SIS Limited (SIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SIS Limited Q4 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devesh Desai from SIS Limited. Thank you. And over to you, Mr. Desai.

Thank you very much. A very warm welcome to everyone for our Q4 FY '22 earnings call. Along with me, I have our Group Managing Director, Mr. Rituraj Sinha; and our newly joined President for M&A and Investor Relations, Mr. Bharat Bakhshi. I hope everyone has had an opportunity to look at the results and the earnings note. An update has been uploaded on the stock exchange and the company's website at www.sisindia.com. We are extremely happy to report that FY '22 was a landmark quarter for SIS Group. We crossed the INR 10,000 crore annual revenue mark for the first time in our history. And the last quarter also was one of the strongest quarters of growth for the group, with revenues touching a record high of INR 2,648 crores. Other recent developments which are noteworthy are that Terminix is all set to become a 100% subsidiary on the SIS Group. Execution of the agreements are imminent. And we also recently made our first investment as part of our SIS venture initiative in a company called Staqu Technologies, which is a video analytics company. I would now like to hand over back for the question-answer session.

[Operator Instructions] The first question is from the line of Rahul Chopra from HSBC.

Hello, can you hear me?

Yes.

Yes, sir.

I have 3 questions if I may have the opportunity. First is just in terms of the growth. I think -- I mean looking at the graph, I think I could see a nice uptick in March in terms of revenue for [indiscernible]. I just want to understand, what is -- is it seasonal? Or is it probably relating to reopening of office and basically kind of conversations you're having with clients during the recent reopening of the economy. So I just want to understand, is this more uptick of security guards being deployed given the reopening? Just looking to understand what you're discussing with your clients.

Well, Rahul, thanks for that question. The great thing is that growth is clearly back and it's back across segments. It's back across Security in India, in Cash in India, in Facility Management in India. And also in international markets, we are seeing an uptick in tender activity and clearly, growth is back across all 4 segments. And this is a mix of new activity around new orders, new tenders, new RSPs. But then it is also a lot of volume that had contracted during COVID in the IT sector, in the hotel industry, in various other subsectors which saw deeper COVID impact. They are coming back to full operationalization now. And that is leading to a lot of volume recovery as well. The third element, which is the price change. There are 3 legs to our growth story, volume growth, new orders and then price change. The third angle is still not in play, and we are hoping that sometime this year, we will see, as the economy opens up and goes back to growth trajectory, we'll see a wider minimum wage increase across the country and that will be supplementing our growth opportunity at hand. So generally, a good momentum coming back, Rahul.

Understood. I mean just to follow up on that, since you mentioned price. So you're saying that you have not clearly passed on price increase to the extent you would probably like to. So should we expect some -- probably some uptick of gross margin as well as the year progress or probably you're happy with where you're looking at the gross margins for [ SPC ]?

No. Actually, it's not that we have not passed on price increase or that -- there's no lag on our part. The problem is that India, on an average pre-COVID, was witnessing a 9% to 10% minimum wage increase per annum. That's like a 10-year trajectory before COVID happened. During the COVID years, this percentage has dropped to sub-5%. It's like 2%, 3% in some states because the government has been rarely of pushing the minimum wage up, for obvious reasons. Now as the economy goes back to full-scale operations and inflation is putting further pressure on the lower middle class income levels, one is looking at all indicators that suggest that there should be a reasonable minimum wage catch up, maybe not in one shot, maybe over a period of time, but one expects that this should be coming back.

Understood. Understood. And just to follow up quickly, if I may. One on operating margins. I mean obviously, sequentially, it was quite down. Obviously, there was a bit of impact [ weak ] as you can see in the press release. Maybe if you could just help us just to understand the moving parts sequentially, what was the delta increase in onetime bonus and the discretionary payments. Just help us understand the bridge. And maybe just how should we think about margins coming back, back to FY -- maybe [indiscernible] level. I mean just in terms of trying to understand, should it be more like FY '23? Or should we look more like FY '24, get back to this 5.5% or 5% margin which you are probably alluding to?

Well, I personally believe that because the gross margin is intact across businesses and growth momentum is coming back, I think over the next 3 to 4 quarters, we should be at our pre-COVID levels. But then again, I'd ask Devesh to explain the segment-wise split and what's happening to give you greater clarity across all 4 verticals.

Yes, I'd be interested in Indian vertical because that's what probably I think the market is looking at.

Just as Rituraj said, that with the growth momentum coming back and the revenue going up, our gross margin continues to remain intact, and it's a matter of getting the volumes back in shape to get the gross -- to get the EBITDA margin. But of course, in this quarter and the year, we had certain extra costs, one-off costs. COVID continues to impact us as far as SG&A is concerned. We did incur significant amount in this year on production measures and mitigating measures for COVID. Even in the last quarter, [indiscernible] was less than the earlier quarters. In the note we mentioned what that amount was the one-off cost and the discretionary payment costs. The other thing, I think, which we all need to appreciate is that in FY '21, taking cognizance of the situation, we did manage to roll back and reduce a significant amount of our costs on rentals, travel, consulting and various other stuff. That was almost INR 50 crores in the year. Now of course, with activity picking up and the economy opening up, these have all started to come back into the system. And those costs are now getting reflected in our P&L. As Rituraj said, over the next 3 or 4 quarters, with growth coming back, we did hope to come back into the pre-COVID levels of earnings. These are factors which are impacted us in this year.

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

My first question was on this Mahanadi Coalfields contract that we've won and -- of roughly INR 220-odd crores. Can you shed some light on like what sort of services are being provided there? Because like for 3,000 guards, the average revenue for guards is fairly high compared to what we are averaging for the rest of the business.

Well, this is a pretty standard security contract, but there is use of vehicles, there's use of technology equipment, there's also use of people who are trained in fire -- fire-trained people. There's also other factors that the mining minimum wage is higher and it's a central minimum wage than the average state minimum wages. So all of this put together is the reason why you have a higher per-guard realization in the MCL type contract. Please remember that the central minimum wages in India are significantly higher, almost 50% higher than the national average minimum wage of states, sir.

Got it. And this INR 220-odd crores that you mentioned, is this the annual value of the contract? Or is it a multiyear?

No, it's a multiyear contract. It's a multiyear contract.

Okay. Understood. Also, just trying to understand the strategy and get some clarification on the seed fund incubator strategy. You say that INR 75 crores is what you're planning on investing across various startups adjacent to the business. So is this INR 75 crores for a year? Or is this what the total fund is to be invested across multiple years?

Well, as of right now, it's just the clearance we've taken from the Board for up to INR 75 crores. It is not defined as a per year or multiyear, but it doesn't look like that we will be investing any close to -- anything close to INR 75 crores in a single year or doing that every year back to back. The larger idea here, in the security space, there is a lot of start-ups emerging which are doing -- adding a lot of value using artificial intelligence. Like for example, there are millions and millions of CCTV cameras in the country. But then most of the CCTV cameras are used for recording footage. And supposedly, after an incident happens, you can go back and refer to it. So they are what we term as dumb cameras. They're not intelligent cameras. They're basically not proactive about anything. They are basically for recording evidence, which is not really helpful. What companies like Staqu are doing now is that they are putting AI technology for various applications, like CCTV today can count the number of vehicles going into a parking. They can count whether people are charging for the parking or they're using pass to charge or they are collecting cash or what. In a factory-type setup, beyond security, they are actually able to count who's spending how much time on the shop floor, who's taking more breaks, who is taking less breaks. In the e-commerce warehouse, they can count the number of cargo packages coming in, cargo packages going out. So they are able to use CCTV camera not just for making it proactive and intelligent. They are also using the CCTV camera for what we call beyond security applications, which are a major value-add for customers. And the beauty is that it does not require you to invest further in CapEx. It doesn't require you to change your CCTV cameras. The technology that is being built is generally capable of working on any reasonable IP-based CCTV system. So these are future products. Similarly, there are various other experiments that are happening in the FM space which are around energy efficiency of buildings, et cetera, et cetera. In Cash Logistics, there's a lot of merchant-based cash collection and cash delivery systems which are happening. So there's a lot of tech being used in our space. Is it possible to sort of incubate all these 10, 20, 30 different items by yourself? Probably not, because it takes a different kind of DNA to be able to do that. So what we decided is that a lot of these start-ups need large platforms like us to connect them to pilot their products and solutions. And it suits us because we are basically backing on technologies that could be potentially value-add to us in the immediate term. And who knows, maybe 5 years down the line, they could also be replacement technologies. So that's what we are -- we should be investing in. SIS has always taken a lead to experiment with new ideas. We started experimenting with cash in 2010 when it wasn't such a significant industry. We started getting into facility management in 2009 when it wasn't what it is today. We started experimenting with alarm monitoring and response services, which is our VProtect business for home security, for ATM security in 2015, way ahead of the time when it really became an important product, especially around COVID. So similarly, we believe in the next 5, 10 years, some of these ideas will be major ideas, and that's what we want to take, small positions, help them scale. Not all of them will succeed, but there are -- there is -- the bigger problem would be for SIS to turn its eye away and say that these technologies don't matter. So this is just a bit of future insurance, if you would like.

Understood. And I mean, so coming -- so just a follow-up on that. I'm presuming Staqu was also part of the INR 75 crore approval of. Just in terms of valuations of Staqu, I mean how do you look at these start-ups? Then like how do you value these? Because if I understand right, INR 5 crores for 7.5%-odd is roughly a valuation of INR 60 crores when FY '21 revenue was around INR 3 crores. So that's significantly higher than the previous acquisitions that you've made. So I mean you've said in the past that you would be investing only at the right value, and your previous acquisitions have been fairly successful in doing that. So when it comes to seed funding and start-up, could there be a divergence to the method or technique?

No, we are conservative investors, so that doesn't change. But I mean who knows about the right value of startup space here. I mean we have Zomato and Paytm right in front of us where the entire stock market has value, or LICA for that matter. So I won't get into how they should be valued in the startup space. What I can tell you is Staqu has a INR 3 crore revenue. That's fine. Their order book will take them to INR 7 crores to INR 10 crores in the coming year. But more important, most important for me, they are not burning cash. They are almost a 0 cash burn company on a monthly basis, which I believe demonstrates not just the unit economics, they are making money per camera per month, but more importantly, the mindset of the founders. So that's what we believe. And I do not think that it's a higher value or -- we've taken reference of other deals in this space. And I think we have got a very good pricing from that perspective. And we also have another VC fund investing with us who have again done their diligence. So we have also not just our research and diligence, but somebody who specializes in VC funding. So we are both entering it at the same price point.

Okay. Understood. And just one final one for Devesh, if I may, just about the tax rate. What should we assume for the tax rate going forward, given 80JJAA benefits flowing through again? So what is this tax rate in the international business? I'm presuming the stand-alone business will be a 0 tax.

Yes, you're right. You're right. The tax rate in the international business, you could take it as an average of 20%. And for most of the India businesses getting the 80JJAA benefit, it's close to 0.

Okay. And this is likely to continue for like the next 4, 5-odd -- over the long term? Like, there's no indication that we know after a certain level of guards have surpassed?

So there's no threshold around the -- on the amount of guards. There's a threshold on the salary pay to the guards which become eligible for the benefit, and that's INR 25,000 on an average. So I think on an average, we're still some way away from it. So if 80JJAA section continues and we don't have another repeat of the last 2 years, we expect to continue growing and getting that benefit.

[Operator Instructions] The next question is from the line of [ Rishabh Sisodia ] from [ Concept Investment ].

Am I audible?

Yes, sir, you are.

Sir, I have a few questions on the Cash Logistics business, right. The current quarter, we have done a 20% EBITDA margin. So how confident are you on this part of it? Is it a sustainable margin that we should look ahead?

Well, I'll just take that one. So I take that one before you can explain. So part of this 20% margin this quarter was based on a balance sheet review. There were some provisions we had which don't seem to be any longer required. So that has been taken into this quarter and that's skewed a bit this quarter. Last quarter, I think was 11% or so. And so 20% is a bit of an aberration over here.

Let me just add to that. We believe that on a steady state, our Cash business is doing around double digit -- initial double-digit margins, 10%, 12%. It has clear potential and trajectory to head towards 15%. But like Devesh said, 20% is not something we are forecasting at the moment. But I'm glad that you asked that question because what I think goes unnoticed or unrealized or not fully captured is the fact that SIS is also the second largest cash logistics company in the country. And it's a INR 400 crore business, run rating INR 40 crores a year -- INR 40 crores a month right now, so it's closing close to INR 500 crores on an annualized basis already. The order pipeline is very strong, and we believe that this business can be scaled rapidly in the coming 1 to 2 years as cassette swap minimum standards and other price-enhancing features come into play. So I guess overall, this is a great opportunity for us, and we are very bullish about it. We will continue to invest in this space going forward. And we believe at some point in time in the future, stock market will take cognizance of the fact that as of right now, our Cash business is pretty much assigned negligible or nil value.

The next part is if you could give me the DSO for all the business for the full year? And are we seeing any inorganic opportunities going ahead?

So I think the DSOs are there in the earnings note for every segment. Have a look at it, please.

Any inorganic opportunity that we are seeking in the domestic or in the international businesses?

So let me take that up. SIS is predominantly an organic growth story and it remains so. But you know that since acquisition, we -- since the IPO, we've made several acquisitions. And most of the acquisitions have demonstrated our ability not just to get in at the right valuation, but more importantly, to be able to integrate and post integration, grow the businesses, whether it is Uniq, whether it is DTSS, whether it's SLV or any other business or even, let's say, our investments into international markets. We've been able to demonstrate that. And that's been mostly our history of acquisitions in the last 10 years. So we will keep looking at acquisition opportunities, but we must understand that our growth, when I say that we want to go back to 20% growth in FY '23, that is not dependent on M&A. M&A, if there's an opportunistic thing that comes up and we get a fair price, it's one of the targets that we've been sort of tracking for several years, definitely. So you must remember that if M&A happens, it will happen in Security, Cash, FM, the spaces that we know where we have demonstrated capability. It will always happen for either market share enhancement in certain key pockets of growth or to enter a new service segment. And we will maintain the discipline around 21% IRR in a conservative case, which is the basis of our financial model and our investment case. As of today, a short answer would be that are we looking to acquire something in the next few months? We don't have any deal at that stage.

Okay. And just last question, if I could, and if I could speak in length. Like given in the last year, we had a lot of COVID revenues, be it the international business and in the India business, a lot of hospital revenue, I guess, [ a rare ] might have done really well on that part in the last 2 years. So going away as we see the economy opening up, the IT sector opening up, because it is a big -- it used to be a very big contributor to our revenue. And going ahead, so how do you see this shift happening? Do you see the IT revenues coming back to the pre-COVID level? Or do you see there are quite a lot of rare revenue not going -- depleting a bit from here?

So let me just correct you there. The beauty of the SIS model is that things like security and facility management services are used by everybody. So unlike, let's say, staffing, we are not 30% of our revenue coming from one sector, 40% revenue coming from one sector. The biggest sector that we have, the likes of IT, BFSI, et cetera, or even manufacturing, they are all in teens, 10%, 12%, 13% contribution to overall revenue. So the reason why SIS did what it did during the COVID period in terms of 7% growth in the first year and 10% growth in the year that just concluded, that's possible because we are customer segment agnostic. Coming to the point you were making, IT is coming back. But we believe that that's going to be a bonus for us because we've already -- we started growing in manufacturing, in mining, in health care, in various other such sectors before. And now that retail is coming back, IT is coming back, hospitality is coming back, we are just going to add to our growth opportunity.

The next question is from the line of [ Akasha Pujara ] from Broadview Research Private Limited.

Devesh and Ritu, just a couple of questions. India Security business, you have mentioned in your notes that the gross margins were intact. So the margin dip is largely due to maybe other expenses like COVID, et cetera. So just wanted to understand going forward, now that COVID has receded, can we expect the normalized margin trajectory for the India Security business to be visible in FY '23? Or do we still have some costs which are sticky in nature and we might not get there?

[ Akasha ], the COVID-related costs are now literally negligible, right? The vaccination excise has been largely concluded. So COVID costs are negligible. What you're witnessing in the India Security business is us ramping up for growth. We're adding more than 50 people on our sales team. We have restarted opening branches. Other things that were pending or that weren't done during the COVID years like the -- some increment catch-ups, the onetime bonus payouts, these are all things that are basically impacting the profitability or EBITDA line of the India Security business. So that's what I said. This is not for COVID. I hope that COVID expenses don't come back. It's basically expenses like Devesh explained that had been curtailed like travel, like hotel accommodation, like all of those things, meetings, trainings. All of those are coming back. Rentals, et cetera, are coming back. And at the same time, we are also investing in growth levers because we believe every crisis is followed by a fresh opportunity, a turbocharge opportunity. We think that we are poised to gain market share in the current environment, and we are funding for that. And I've said always that growth will be a priority for us. As far as margins are concerned, they are important. Margins will go back up. But [ Akasha ], I think we've had this slide before. For me, the ultimate metric is the return on equity. If my margin and my growth put together is delivering me close to 20% return on equity, ultimately, that's the metric that matters.

No, that's fair. But just to understand that if we kind of end up growing, like you were mentioning, 20% FY '23 broadly in this business, it would also imply that you will get leverage on your branch costs. And given that COVID expenses are no longer there and you kind of bulked up on setting up branches and incurred some of those expenses, so logically, there should be operating leverage which would flow through as a function of growth that you're pursuing. So it's logical to expect some margin expansion from where we were and where we are, maybe.

Correct. You're absolutely 100% right. That as growth picks up, operating levels start to flow. But I can tell you, just on a lighter note, that then you'll also see more working capital employed in the business. And then probably next time you're talking, we'll be discussing why working capital is going up. But anyways, that's the nature of our business.

Yes. But as long as you maintain 40%, 50% conversion to EBITDA and managed to show a 20% return on capital and end up growing, I think, is that a fair way to think about it, how the model will look?

I've been saying it from the first day since we went to our IPO roadshows, the metrics I measure myself and as a 70% promoter health company, the metrics that I measure the business on, 20% growth, 20% return on equity and greater than 50% operating cash flow to EBITDA. As long as I am hitting these 3 metrics or close to these 3 metrics, I think directionally, we are going well. So for a fact, we are only doing 10% growth versus 20%, right? Our return on equity is 16%, 17% against 20%. And our operating cash flow to EBITDA would be close to 50%. And last year, [ Akasha ], if you remember, FY '21, when we grew slower, we had more than 100% OCF-to-EBITDA. But that's wonderful, right, from a perspective of many people. But for me, that's just a bad idea because it shows that I'm not reinvesting in the business.

That's fair. And just one more question was on the Cash Logistics side. A lot has been -- A lot has not been spoken on that business. And definitely, this quarter, the numbers were pretty good. Just wanted to understand how you're thinking about it from a growth trajectory in this business going forward. You did mention a INR 400 crore annualized run rate. Now where do we see...

INR 500 crores.

So where do you -- INR 500 crores. So where do -- what have got thoughts here over the next 3 years in terms of revenue growth? And second is that do we see a normalized 15% margin in this business by when? In the next year can we look at it, or going forward? Because I think it's maybe making sense to start valuing this vertical as well, which has not been assigned any value so far.

Thank you. Well, I have to be grateful to you for actually capturing that. But let me answer your question. So next 3 years, we want to double the business. And I think if it delivers anywhere between 12% to 15%, I'm happy with that. I don't want to tighten every screw and shut out every last dollar and take it to 18%. I'm not a private equity player here. I'm not optimizing my EBITDA. Honestly speaking, as long as it's in a reasonable profit line, it's growing fast, capturing market share and not having to acquire and pay for acquiring ATMs, et cetera, I'm happy. I'd rather invest organic growth than make expensive acquisitions. I'm not saying that acquisitions in cash are a bad idea. I'm just saying that organic growth is a higher return on equity scenario. So that's my guidance here. I mean 12% to 15% is what you can work with.

The next question is from the line of [ Ramakrishna ] from Zen Wealth Management.

Can you hear me?

Yes, sir.

So I think just as a continuation to the previous question and the answer that you were giving. I'm just trying to understand, I mean we have just evolved or are coming out from 2 difficult years and that would if things normalize from now on, a slightly longer-term horizon, maybe next 3 years by FY '25, I'm just trying to understand your thoughts in terms of growth, the ROE target that you had or the growth target that you had or the tax conversion target that you had. So how close would we be by FY '25 in terms of meeting those targets, I mean as a business and across all the business segments? And in terms of balance sheet, the leverage [indiscernible]. So there's some kind of political thought process if you would have gone through internally, if you would want to share, from the next 3 years' perspective where we can expect SIS to be on now by FY '25?

Well, I can only talk to you about our Vision 2025. We set out a Vision 2025 last year. And obviously, the -- I mean, from a growth perspective, we only grew 10% this year. So it's not our best growth. Yet, given the context, it's wonderful, but it's not 20% plus. The good news is the key metric I would like to draw your attention to, which actually will probably help you get a clearer answer. If you look at the earnings note, in the first section, I have put out a chart that explains the SIS Security, FM, Cash business, international business revenues pre-COVID March 2020 and then March 2022, 24 months later. If you see that chart, you will see that not one, but all businesses have grown through this period. So in a year when economy contracted FY '21, they grew. FY '22, when the economy came back, they grew. And when, hopefully, in FY '23, when the economy really picks up momentum, then we have larger prospects to grow. That is the true power of essential services as a segment. It has a very interesting correlation to GDP. When GDP expands, you grow 2.5x GDP. When GDP contracts, you actually don't shrink, you actually continue to grow. So it's like a blend between a defensive sector and having advantages of a consumer play. So that's the real base for the Security or FM or Cash business, what we call essential services. And I believe if this rolls out for the next 3 years, we will be in a position to double our market share in Security, in Cash and in FM, right? And that's our key goal. We want to double our market share, and we want to step up some services company to becoming a solutions-driven company by using more and more technology and increasing our margin per INR 100 that we invoice out.

Next question is from the line of Aasim Bharde from DAM Capital Advisors.

So first question actually was on the Cash Logistics business. So firstly, can you just give me a revenue breakup of what all entails in the Cash business right now? And when you say you're the second largest in the space, how do you define that?

So second largest is by revenue. And the split of the INR 40 crore monthly invoice value right now approximately would be 40%, 45% CIT, cash-in-transit services and another 30%, 35% would be -- 30-odd percent would be ATMs, ATM with [indiscernible] services. And the remainder would be doorstep banking and other bullion services, et cetera.

Okay. And in the -- so just wanted to understand the gap between EBITDA margin and net profit margin. So I think EBITDA margins, we did about 14-odd percent this year. Just wanted to understand, but just if I just -- just to calculate, just to add procedures, share back into it, and added to the share of profit of associate line items in -- that you report, I think net profit margin is still about less than 2% while EBITDA margin stood at 14%. So what would explain the gap between the two?

Devesh, would you like to take that?

Okay. So being a CapEx-heavy business, and every contract being related to a deployment of a vehicle with specialized fabrication and specialized equipment and shipments going into the vehicle, most of this gap between EBITDA and tax is ascribed to depreciation and the financing costs. As you also know, the new MHA and RPI compliance norms require vehicles to be new and no more than 7 years old. So now the rotation of vehicles has become faster and also mandatory. So with the new contracts, we are having to replace vehicles, and that is where the CapEx has been incurred and resulting in the interest and depreciation costs being now as high as it is.

So when you say you want to double the business in the next 2 to 3 years, of course, some of it will come because of these compliance norms. But fair to say that your EBITDA margin -- the gap between EBITDA margin and the net profit margin would still be at a similar level, 14% EBITDA and 2-odd percent for net profit?

As time going by, the average age of the vehicle is going to come down. So right now with the transition happening at a fairly rapid pace, each of the vehicles is becoming higher in the short term. But as the average age of the vehicle is going down, this gap is going to increase. So you should see a better net profit margin over the years.

Okay, sure. And on VProtect, so just how much is VProtect as a percentage of India Security revenue in FY '22? And what was it in FY '21?

So as of right now, VProtect would not even be contributing 1% to the revenues of India Security. It's a fairly small business. But it's delivering more than 20% of EBITDA. And very soon, we will be touching the 10,000 connections mark. We have roughly 6,000 connections in the bag to be deployed. A lot of connections deployment got hung up because of COVID and all the issues that happened in the last year. But we are strong believers in that business. We think that in the next 1 to 2 years, it could be more than INR 100 crores in revenue. It will continue to be only 2%, 3%, 4%, 5% of the India Security consolidated. But that 5% will add a very significant piece to the overall India Security margin profile.

And just to follow-up on this. You mentioned that you have an order book of over 6,000 sites, and you will be touching 10,000 once you add that. And I think in your release, you had?

Close to 10,000 now, and we'll be adding another 6,000, closer to 15,000.

Okay. Okay, fine. And just finally, just wanted to understand, how do we see your capital allocation? So basically, if we get back on the growth trajectory that you're talking about and the cash flow generation of 50% plus, would -- and I assume there will not be any major M&A in the near term. Some smaller ones are fine. So but in terms of cash deployment, would we be like increasing? Rather, will you be going back to the dividend route? Or would you be focusing on maybe cutting off international debt because of the rising interest environment?

International debt is at less than 2% all-in cost, 2%, 2.5%, right, Devesh?

Yes, that's right.

So I don't think that's high cost. I would -- actually, if I eliminate the debt in international, I actually worsen my return ratios. So listen, guys, I mean I am a believer that there is a healthy level of debt that the balance sheet needs to maintain for the return profile. Capital allocation, if I were purely driven by equity funded growth, SIS would not have grown from a INR 20 crore business to a INR 10,000 crore business with promoters holding 70% equity. So there has to be an optimal level of debt in the mix. 3x EBITDA gearing is dangerous. I understand that. And I understand that not in theory, I understand that by having done that. When we acquired the Australian business in 2008, we were more than 5x EBITDA gearing. And I know what that feels like. So SIS is not going back there and doing crazy stuff. But if you believe that SIS should be 0 net debt and completely we should dilute our equity and pay debt back, even in the current environment, the interest cost is going up. My blended cost of borrowing remains below 6% or close to 6%, right? I think India's inflation is greater than 6%. I don't see why I need to be in a rush to pay back debt. I don't see that to be a problem. If I get geared up more than 2x, then definitely, yes. But it will be -- I think financially, it's not prudent to actually pay debt down by diluting equity or the second scenario of paying debt down to be like FY '21, where there was no growth. We were sitting on a pile of cash. So we paid back debt and we did INR 125 crore, INR 100 crore plus buyback as well. So I mean these are the 2 scenarios that are not optimal for me.

Understood. Understood. And just one last question. In Q4, of course, a part of the India margins, India Security margins, got hit because of the one-off cost. Are there -- is there anything similar to call out on the FMs side as well in Q4?

So like -- it's good that you asked that question. We haven't discussed FM in this call today. If you recall, if you've been attending this quarterly calls on a regular basis, right at the onset of COVID, I had called out that the biggest winner out of the COVID situation amongst our service lines is going to be FM. It took the biggest hit initially, but you will now witness it to be the biggest gainer over the course of the next 3 years. People have moved -- the mindset of customers is moving from facility management for cleaning to facility management for hygiene and disinfection and health and safety. General consciousness increase in this direction is basically resulting in a higher spend per square foot because people want better equipment, they want better chemicals, they want higher frequency of cleaning and disinfection. It's not a cleaning job. It's a hygiene sanitation type job in the customer's eyes now. Therefore, they prefer larger organized and reliable players more than the cheapest provider of cleaning stuff. I think this is a big shift in the FM industry. And over the next 3 years, we will witness that the FM business probably will maintain the highest growth rate if they can capitalize on the opportunity ahead.

Yes, I understand that. So I just wanted to get a sense on was there anything to pinpoint on the cost front in Q4? Because you continue to grow well because things are reopening, right? There was 30% growth Y-o-Y on the FM business, 5% quarter-on-quarter growth. But on margins, at least on a sequential basis, there has been a dip. So I just wanted to know if there are some one-off costs there as well or anything else you want to call out?

So every time you grow, you have some initial operationalization costs. So you have a big contract that you take on, you have setup costs that happen there. Secondly, as I said earlier, we're investing in expanding our sales force. We're investing in a lot of branch setups that we had held off during COVID. A lot of costs that had been curtailed in COVID like travel, et cetera, et cetera, are coming back. So it could be a blend of all those factors. But I still say that the FM business is going to head back towards broadly a 6% EBITDA margin trajectory. It may take 2 quarters, it may take 4 quarters, but that's where it's going to go.

The next question is from the line of [ Vebo ] from Ashmore Group.

Could you share segment-wise growth aspirations for FY '23?

What do we -- we have a budget in place, but that's not what we do. So segment-wise, it's going to be difficult for me to call out for you. On a consol basis, you can take 20%.

Next question is from the line of Alok Deshpande from Edelweiss Securities.

First of all, congratulations to the SIS team on crossing the INR 10,000 crore milestone. Couple of questions. One is I just wanted to understand how do you see FY '23 for the international business? Because as you mentioned in your note, the tapering down of the COVID-related contracts is now sort of taking place. So how should we look at that? And also Rituraj, your comment on in the next 3 or 4 quarters, we can probably get back to the pre-COVID margin levels across segments. I mean if you could put any numbers to it now, are we looking at that 5% to 6% range or closer to 6% or higher? So yes, just these couple of questions from my side.

So International Security delivered an exceptional result in FY '21 alone. It delivered the 20% year-on-year growth in an economy that doesn't grow more than 3%, 4% at best. And in FY '21, the Australian economy actually shrunk, but they delivered 20% year-on-year growth, and they delivered that growth at more than 6% EBITDA margin. That happened because they had a lot of temporary work, and temporary work is priced differently and we took a higher margin call on that. Now that FY '21 was a complete exception. What you see in FY '22 is normalization towards pre-COVID levels. So obviously, the growth is not 20%, anywhere close to 20%, it's single digits. And the EBITDA margin is now tracking more towards 5% than 6% plus. The way to look at our international business is go back and look at the FY '20 number. We believe that the international business will ultimately revert back to the FY '20 pre-COVID broad range. And mostly, it should happen over the course of FY '22.

Sure. And the second question, on the margins for the India business. The reversion to more steady-state margins, is it more closer to 5.5%, 6% that you're clocking again?

I think we'll go back to the 5.5%, 6% growth range. Whether it takes 2 quarters or 4 quarters, I can't call out because every time there will be a Mahanadi Coalfields type monthly contract, there will be a hell of a lot of expense that goes into starting up such contracts, right? Mobilization costs are there. So please be mindful, and I'm calling it now because we might have this point bothering you guys a little bit in the coming quarters. The growth is going to come back. You will see margin volatility because on cost, start-up costs are pushing contracts. If you remember really back, long back when we had a Cognizant [ visit ], we started on the Cognizant contract, that quarter also the margin slipped and there was a big concern around it. So when growth comes back, there will be things like that, that's going to be happening. So please do not get spooked by 1 quarter or get overexcited by 1 quarter of exceptional margins. Number two, as growth comes back, working capital will increase. But I think as long as the blended cost of borrowing is in the 6% range and lower than the inflation, I think we are not worried about that because all of this -- all of the debt that you see on SIS balance sheet divided between long-term debt and working capital debt, you will see that more than 90% is purely working capital debt that's fully backed by debtors from our customers. And we are getting that money at a blended cost of 6% India, Australia, [ New Zealand ], right? So please be mindful of both the margin blips and the fact that the working capital employed in the business will go up.

Sure, Rituraj. And because you mentioned 20% growth in one of the earlier questions, that is what -- that is the sales growth guidance you're giving for next year? Or...

Yes, sir. I already gave our guidance for revenue growth.

Revenue growth consolidated levels, right?

That's what would make me happy That's what would -- I would consider as a good result, and that's what we are shooting for.

Okay. So that would mean the India part of the business will be substantially above 20%, right? I mean given that what you mentioned earlier about your international business, I mean for that blend to work out?

Yes.

The next question is from the line of Mukul Garg from Motilal Oswal.

Rituraj, I just wanted one clarification regarding your earlier statement about the minimum wages and the possibility of how it will play out this year. I'm sure, given the elevated inflation in Indian markets, you and the industry on a broader level will be representing to both state and central governments on increasing the minimum wages. Generally, what are the pulls and pushes the governments are kind of grappling with in this context? And what probability will you assign to an increase in the current calendar year?

You want me to forecast minimum wage increase?

I just wanted to kind of get -- share your thoughts on how -- what kind of pressures which are there on both sides? And is there a chance that they have to increase minimum wages this year given the kind of inflation everyone is grappling with?

Garg, I mean I would love if my opinion mattered that much, but this question is better posed to Mr. Bhupender Yadav, who is the current Labor Minister. I think -- I cannot believe that India has not increased minimum wages materially across states and center for the last 24 months. And the unfortunate reality of this country is that people who have white collar workers, they got takeouts, but then they also got catch-up pays, and we had the great resignation and then the hiring uptick across and pay increases across that's happening in the white collar space. In the blue collar space, there's nothing like that happening. People are stuck. They are stuck waiting for minimum wages to go up and then they're paid to be going up on pro rata basis. It is very unfortunate, right? And with the current situation around inflation, it's a double whammy. When the governments wake up to it and how much they wake up to it? Are they going to wake up to it with another 3% hike? I have no clue. But over a period of the next few years, can the government not give a fair pay hike over a 4-year window back to back? I think that would be a disaster for the country.

Right. So just to kind of carry this forward, and I'm sure they can because you guys are regularly in contact with them sharing this perspective. Do you think the sensitivity still is low across both state and central governments, or they are responding and they are actively considering how to deal with this?

Look, I mean it's a very difficult situation. On one hand, the government is doling out free ration and free home and free electricity and incentives for farmers in terms of [indiscernible] et cetera, that actually people who are not in the formal workforce or are like farmers, et cetera, the government is really covering for them, and that's good. But the people who are at the bottom end of our workforce, we had a 55 crore workforce, 30 crores plus people work in non-farm sector, roughly 6 to 8 crore people are in jobs which are [ PS ] covered right? Now in the [ PS ] covered or the social security covered jobs are the jobs which are getting hurt most because you're taking care of your industry, you're taking care of your white collar, you're taking care of people who are below or at poverty line, but the blue collar is getting left out. So I hope and I think that the government will wake up to the situation.

Fair enough. [ Online ] that's helpful. That was the only one my side, and great to hear about the kind of demand environment which is prevailing right now. Best of luck for this calendar year.

Thank you.

Thank you very much. Ladies and gentlemen, that was the last question for today. As there are no further questions, I will now hand the conference over to the management of SIS Limited for closing comments.

Thank you, guys, for continuing your interest in SIS. And I hope that the performance of FY '22 is clearly in line with what we had spoken to you about at the onset of COVID, where we called out the recession-resilient nature of our industry and our own business model. And SIS is looking forward to FY '23 being a year of revival, going back to our pre-COVID level of growth. And we are very bullish about the situation, and we clearly hope that we don't have any disruptions in FY '23 and we can get on with business as usual. I'd also take a moment to once again introduce my colleague, Bharat Bakhshi, who has recently joined us. Bharat comes from a -- basically has a banking background. He's been with the likes of UBS, Citi and he has been on the investing side with funds as well as with Ernst & Young on the advisory side. So he brings great deal-making expertise and investing expertise, and he will be looking after 3 aspects closely. One is IR, where he will be interfacing with all of you. And I hope that you will give him the same support that you've extended to Devesh and myself always. He'll also be looking after M&A and SIS Ventures. So please join me in welcoming Bharat to the SIS family. Thank you very much.

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