away because the second wave. And we have had a lot of costs related to vaccination, drive, et cetera, et cetera, which are one-off. But generally, on the margin, my comment is that if you look to Q4 FY '20, the quarter preceding corona start. If you look at Q4 '20, we were reporting roughly 5.5% margin for International business, and close to 6%, 6.5% margin for the India business. The blended margin on consol basis was ballpark 5.7% to 6% for SIS. I don't see any reason why we would not flow back to the same margin levels because the gross margin line for almost every SBU remains largely unchanged and unimpacted. So once this one-off thing settles down, and hopefully, we don't have a third wave, et cetera, et cetera, I'm quite confident that we will go back to the Q4 FY '20 ballpark range of 5.7%, 6-odd percent margin on a blended consolidated basis.

Understood. And just one clarification, if I may. You guys have mentioned that the impact of 80JJAA be helpful on the taxation side this year? There were some queries, which were raised by the income base apartment related to one of your peers recently. Is there a risk which you see on your business, and accounting of 80JJAA given the questions which have been raised by the IT department?

Well, I'll let Devesh answer the technical aspect, but just as an opening comment, SIS has had an extremely conservative approach to 80JJAA accounting since its inception. I mean if you look at our FY '21 result, we have refrained and regularly commented that we have refrained from 80JJAA benefits for the year, we just benefited from the past year's impact. Even in this quarter, Q1, as our headcount has picked up, we have made very balanced and measured accounting on 80JJAA. And that's the approach we've always taken. We have not had any run-ins with the tax department on this aspect. There may have been a query or 2, but we haven't had any serious challenges. But I would request Devesh to kindly clarify the position on how we account and what's the situation like.

Thank you, Rituraj. So the -- from what we understand from the situation with the peers that there were certain issues relating to interpretation of the regulation, of the language and certain issues relating to the practice of what we call a fact as to how the benefit is computed. So firstly, you compute the benefit. And secondly, the interpretation was that how you carry forward and take that benefit for tax purposes. Now just without going too deep into it and being a bigger topic, which is a bit hot at this point, I just say that as far as we are concerned, we consider all the costs of the employees to compute whether that employee is eligible for -- whether we have to consider that employee has been eligible for the benefit or not. So we don't exclude any costs relating to the employee, we consider all the costs relating to the employees. So that's one thing we do to measure whether we fit into the conditions placed in the law. The second matter is an interpretation and that's an interpretation, which the department apparently is taking that what versus the company that the company has taken interpretation based on the advice of course that the deduction is available on the exact same amount for 3 years. Each year for 3 years, it's a same amount together with deduction. Now apparently, in the case of the peers, they have taken a position that you have to recompute the benefit every year in respect of the initial year. So if it's a year 0, you compute the benefit. And then for year 1 and year 2 in respect of year 0, you have to recompute the benefit for employees who still continue. The language of the law and the way it has been written, and the way we have been advised on the interpretation is that we do not need to do that. So you just take that 1 year benefit and then you compute the same benefit every year. So that's an interpretation. Of course, the tax department always is free to have its interpretation of the statute. There are hundreds and thousands of cases in the courts where there are interpretation differences between the tax department and the SSCs. And ultimately the courts rule, and that's what ultimately gets followed. So as far as the interpretation issue is concerned, that is always open, but as far as the method of computation is concerned, we are on strong notes.

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

Congratulations on a good set of numbers despite challenging times. I have 2 questions, 1 from a medium-term perspective and 1 from a more long-term view. So I'll ask this -- the near-term question first. Just wanted to understand, we ended our India security business with close to a monthly run rate of INR 300 crores. How do you see that going forward? And where are the sectors -- you talked a little in terms of technology, but where are the sectors that we see some improvement from? And if you can highlight what is the delta that is coming because of the Tech SIS and One SIS platforms? That would be helpful.

Well, Aditya, that's many questions rolled into one, but let me give you the important -- the revenue run rate, I think it's very important to understand that pre-corona, the security business in India was doing roughly INR 300-odd crores of revenue. And we are back at that level, and we are now looking to grow. So security is back on track. FM was doing INR 110-odd crores of revenue on a monthly basis pre-corona. FM is -- this last month, FM was looking like INR 103crores, INR 105 crores. So it's very near to complete recovery. And I'm sure that, as I've said in the past, I see FM as the biggest winner because COVID has resulted in tremendous consciousness on hygiene and sanitation spend. We do not factor of cash. We do not consolidate cash numbers. But just for your information, the cash business also is reporting all-time high revenue in June month. So that's the reason why I said that we look pretty well set up in India, but we are just hoping that we don't have the disruption like we had in Q1. I mean we were looking quite well set even at the beginning of Q1 til second wave struck. So I guess, other than that, I think we are in good shape to capitalize on the opportunity of economic recovery in the coming 3 quarters of the year.

Rituraj, if I may ask that question slightly differently, right? What we're trying to understand is what is the slope of the gradient that you're looking at, right? So how sharp recovery do you expect over a period of the next 18 months? I mean different companies have a different approach to it depending upon their mix of geography and metros versus Tier 1. But I just wanted to -- your thoughts as to how sharply do you expect a recovery, obviously, assuming no third wave?

Look, I don't think I'm in a position to forecast what will happen in 18 months' time given the current circumstances. I think if you want a broader guidance, you should look at our Vision 2025 paper that we allowed all the analyst community to have a look at. SIS is looking to double its market share in security, in FM and in cash, all 3 segments, in India over the next 4 to 5 years, right? Now what happens in the first 3 months and what happens in the last 3 months, I think it's very hard to forecast. So I'll refrain from that. I think you asked another very pertinent question about the technology piece. I think the second angle of the Vision 2025, other than market share, is to move towards solutioning, and therefore, enhance our overall gross margin profile in the business. Very happy to share that if you see the result note, in the last 3 weeks, we've picked up very significant electronic security orders from large entities, listed entities. And obviously, people are moving away from manpower, moving towards greater use of technology, both for cost efficiency measures as well as to reduce the level of contact in general. And I think if this wave continues, if that -- this becomes a trend, I think this will be a massive tailwind for our aspiration to be a dominant solutioning provider in our segment of security, cash and FM. So I think there's a very good progress on the electronic security Tech SIS side. I have earlier also mentioned that we won over 10,000 alarm monitoring connections, which are going to get installed in the next 3, 4 months. That's also a massive uptake by the banking sector to manpower-less security. So I think we are tracking rather well in year 1 so far with regard to our solution agenda.

Understood. Very, very helpful, Rituraj. My second question is more to do with, again, your Vision 2025 market share, et cetera. You talked about you being the market leader across categories -- across segments on a pan-India basis. But regions such as the rest of the country still remain untapped by us to the full potential. So just wanted to get your thoughts given the consolidation theme playing out, is there a change in the strategy of sort of entering these geographies in a more meaningful manner? Or how are we thinking about?

Look, I've said this in the last call as well. If you see the financial model of Vision 2025, the 4-year financial model, 85% of the development will come from organic. So we are -- that's the way SIS has always been. The return profile of organic development is far superior to any M&A. Having said that, we do recognize that Western India is a geography where our penetration is not as deep. We'd love to do it organically as far as possible. We have, in the past, acquired, but then that requires a asset of quality and a price which is right. So I guess that time will tell us. So right now, do we have an asset that we are pursuing to acquire in West India? The answer is no. We are predominantly focused at doing it the organic route. I think labor reforms will present a massive opportunity. So overall, I think what you must bear in mind, Aditya, at all times is that, while we are looking to double our market share, while we are looking to increase solutioning, the key underlying parameters of 20% growth and 20% plus return on equity, that's the holy grail for us. So we would not try and do anything that pulls down our return on equity from the current 22-odd percent level. And I think it's actually not sort of fully appreciated that SIS has been at that ballpark range of 20% plus ROE since we listed 4 years back through the impact of COVID, through acquisitions, through everything, we've maintained 20% ROE. And I think that gets a little underplayed in the mix of things.

The next question is from the line of Ashwini Agarwal from Ashmore.

Good set of numbers in a very tough environment. A couple of things. Very heartened to see the INR 50 crores of cash being brought in from overseas into India where there's an opportunity to reduce debt. Can you share how do you think this will progress in the coming quarters or years? Because, obviously, there is a tax leakage that happens, but there could be an opportunity to reduce interest costs further despite the sharp reduction in interest costs that we've already seen in the first quarter.

Ashwini, like I've said in the past, we have, on multiple occasions, brought money in from the Australian cash reserves. And the recent buyback gave us another opportunity, and we did bring back half the buyback funding from Australia. As regards to the interest cost, I think, in Australia, we are borrowing at sub 2%. In India, our borrowing rate is close to 7.5-odd percent. Our blended cost of borrowing is below 6%, closer to 5%. So I think we have, through the corona year, not only upgraded our credit rating generally, but also used that to renegotiate with our lenders across India and overseas. And I think we are sitting on pretty attractive rates of interest. In fact, we rolled over our NCD at almost 2.5% lower cost, ballpark 2% lower cost. So I think our cost of interest is rather okay, Ashwini.

No, no. I agree with you on that. I was just wondering that is there an opportunity to bring some more cash in from overseas, which is obviously not attracting great returns and pay down some of the gross debt in India. I was just wondering if there's more opportunity to do that in the coming quarters.

Look, there always is opportunity. And cash is parked there. There's no lean on it. We can bring it back as and when the need arises. But I think it's very important to also understand the overall debt situation more comprehensively, Ashwini. We have guided towards a comfort zone of 1x for net debt to EBITDA. Last quarter, we were at 0.7x net debt to EBITDA, which was an all-time low. This quarter, we are at 1.1. But if you back out the INR 302 crores that we paid towards acquisition completion and towards buyback. If you back that out, if we didn't have to do that in Q1, Ashwini, our net debt-to-EBITDA would be closer to 0.5 or maybe 0.6 So I think from a gearing perspective, I think we are pretty okay. And if we -- I mean I don't see -- I don't -- in a low cost of debt environment like we live in today, I don't think there's any prices for being negative net debt or 0 net debt.

Okay. Fair enough. Second thing is that if you look at the next 3 quarters, are there any significant commitments on payouts that you have? I don't think so. I think pretty much you're done for the year in terms of...

Yes.

Correct?

Yes, Ashwini, you're right. Yes, pretty much all of the big ticket ones are done for the year, and there's no further big cash outflows expected over the next 3 quarters.

And the cash from operations would also be a function of growth. So if we think that growth in the Indian security piece comes back strongly, we will see some cash going towards working capital?

Well, Ashwini, I'm glad that you asked that question. And this is something that, theoretically, I have been talking about for several years. This is a very unique annuity business, Ashwini, where, as you slow down your growth, your cash generation is superb. That's what we witnessed in Australia. We have a stockpile of cash in Australia primarily because it's a single-digit growth environment. In India, the gross debt looks rather big because we grew our 5-year revenue CAGR for SIS security is close to 25%, 30%, and that's why the working capital looks inflated. What we have witnessed in India in the last 5 quarters in particular is that as growth slows down, the cash generation will peak, just the way it happens in Australia. Overall, I am -- I've said this before, I'm committed to market share. That's the objective over the next 5 years. I hope growth comes back and comes back strongly in India. I mean, sitting on a very, very large cash pile may be good in the short term, but long term, that is not what is going to really build the business. So I mean that is a very important perspective, and I'm glad that you asked that question that even as India has been generating superb cash for the last 5 quarters, that's basically a result of slow growth. And as growth picks up, the cash -- free cash generation will taper down. But then again, it will be very well balanced and compensated by the international piece, which, even when it recovers, will only grow at 5-odd percent.

The next question is from the line of Shalam Agarwal (sic) [ Shalabh Agarwal ] from Snowball Capital.

Congratulations on a good set of numbers in a challenging quarter. So the first question, question is on the acquisition. For Henderson, if the numbers -- if my numbers are correct, total, we have paid around INR 350 crores. Can you just highlight what is the -- what performance of Henderson currently? How is it doing in terms of sales and EBITDA?

So Devesh, would you like to first clarify the exact payout on account of Henderson, first and second...

Yes. Between the first and second tranches together, yes, that number is more or less right, at INR 350 crores because I think $44 million and $22 million, $66 million, close to INR 350 crores is a fair number.

And then let's reduce that with the cash that is there on the books right now?

Yes. That's around $25 million.

Okay. So let's reduce $25 million out of INR 350 crores. $25 million into whatever Indian currency.

So say around INR 220 crores or INR 230 crores is what we end up with.

So the net payout, my friend, on account of Henderson is closer to INR 200 crore mark. The business has been performing moderately through the COVID period. We had, obviously, management change. The the promoter decided to use his exit option and step away from the business upon the impact of COVID. And we have since acquired the remaining 40% shares at a fairly attractive valuation. And we believe that the business will fully come back to recovery in the next 6 to 12 months as Singapore normalizes. But as of right now, from a run rate perspective, the business is lower, both in terms of revenue and EBITDA. But I see that as our transitional phase as we transition from management led by the outgoing promoter to ourselves. We have a management team set up, and I think we are looking forward to pretty strong next 6 months.

Rituraj, this really helps because on conventional metrics, this acquisition looked really an outlier from of the other acquisitions that we have done, which has been fairly attractive for us. So thank you for clarifying that. Similarly on...

One second -- Vamshi here. Yes. Just one thing. So Just to add to that. Before the COVID year, in FY '20, Henderson generated close to 40 -- INR 35 crores, INR 40 crores range EBITDA. So if you look at the overall payout what we paid for it, as Devesh just outlined, so it's 6, 5 kind of range, right, in terms of EBITDA multiples. But the COVID year has not seen the same kind of upside we saw in the rest of the International business, coupled with the management transition. But as Rituraj just outlined, I think the business should be back in shape over the next 6, 9 months, 12 months.

Because that's -- thank you for sharing Vamshi because that's a substantial jump because, if I remember, your annual report '19, and I can take it offline, mentioned an EBITDA of around INR 1.5 crores for Henderson.

[indiscernible] month, right, because only 1 month, 2 months is included in the P&L that year.

1 month, 1 month. Only 1 month was included in the P&L.

Okay. Okay. Okay. This really helps. Similarly, secondly, on Platform 4 Group, again, the number which we paid was around INR 6 crores, INR 7 crores for 50%, whereas included around INR 50 crores of liability in the future liability that we would pay for acquiring the remaining 50%. So any numbers that I'm missing here?

Well, I think you need to go back right to the top. The reason why we entered the New Zealand market with P4G is because we were losing a lot RFPs, which had Australia plus New Zealand component. We didn't have a license to operate in New Zealand. So we made a very small investment to pick up a licensed agency, and it was a sub-$5 million entity at that point in time. Over the last 3 years, it is run rating at close to $25 million annual revenue. So it's gone 5x with some organic and some strategic acquisitions. And because it is structured as a payout model, because the partner there is obviously contributing tremendously to growing the business organically and through some contract purchases here and there, overall, I think that we have set aside a significantly large purpose towards settlement of the final payout. And as you would note, SIS always factors the maximum possible payout down the line, and we account for that in the balance sheet. In SXP, or in Henderson, or in Uniq, or in SLV, you pick up the last 3, 4 acquisitions in every single acquisition, you will see that we actually end up paying lesser than -- significantly lesser than what we are provisioned for. But that's just the conservative approach we take, and I think that's the right way to do it as well.

No, that's really true, and we have noticed that the final payment has been lower than what we have actually identified earlier in the liability. Rituraj, second question would be under the One SIS platform, are you also targeting multistory residential complexes? Are we also present over there? And how are we dealing JLLs of the world, which are bigger players in that market?

Well, I think strategically, one SIS is positioned to compete versus the JLLs, CBREs of the world. There is no comparison between their share of market and ours because this is just an incubation at this stage. It's clearly not meaningful. But there are 2 points on which we are differentiating vis-a-vis a JLL or CBRE . The first point is that a JLL, CBRE is basically securing a contract from a corporate or RWA and then outsourcing all the services to entities like SIS, DTSS and Terminix SIS. Whereas in our case, our pitch is that we will self-deliver all the services. Because, in our portfolio, we have security, FM electronic security, whatever you need. So the first point of difference versus a JLL is that we self deliver, thereby, eliminating a second layer of margin. So there's no margin on margin. We are more efficient, right? Number 2, we are going to Tier 2 cities. JLL, CBRE, et cetera, operate largely in the 7 big hubs like Delhi, Mumbai and Hyderabad and Bangalore and all that. We are taking this concept to the smaller centers where new age real estate is being built up like the Indores of the world and other such cities. And there is not meaningful market size for a JLL to set up shop on a full scale. So JLL and CBREs do not invest time and energy setting up branch offices and foot presence in Tier 2 cities like Bhopal or like Lucknow or like cities of that level. And I think that's the opportunity that we look to tap. Because our sense is that the premium real estate construction in the next 10 cities, after the top 7, is going to really drive the market in the next 10 years. And that's what we are betting on. In general, I must tell you that roughly INR 16 crores of our revenue has an element of One SIS, which are multiservice contracts already. So it's not a very large business, but then it's not just an idea. It is -- INR 16 crores a month is not that bad considering the fact that it's only 1.5 years, 2 years in the making. And the most interesting data point that I must share with you is that we have mapped our security customers who do not use our FM, and we have mapped our FM customers who don't use our security. And it appears that almost 90% of our existing customers is single service contracts. They don't use more than 1 service from SIS. So the captive audience, the captive customer set is massive and largely untapped. So I think I'm fairly excited about this idea. But yes, it will take a few years to cook.

The next question is from the line of Alok Deshpande from Edelweiss Securities.

Two questions from my side. First, Rituraj, you mentioned about electronic surveillance services. I just wanted to understand how does the process, the cost structure sort of differ for a electronic surveillance site compared to a man-guarded site? So is there any upfront CapEx that goes in for the equipment, et cetera? What is the cost structure? Are the margins similar or return on capital? Is there any color you take give on that?

Yes, so Alok, Vamshi here. Just taking that question from the VProtect angle, which is our alarm monitoring and response business, right? Because SIS business is a slightly different model. If you look at our VProtect business, which is similar to, let's say, ADT in the U.S. or Secom were some of our peers. So is a typical, say, client in the BFSI space like ATM or a branch, it would depend on the kind of RFP and the specs that are laid out, like what kind of camera does the bank specify, what kind of sensors do they need. Some might just need 2 or 3 sensors, some might need a vibration sensor, a heat sensor, right? It depends upon what kind of specs are laid out, but -- and the area of the ATM, how many ATMs are there inside. But typically, I would say a ATM CapEx would be in the range of INR 60,000 to INR 80,000 or so, while a branch, because, obviously, the size is larger, it can be upwards of INR 1 lakh, INR 1.5 lakh or in that range. And the EBITDA margins are usually pretty solid in the space, right? So it can be upwards of 20%, 25% also. So the beauty of this is while for a -- if you take a site like an ATM, the ATM essentially is reducing the number of guards which are required at that site. So it will actually lead to a situation where our revenues might be lower than earlier. But because the margins are almost probably 3, 4x of our regular margins, you'll still end up making a better absolute number on EBITDA and on return on capital deployed. So that's how the economics work out. And obviously, it eases a lot of things at the back end. You don't need to file hundreds, thousands of PF filings and hiring, recruiting, the whole engine becomes much smoother, the supply chain engine, the operations engine is much more smoother.

Alok, I will just pitch in with a small comment. If you're interested about this dimension, you must pay some time to read up about ADT acquisition by Apollo private equity a few years back. Alarm monitoring business gets valued basis ARPU, our average revenue. And it's a very exciting space globally. We are building this business out bit by bit in India. And I guess, maybe 1 or 2 quarters down the line, we'll present a little bit more information about this new age business. I'll give you some insights on that.

Sure. But Rituraj, are you experiencing your -- any of your existing -- I mean you mentioned about the corporates. But generally, across the board, is the interest from your corporate clients to move from manguarding to this? Or is it just starting out? I mean how should we look at that?

It's a very slow change here. I mean, it's a slow change. And it's not going to happen as if 2,000 customers want to migrate together. Clearly, it's not what we are seeing. Any change is led by market leaders. So right now, we see big change in oil and gas companies moving to electronic security and OpEx model solutions. We see big change on banking sector. But do we see it at every hotel and hospital we work for? The answer is a clear no. But then they are the second half of the market. They will generally catch up a few years down the line as it always happens. But we are very excited that the premium customers who have the ability to pay, the blue-chip accounts like the Gails and IGLs and ONGCs and Indian Oils ,or the State Bank of India and Canara Bank and even the new age small finance banks, the right type of customers are moving from a -- towards a less manpower, or manpower-less environment altogether. And we love it because that's the space where the competition is significantly lower. Our competitors neither have -- most of our competitors neither have the technology capability nor do they have the financial resources to actually get into something like this. And I guess, 5 years down the line, it will be quite a story. But it's not going to happen in next 6 months. So please don't punt on that.

Sure. Sure. Very interesting, Rituraj. Secondly, on facility management, and this is a slightly short-term question. So you mentioned that we were going at about INR 110 crores kind of revenue in India, right? So we are back at about INR 100 crores, INR 105 crores, something. So what is this gap? Is the gap largely to do with retail and stuff, which is basically malls not opening up around?

It's singularly volume contraction on part of hospitality, railways and IT parks. You know that the railway traffic is down to 1/4 versus pre-COVID levels. 1/4 traffic is going through railways. IT sector is just about trying to vaccinate everybody and get people back in office, at least half of them. They are also operating at less than half usage. Same with the hotels, hospitality, mall-type things. The moment this comes back online, these guys haven't lost contracts. Revenue is not down because they lost contracts, it's just that people who are using INR 20 lakhs worth of services in a month are using INR 8 lakhs worth of services in a month. But all those businesses are looking to get back to full capacity and more. So whenever the PVRs of the world are able to reopen and the malls are full again and the 5-star hotels are buzzing, whenever that happens, you will see an automatic surge.

Sure. Sure. And just 1 last question on the overseas part. So see this year, like you mentioned at the start of the call that business is likely to revert back to normalization after the temp business going up. But as we go ahead, the growth in this part of the business will be probably mid-single digit. So how are we thinking in terms of acquisitions overseas? Are we actively thinking about acquisitions or we're in a phase where 2, 3 years, we just want to consolidate these businesses in Australia, Singapore, New Zealand. How should we look about the use of cash there?

On a lighter note, I think you are looking for a visa to get out of India. So I guess you should hold your horses. Do I -- seriously do I have an acquisition that's going to happen in this space or anything that is under consideration. Anything that is meaningful on the international market, the answer is a clear no. Even in India, do I have an M&A deal cooking in advanced stages? The answer is a clear no. These things take 6 to 9 months at least to finally take shape and conclude. So our focus has completely been on service continuity, on employee health and safety with all the vaccination drives, et cetera, et cetera, and rebuilding our organic piece, putting it back on the growth rates. Once that happens, we'll definitely look at what else can be done.

Yes. But Rituraj, my question was more from -- see in India, at least, there is a double-digit structural growth increase, right? Beyond this normalization, et cetera, I mean as a strategy, are we happy with that 4%, 5% growth of the overseas business? Or generally, we will try to look at much higher growth is what is the question?

I mean, look, Australia and international markets will not start to grow double digit because we want it to happen. Those economies are different. So it's not apples-to-apples comparison. But I think let me ask your counter question. I mean, you get single-digit growth in international markets, but they deliver 40% return on capital employed. Some of our best return cases on M&A have happened overseas. They deliver massive free cash as we have seen in the COVID period, right? And when you juxtapose that with the Indian development, it's almost a near perfect natural fit. So I don't compare International ops with what India does or India with what International can deliver. India cannot deliver that kind of free cash. It cannot deliver that kind of return profile, but then it delivers growth, and Australia sort of does exactly the opposite and makes it extremely complementary. I think if there's one thing, Alok, that we must understand and hopefully put an end to is this whole rationale of having India plus International. If SIS did not have a counterbalance of the International market, during the corona phase, we would be significantly worse off. We would not have delivered a 7% year-on-year revenue growth, highest ever PAT, highest ever return and highest ever free cash in a COVID year. So I guess, at some point in time, people across the ecosystem will digest that fact for reality, and we will move on with this complementary set of portfolio.

The next question is from the line of Vidit Shah from IIFL.

So my first question was on Henderson. And I know you stated that FY '21 was muted because of structural changes and COVID but margins have fallen from 8% on to 2.5% to 3% in FY '21. So just going forward, what's a reasonable level of margin that you would target in that business? Hello?

Sorry, I think I was on mute. So no, I think as, Rituraj outlined earlier in the call, the business has been in a flux for the last quarter because of the owner promoter exiting his production, and we're getting a new management in place to take the business back to pre-COVID levels. But on a going concern basis, once we have passed this turbulent phase, I think the business should come back to its historical EBITDA margins. Historically, it was traditionally doing around 7%, 8% kind of EBITDA margins at the time we acquired. And I think it should continue to be in that range once we have passed these COVID plus management change era.

Understood. And maybe just a couple of clarifications for Devesh was, firstly, on the -- other -- the extraordinary -- are the -- government grants that we've received, are there any more which are left to be accounted for or that we are expecting in FY '22? Or is this...

You broke up in the middle. Can you repeat that question?

I was asking on the government grants, are we expecting to account for any more government grants going forward? Or have you received everything that you were eligible for?

No. So we have accounted for everything that we have received at this point. There's nothing pending to be accounted or confirmed by the government. So as and when we receive it, we will evaluate and release it for accounting once we are -- we have confirmation that it accrues to us. So at this point, there's nothing pending and remaining to be accounted on grants.

Understood. And just last clarification was on the effective tax rate on a consolidated basis, which is at roughly 26%. So is this like a sustainable rate going forward given that now, this year, we've also conservatively, at least, but have accounted for the 80JJAA benefits and all the other businesses are coming back on track?

So when we look at the effective tax at I think it is important to segregate between the Indian and the International piece and especially the stand-alone companies. Because in the International piece, it follows a standard tax rate, 30% in Australia and New Zealand and 17% in Singapore. So that's pretty much what we will get in the International side. On the Indian side, of course, what happened last year was we missed 1 year of 80JJAA. So it is quite possible that in this year, there could be a small tax payout because we do not have a 3-year benefit on 80JJAA this year, but we have a 2-year benefit on 80JJAA. So that's what happened, what could end up this year. But next year, hopefully, the growth continues. Next year, we'll get 3 years of 80JJAA and we should be back close to a 0 rate again for India.

The next question is from the line of Aasim Bharde from DAM Capital.

So my first question is regarding your EBITDA margin outlook for the India business, given the backdrop of Vision 2025. So I'll actually break this in 2 parts. So Firstly, assuming that you achieve your goal of doubling market share purely through volume growth, that is by adding contract to some manpower [indiscernible] solution. In that case, how would your EBITDA...

Your voice is breaking.

I hope this is better. Hello?

So Aasim -- yes, Aasim, just go ahead. We'll try to make sense of what we can hear.

So yes, actually, I was -- just wanted to get a sense on the EBITDA margin outlook as part of your Vision 2025. How would your EBITDA margin move in the backdrop of only volume growth and none other tech-related solutions? And how would it move when you have both market share getting doubled and also tech-related solutions coming in? So right now, we are at about 5.5-odd percent for the India business, how would margins move over the next 5 years?

Yes. So Aasim, as I was indicating to Alok earlier. The technology solutions business does bring a sizable increase in the EBITDA margin profile. But even as a portion of the overall business, it's going to be probably within 15%, 20% or around that over the next 4 years. So a sizable portion is still going to come from the traditional business that we have. So the EBITDA margins, which we are at historically been in the 6% kind of range of 5.5% to 6%, can probably inch up to 6.5% or thereabouts. But at least, at the moment, we are not, at least in our plan, trying to build in a very aggressive kind of EBITDA margin upside.

Okay. So one can still assume like 6.5% should be a bare minimum level that can be achieved?

As we go along, yes. Not right away. But over a period of the 4 years or so.

Look, I think -- let me just interject there. I -- you must look at the listed global peers and their 30 years of trading history. Please refer to Securitas and G4S, and the likes of that to get context of what the operating margin of -- the EBITDA margin of this industry globally is. So I think that's 1 thing we need to understand. Just as staffing business globally operates at 2%, 3% EBITDA margin, service businesses globally operate ballpark 6% margin, right? And that's what we should work on. And I've said this in the past, our focus is to acquire market share. We are a market leader in India with 5% market share. If you compare that to the U.S. or parts of Europe, like U.K., et cetera, market leaders have 20% plus market share. We, ourselves in Australia, MSS security has 20% plus market share. So our complete focus is right now on how to get double-digit market share of the Indian market. For the long term, that's the key thing to achieve.

Right. Right. Okay. Second question, you have called out in your presentation that the India DSOs have risen, but these should correct in the near term. And on the overseas front, DSOs have fallen. So is there any one-off angle in the overseas business? And would they go back to the average levels of 45 days in the future? Or would 38 days be a more sustainable level to work with?

Devesh, do you want to take that?

Yes. So yes, the June DSO for India was in line with earlier trends. The March is typically low and June is higher. In Australia and International also, typically, that is the trend where June DSOs are higher than March.It, you are right, is a bit of an outlier. We should not expect that such a low DSO to be the norm for future. Anything between 40 to 45 is where we should be factoring as a normal DSO.

[Operator Instructions] As there are no further questions. I would now like to hand the conference over to Mr. Vamshidhar Guthikonda, for closing comments.

Thank you, everyone, for the interesting questions and observations. And glad to hear again from all our analysts and investors, and we look forward to meet you again some time physically in the near future. If any of you require any further information, feel free to reach out to me or Devesh, and we'll be glad to address your questions. And yes, and take care, and we'll speak again. Thank you, all.

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