SIS Limited (SIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SIS Conference 2023 event series. I'm Shweta Jain, and I'm the VP for Investor Relations and M&A. Through these 4 sessions, starting today, we aim to share with you our strategy across our key business segments and provide you with the opportunity to have an engaging conversation with our leadership team. Before we begin, I would like to add that some elements of our presentation may be forward-looking in nature, and therefore, must be viewed in relation to the risks pertaining to the business. The safe harbor disclaimer applies to this webcast as well. This session is being recorded, and the presentation and the session will be uploaded on our website as well. I now hand it over to our Group Managing Director, Rituraj Sinha, for his opening comments. Over to you, Rituraj. Please bear with us, there is, I think, a delay for a couple of minutes. Rituraj will join you shortly. Thank you.

Shweta, can you hear me?

Yes, Rituraj, you are audible.

Okay. Sorry, there's something wrong with the PC connection. I'll just join you on a laptop. I hope that's not a problem.

No worries. Thank you, Rituraj, for joining.

Very good afternoon to all of you, and thank you very much for taking the time to join the SIS Confluence. It's a new initiative on our part. Basically, we are going to try and organize virtual sessions that will help explain the potential of the market opportunity. It will also hopefully, not just give you a depth of understanding of the industry, but more importantly, we want to invite questions and get you to talk to the real leaders of the business, the guys who run the business and have been running the business for years, for you to get to talk to them directly, ask your questions openly and get a sense on what each of the SIS verticals is doing and what the market opportunity lies ahead of them. Can you push up the mic or whatever. Do you have a adopter or something that could help? Shweta voice is still very low.

It's fine. Thank you.

Okay. I'm going to try my best to scream. So I hope you got that. I think given the Confluence is a new idea, but the purpose is the same as we've had in the past over the last 5 years that SIS has been listed. There isn't a company which is identical to the nature of SIS in the sense that there are staffing companies that have been listed for long. And for the longest time, the investor community has not truly distinguished between staffing businesses and service industry. Some of that clarity came about during COVID, where services like us, whether it was security, cash or facility management, were categorized by government as essential services, which basically meant that even when the economy degrew in FY '21, first year of COVID, and grew very moderately in FY '22, second year of COVID. In both years, SIS registered handsome growth. In fact, we did not suffer a revenue contraction at all because of COVID, and that's because the nature of business is essential services and not staffing. At the same time, I'd say that what is the comparison between staffing and essential services that has not clearly got established. And the second thing is the [indiscernible]. There's a lot of cash companies that are listed, but then they do only cash. There are some facility management companies which are on the verge of getting listed, but then they do only facility management. There are some security companies that are looking to get listed, but then they do only security services. There isn't a like-for-like player like SIS in the market out there today, which is an essential services market leader. And within the essential services segment, in security, we are #1. In FM, at the end of FY '23, we are sure that we will be the largest. And in cash, we are a clear #2. So the idea of this Confluence Series in 2023 is to organize virtual sessions to get you to talk to the leaders who have built these businesses and run these businesses to give you context of how we run it, what's the future opportunity, what's the competition like and get you to ask questions and give you access so that you actually get a pulse from the ground. You are aware that SIS is a market leader. We have an unparalleled scale of operations with over 250,000 employees. We are amongst the top 10 private employers in the country. We are derisked from a geographical standpoint, and the fact that we operate not just in 660 districts of India, but also a significant part of our revenues comes from overseas markets. This actually came to our rescue during COVID, where the Indian economy contracted. Because of growth in international markets, we were able to maintain our revenue growth, even in FY '21. Looking forward, FY '23, the current financial year looks like a pretty solid year for us by the sense we get from the Q3 numbers, and what I've seen so far, it is clearly a year when SIS is going to cross the INR 11,000 crore revenue mark. We should be registering teens, 12%, 13%, 14% type growth over past year, and this is purely volume-driven growth because a large part of the minimum wage increase that we had anticipated with labor reforms has not come through as yet. But in one way, it's a blessing that in the first year post-COVID, the 1st April to March period, which has been largely disruption-free FY '23 financial year, we have grown purely basis volume. And when the price increase kicks in hopefully next year, it will give us a bumper crop hopefully. In today's session, we'll walk you through the facility management business particularly. We will try to explain the strategy that has shaped the business and what has -- SIS entered FM space only in 2010, and in a matter of less than 15 years, in FY '23, and we will emerge as the largest FM operator overtaking various other NPDs in the space which had been operating for 25, 30 years, significantly longer than we had been operating. But still, we'll be overtaking them and making the largest FM company at the end of FY '23. We believe that FM has a massive opportunity post COVID. What COVID did for FM is, it converted it from a cleaning service to a health and hygiene issue. We see that the spend per square feet whether it's office cleaning, manufacturing cleaning, hospital cleaning or whether it's malls or any public utilities, it has become a -- from cleaning, it has become a hygiene issue, and therefore, the per square foot per month expenditure on facility management services is going up and will continue to go up, number one. Number two, we have witnessed that people want to operate with larger compliant operators, which is helping us consolidate the market organically, and that is what has resulted in almost 25%, 30% growth this year in the FM segment, which is huge without significant price increase. We registered more than 25%, 30% growth compared to last year on FM segment purely on volume. And the third factor that is coming as a massive tailwind in FM space is the fact that India is spending very heavily in infrastructure, whether it is new metro railways, it's new hospitals or it's private investment, government investment, private investment, all put together, as far as new constructed patients are coming up whether it's a hotel or a mall or a factory side or a metro railway or a new railway station or a new airport built by the government. As long as there's more square footage created, our market is expanding more rapidly than has ever done in the history. Today, we have with us Shamsher Puri, Director of our FM business, to walk you through this opportunity landscape. Shamsher knows about the FM segment, far better than I do. Shamsher and his brother Jasmer build DTSS as a business ground up in the '90s. DTSS became amongst the top 5 companies in the facility management space, and then it was a great opportunity for SIS that Shamsher and Jasmer wanted to become a part of their SIS ecosystem, and this partnership over the last 5 years has flourished. DTSS itself has grown from a INR 300-odd crore business to almost INR 1,000 crore business in the last 5 years. So DTSS has basically gone 3x in revenue in 5 years, and not just revenue, from a INR 1,820 crore EBITDA in 2017, their EBITDA number also has gone close to 3x in 5 years. So DTSS has really benefited tremendously. SIS has benefited tremendously. Today, Shamsher overseas not just DTSS, but SMC and other FM businesses like pest control business of terminate, and where all roll up and report it to him now. And he's probably the best man in the industry today to walk you through the opportunity that lies ahead and also address any questions that you may have. So I'm sure it's going to be an interesting and interactive session today. My job is done with the opening remarks. I hand it back to Shweta and Shamsher to take you through. Thank you very much, and sorry for the IT trouble. Thank you very much. All the best.

Thank you, Rituraj. Thank you for your opening comments. I would now like to introduce our speaker for today, Shamsher Puri. Rituraj has already done a very good job of doing that, but I'll take a start at it. Shamsher, first generation entrepreneur, founded DTSS in the late 1990s, a median facility management provider for the health care and hospitality industries. Journey is synonymous with that as the facility management business in India over the past 3 decades. He was responsible for all of the key strategic decisions at DTSS, including recent capital and eventually bringing on a strategic investor SIS Limited in 2016. Shamsher has been associated with SIS ever since. He is responsible for driving the growth of the FM business at SIS. Post Shamsher's presentation, there will be an opportunity for the participants to ask questions. [Operator Instructions] Thank you, and over to you, Shamsher.

Thank you, Shweta, and good afternoon to everybody who has joined this Confluence, and really, it kick started one of the new initiatives that we are doing to ensure that we get the market to understand what really our business is, and clearly, something that we're going to do today. And I'm sure by the end of the session, we will have a fair understanding of that concept here. I'm here really to explain the SIS's facility management business, which is one of the largest -- can we have the presentation, Shweta? Just wait for the presentation to come on. My apologies. Yes, thank you so much. If somebody is controlling it, maybe we can move to the next slide. We can move to the next slide. Okay. Yes. So just to explain the facility management business of SIS, and of course, we are one of the largest and the fastest-growing facility management companies in India, with the most extensive pan-India coverage as far as geography is concerned. And like Rituraj was mentioning that we are currently #2 ranked player in the industry, in the market, in the country today. And I am sure that by the end of FY '23, we will be the clear #1 and exponentially going ahead and consolidating that position of #1 in FY '24. So just to quickly explain to you the universe of services that are completely encompassed in the facility management space. And I'll really take a quick example of, say, an IT office facility where there are facilities that are provided to service the customer who uses the facility. There are food services, there are transport services and of course, security services, which are also provided by SIS. Food and transport are not, and those are areas that we consciously want to keep out of. But the facility management business really is bucketed into 2 very, very clear and distinct services. One is hard services and one is soft services here. What I mean by hard services is that every facility has assets that need maintenance. Every facility has backup power. Every facility has HVAC and air conditioning systems. We have lots of sensors on the facility. We have electrical. We have plumbing. We have a fair amount of pumps that are used for fire and water and plumbing equipment. We have STP plants that need to be maintained. So that entire maintenance and operation of those entire assets come under the purview of what we call the hard services here. And these hard services are provided by a very technical kind of a staff. They are engineers. They are technicians, who maintain these facilities that are preventive maintenance, and there are, of course, periodic maintenance and that is done to the equipment here. Anything that does not come in these 4 buckets is bucketed into something called soft services, and that's really the largest span of services within the facility in terms of the bandwidth of services and, of course, in some cases, even the revenue. So janitorial services, reception services, as soon as you enter a facility, there is a reception, which is managed by the soft services team. Mailroom services, so any courier that come in and out, any mailroom that -- I mean that's becoming a little redundant, but anyway, there is a fair amount of reprographic work and mailroom work that is done by the soft service team. Horticulture, whether it's inside or outside, landscaping, is done by the soft services team. Waste management and that's very critical today in some of the client types that we are working in, like health care, waste management becomes almost like a critical service where wet and dry waste and bio waste is to be handled in a very specialized manner. Staffing and payroll, facade cleaning, most of these businesses have facilities, have facade and high-rise cleaning that is done by the soft services team. Event management, any events that are organized on a very informal basis, birthday parties and town halls, some kind of internal trainings, all of these are events that are handled by the soft services team. Concierge services, health, test, server room maintenance are all bucketed into something called soft services, and this is really the responsibility of the soft services team to look after. 88% of our business at SIS facility management comes from soft services because of the nature and the size of the market. 12% of our business comes from hard services, which is really the size -- it also again represents the size of the business. We are probably the -- one of the biggest hard services provider of services in this country as well along with being the #2 soft services provider right now, but that really comes with the size of the market here. Let's go ahead. I'll just take you through the journey of facility management across from the mid-'90s. Really, there was no facility management business or industry till the mid-'90s, till the IT industry started to -- they had a lot of clients who are outside of the country. And when there was travel between India, their Indian colleagues to the outside -- to their clients outside the country, they found that some of the core services that were handled were not in-house there. They were completely outsourced. So really, the IT industry was one of the first adopters of outsourcing of facility management services, and that started sometime in the early to mid-'90s. And with the advent of Y2K, these companies became big, and therefore, the business started to grow sometime at around the mid-'90s to the end '90s here. By 2002, we had -- DTSS was just a INR 2 crore company to give you some perspective. And thereafter, from 2002 onwards, not just the ITITS, some of the other folks in industries outside of ITITS like health care, like retail, like manufacturing, pharmaceutical companies started slowly, slowly, slowly permeating to outsource these services. They were insourced. So they also started to adopt the outsourcing model where they would not in-source these people, they would give it to a professional to look after. So that started between the years of 2002 and 2005. By the year 2007, some of the companies that were providing these services had gained a fair amount of traction. They were slightly big in size, and we found that a fair amount of investment from private equity started to happen in these companies. Some of these companies got private equity investment. There were foreign companies who are operating outside the country like the Sodexo, ISS of the world, came and set up shop in India and started to grow their business in India. 2009, DTSS raised some private equity, and SIS, organically, we started our business. The ServiceMaster Clean business in partnership with ServiceMaster Clean of the U.S. We started our first contract in 2009, 2010 to end of 2009, and that's really when we organically started our business. We found that apart from our facility management and cleaning business, we very quickly roll up the pest control business as well. So in 2012, we started our joint venture with Terminix in the U.S. and started offering pest control services to our customers who are already using facility management from us, and of course, to customers who are also not using facility management. So there was some part of cross-selling in some part of new sales over there. In 2016, like Mr. Rituraj Sinha was telling us, is that DTSS was acquired by SIS, and at that time, our turnover between SMC and DTSS and Terminix all put together was close to about INR 650 crores in 2016. In 2018, we acquired Rare Hospitality, a Bombay-based company, which specializes in health care, and we partnered with them in 2018. And in 2022, what was really a INR 2 crore business in 2002 became a INR 2,000 crore run rating business in 2022. And today, we employ 70,000 people across all geographies in the country. So we really operate in 4 verticals right now. DTSS, SMC, ServiceMaster Clean, Terminix and Rare Hospitality. These are the 4 businesses that comprise of our entire facility management offering here. What we did during this period was, we segmentize our client types. Of course, we had many kinds of clients, but like over a period of time, if we are to grow exponentially, we have to give very, very highly refined solutions to segmented clients here. So ITITS requires a specific delivery model. Health care requires a delivery model, which is fairly refined to the health care space. Airports and railway stations have a very nuanced delivery model, which we understand very well. Commercial spaces and retail manufacturing like tech, pharma, educational institutions, co-working spaces and data centers. These are 8 segments that we really specialize in, and today, really, we've segmented our offering completely based on these 8 segments. And of these 8 segments, we are -- we not only have specific teams that deliver services to these 8 segments, we have subject matter experts that we we've got on to -- for the pharmaceutical industries that we've got somebody from the pharmaceutical industry to understand that business so that we can deliver to clients. So nuanced, like, for example, in health care, it's very critical for a hospital to pass an NABH audit tier. So we have a special team inside the company that does only NABH audits, and therefore, stickiness with health care customers is very high because they know that the SIS team can come in clear the NABH audits. Similarly, for pharma, something like the U.S. FDA or the Romania audit, these are very critical audits for them to continue their operation. So U.S. FDA audit can come and actually stop the business of a pharmaceutical company overnight here. And of the 3 days that the U.S. FDA audit takes, one day is completely dedicated to the audit of the facility here. So where the formulation room happens, how we clean the formulation room, how we put HIPAA filters in the formulation room. The entire process is a very nuanced and specialized. So therefore, we specialize in providing -- and today, we are the #1 service provider in pharmaceutical. We are the #1 service provider in healthcare. We have almost 300 hospitals that are under our management. Today, starting from -- if you see some of the names over here, Apollo Hospitals, Fortis, Manipal Hospital, Continental, Seven Hills, these are some of the names. If you see in the ITITS space, we have Microsoft, Infosys, Wipro, Cisco, JPMorgan Chase, amongst many others. These are big clients of ours, but other than that, many others, that we look after. In the manufacturing space, if you see Toyota, Kirloskar, which is an OEM of the plant in Vidi. Honeywell, ITC, Mahindra and Mahindra, Tata Motors, these are some of our big customers in the manufacturing space. So we -- by specializing, we become a vendor of choice here. That also becomes our competitive edge, and really, we keep away and run away from the competition because of some of these points where our geographic spread across not just a state, but an entire region, South region, the West region, Northern region, Central region and the Eastern region. These are 5 regions that we really operated. We operate in 625 pin codes and districts, and really that presence gives us the ability to be geographically agnostic to problems that might be geography-specific. So there's no growth happening in, say, the East. We are still the biggest service providers in the East here. So that geographic spread gives us the ability to service clients across all these geographies, whether you have plants in Bangalore, whether your plants in Goa, whether you have plants in Pondicherry, whether you have plants in Siliguri or Vidi, we have offices over there. We have people who deliver services on the ground, and therefore, clients come to us and that really becomes our competitive edge. What really clients get used to is that the same services that we supply in Bangalore, we are able to consistently deliver the same services across all these geographies because of our ability to have that segment specific specialization here. Because we are a publicly traded company, compliance and audit readiness at any point of time becomes like a huge advantage for customers here, especially when you have labor that is deployed on the site. Labor compliances tend to be very stringent and principal employers get penalized for any noncompliances on their vendors part. Therefore, compliance gives us an edge. Because of the fact that we have a -- we're a publicly listed company, we have to be hugely compliant in all matters of finance and labor policies here. And our advantage is that because of our compliance digitization, we are anytime compliance ready for any kind of audits here. I just explained to you about our subject matter expert prowess and that really differentiates us in the market. What comes out of that subject matter expert and segmentation is our ability to cross-pollinate best practices across industries here. So if there's a best practice, say, for example, in the health care space, there's a best practice of waste management here. We're able to ensure that we can take the same level of readiness across to other industries like ITITS. In the manufacturing space, good manufacturing practices. GMP is very prevalent. Environment, health and safety is very prevalent in manufacturing industry. We're able to take the same ability and prowess of our ability to handle manufacturing to the ITIT sector, where they don't give a premium, but it's good to have over there. So our cross-pollination of best practices ensure that we up our game every year across industries here. One of the things that we do in our business is that our business is very specifically very small transactions, but that transaction is very, very repetitive. For example, 70,000 people. You have to pay them, you have to mark their attendance on a daily basis. You have to pay them on a monthly basis, and it has to be done month-on-month here. It has to be done before the seventh of the month here. We have to invoice our clients in time. We have to ensure that we onboard our people. We have to ensure that background verification happens. So lots of small, small transactions happen on a daily basis, on a monthly basis, on a weekly basis, on a quarterly basis, on a half-yearly basis, which needs -- which used to need a lot of manual intervention, which over the last 7 to 8 years, we have ensured that we have transformed all these manual practices to slowly, slowly. I mean the velocity of the transaction or velocity of the transformation has not happened overnight. It has taken us some time, but we have slowly taken 2 or 3 initiatives a year, but transformed digitally over the last 7 to 8 years. And that, to my mind, reduces the friction of the team operating on the ground to deliver services to client, that the client actually needs here, not be embroiled within the onerous task of onboarding people and marking attendance. So that transformation digitally -- digital transformation has given us an edge in the market here. I'll just give you some examples of that. If you go to the next slide, there are back-office transformations digitally where we start to onboard an employee. We onboard about 12,000 employees on a yearly basis on 2023. FY '23, we have onboarded 12,000 people. It takes -- what used to take like a 2-day process now takes 35 seconds to onboard here, and this is completely digital onboarding. You give your Aadhaar number, and we onboard you. We give you our employee code. We go to the provident fund portal and a provident fund number is allocated to you, and ESI number is allocated to you. And your ID card is printed out and laminated and given to you. All happens within a period of minutes, what used to take such a long time. That same record goes for background verification. And what used to take 30 to 60 days now takes 12 to 15 hours to background verify. I'll take you through a case study of background verification. Uniform distribution is again like a very digital process where sizes and availability of uniforms in the branches has turned completely digital. As soon as people are onboarded, now we have an entire repository or HRMS system, starting from induction to very, very specific training for industry type, say, for example, the pharmaceutical industry or the hotel industry or the retail industry. We are able to ensure that entire training content is put up on our HRMS platform and LMS platforms, where they can learn these -- the induction and other training modules are there, where they can learn. So that digital transformation has happened over the last couple of years. And as soon as they get on to the site, their attendance is marked on their digital platform, and we are able to invoice digitally. So if you see in the back end, there's this entire digital transformation that has happened -- that is happened, it's happening and it will continue to happen. So the lead on digital transformation has been like a huge benefit not only as a competitive advantage, but also to reduce the friction in operations and to ensure that our costs are left at almost a minimal. We don't have to hire so many more people because a lot of our work happens digitally here. If I give you a small case study on this, if we go to the next slide, Mohit, is that I'll give you a small case study, as far as, a background verification is concerned. I'll give you -- as is what used to happen 3, 4 years ago is that a candidate would come, and it would take us 45 to 60 days, do the background verification here. Days to come, they would give us documents for address check. They would give us documents for age check. They would give us documents for address verification. They would give us a blank check to give us their bank account details. And all of this would then go back to an agency. The agency would do like a very cursory check around their candidature, and they would come back and say, in some cases, they would say, there was a problem, and we flagged those out. But in a lot of cases, we would not even trust those background verification agencies because the manual nature of the checking that was being done. And all of this used to cost us between -- depending on what checks we did, between INR 2,000 to INR 3,000 here. That same -- let's just go back. That same check today is done within 12 to 15 hours; at the most, 3 days, if there's -- if the servers are slow. But that same check is done within 12 to 15 hours, and the transparency is higher because most of the courts are today digitally -- or the cases are uploaded. Criminal verification happens. Identity check happens with Aadhaar. We are able to check the age of the person because of Aadhaar. We do an address check. And we can also see the faulters' list that can be checked in the background verification. All this happens for an entire amount of INR 60. So you see the onerous nature of the manual check and you see the ease of operation through the digital application that we have here. On the front-office side as well, at the client side, there's a whole lot of digitization that we've done on the customer satisfaction, which is completely digital. Own your customer, we have your own your customer where a lot of our managers own customers. So they calendarized their visits. We have calendarized their interaction with customers. We have ensured that as soon as the meeting happens, digital minutes of the meeting is generated and compliance to those minutes of the meeting, action points. And then when the next meeting is held, those action points are addressed. So own your customer. All the checklist that we have inside the facility, we have completely digitized them. Our material ordering, indenting and delivery has been completely digitized. And of course, we use a lot of sensors on a site to track order, to track traffic, to see on-demand services. So we are shifting now from more -- more from a cost-plus kind of model to an on-demand and SLA model where our beacon and sensor-based solutions on the site is giving us an edge here. I'll give you a small case study on e-material, how we are -- our material that we use on a customer site. And there was a lot of manual intervention that used to happen, wrong ordering. The turnaround time to get this material to the site used to be anywhere between 7 to 8 days, which is really cut down to 1 or 2 days because of our e-material application here. Now indenting is done digitally. Those indents are placed to the vendor directly. Depending on the budgets of the site, those budgets are already entered into the master. The vendor takes out the material, delivers them to the site, uploads his DC on the application. And his DC, along with his invoice, comes to our central office for payment all within 1 to 2 days here. And there is no manual intervention over here. The transparency that this system has brought has not only saved us people who do all this activity, but also saved us cost as far as reporting of delivery of materials is concerned here. So this is just a small example of our e-material application that we have put on to our client's site. This is a team that delivers our businesses. We have 4 clear and distinct businesses: DTSS headed by Sanjeev Kumar, who is the CEO; SMCL, which is -- SMCL and RARE Hospitality is headed by Edward, who is duly in charge of both these verticals; and Anil Dias heads our pest control business, which is Terminix. All of these have been very clearly distributed between zones. And we have a very strong second line across all businesses who manage the operation and who ensure deliveries happen across the region. So we are not like there is no risk of -- if one region, there is some leadership issue, I mean, we very quickly, we have succession planning across the second line because of the robustness of our second line here. Most of these businesses have functions that are dedicated to them, business development, finance & accounts, training, learning & development, transition and IT. And all of these plug into something what we call a shared services center. A shared services center is where all the transaction happens. It's the place where we do most of the transactions, like for example, the payroll happens through H2R, Hire to Retire. 73,000 people get paid on the 7th of the month through this because we have like this robust shared services center in the company. And these -- all these 4 companies plug into the shared services center to do the transactions here. Our volume growth comes, by and large, by -- our customers are all annuity customers. We don't take up customers for any kind of onetime activity. Only during COVID, there was some onetime activity that we did. But other than that, most of our customers are annuity customers. Our USP has always been that we are able to retain, year-on-year, 95% of our customers. 2.5% of our customers disappear because we are not able to make money out of them. Some customers, over a period of time, start to squeeze us on margins. And therefore, we have to separate those customers, and we do a fair amount of tail cutting to separate those customers. And we do this churn on a yearly basis. 2.5% of our customers are regretted losses. We have RFPs that get floated. There are incumbencies that happen on a site due to operations. There are fixed-term contracts where 3 years, 5 years. So contracts come up for renewal, and therefore, we lose 2.5% of our customers. But by and large, we're able to retain 95% of our customers. These 95% of our customers also give us lateral business here. They give us business where they open new offices. Their present offices expand. Therefore, we get new businesses from our current and existing customers. Like our Group Managing Director, Mr. Rituraj, was explaining that there are a lot of new hotels that are spinning up, a lot of new malls, a lot of manufacturing activity that's happening. So there are new greenfield projects that keep coming up, and that has exponentially increased in the last couple of years, is that we get business by acquiring new customers who are setting up shop for the first time here. And then, of course, there is this huge migration from the unorganized sector to the organized sector. And we get contracts from a lot of unorganized players who we migrate to, who are already existing customers. They want to move from the unorganized operators to organized operators like ours here. I'll give you a small example of a lateral customer increase. We had this -- on an unnamed basis, we had a customer who was -- who we entered a couple of years ago, 3 years ago with a INR 50 lakh per annum revenue and a single service where we are providing only housekeeping services in Kolkata. It was a modest beginning. Today, we look after 6 locations from them. And under management is almost 9 million square feet. Major locations in Kolkata, but they are spread across in other cities, in Orissa as well. Today, the contract value is almost INR 7 crores, 12x our entry level, and we employ almost 200 people in that account here. Not only that, now we have a key account manager who is dedicated to that account. And we have a subject matter expert who is also dedicated to that account who spends a fair amount of time in this client here. So this is one of the examples where we have really grown with the customer, whether it is -- we grow with them or they already have businesses that they are outsourcing to other service providers that they bring on to our -- bring into our bucket here. Our business models are fairly straightforward. They are 3 in nature. We have a fairly safe and sound cost-plus model where we bill the customer based on time and material. 90% of our customers are like this. We are downside protected in our cost-plus model. We don't lose money in any of our cost-plus model contracts because of the nature of the business that we are in here. It is cost-plus, and we charge a management fee on top of that here. So 90% of our customers come from this. We are migrating very, very slowly to an outcome-based model where we understand the service level agreement of a customer, service levels of a customer. And then we curate like an agreement and a contracting model, which we agree with the customer based on the expectation of service. And that transformation is happening slowly because we -- only about 8.5%, 9% of our business comes from there. But it gives us the ability to increase our top line. The market is moving slowly. Therefore, we are unable to move as quickly as possible, but we are seeing a fair amount of movement towards outcome based -- the outcome-based model. The fourth -- the third model is glide path saving. A small part of our business comes from here where we take multiple-year contracts, where we are to give savings to a customer year-on-year. So in the first year, if you are contracting INR 100, the second year, the customer expects us to save money for them to give them like a INR 2 saving where we become more efficient. We start to use more digital. We ensure that we can -- we are familiar with the facility, and therefore, we are able to reduce input costs. Therefore, we are able to give them saving here. So these are a few customers where they are multiyear customers, 5-year, 7-year contracts where we are engaged with them and we have to give them year-on-year savings. So by and large, as you've seen through this presentation is that what was like a completely unorganized industry way back 25 years ago has become this big industry where we have become like a #2 player, very quickly going to a #1 player. We are servicing customers across the country now in regions, in places that -- places like Siliguri, places like Patdi, places like Tirunelveli, places in Kerala, Goa. So across the country, even in small cities, we are able to service customers. Our transformation on services has been very, very digital, and that's been the focus of our entire delivery has been to go as much digital as possible so that consistency and competitive edge continues to be part of this digital exercise. And of course, being a publicly listed company, our levels of compliance and audit readiness we find are something that the customer pays an extra percentage point for. And of course, if you see -- if you are able to retain 95% of our customers, it's that the customers are extremely happy with what we are giving to them here. That's really part of the presentation, and thank you so much for taking this time off. I really appreciate you taking this time off, and I'd be really happy to answer if there are some questions, if there are any here.

Thank you, Shamsher. Thank you for a wonderful session. I hope the audience found it equally interesting and engaging like I did. I now invite questions from the audience. [Operator Instructions]

I did see a hand raised. Yes, Kunal, why don't you go ahead?

Thank you, Shweta and Shamsher, for the wonderful presentation. So I had 3 questions. First was in regards to -- you talked about 4 businesses within facility management. Can you take us through the unit economics in terms of whether these businesses enjoy any kind of operating leverage? Or is it purely cost-plus only? Also, in terms of working capital requirement, how these businesses -- separate businesses are placed? The second question was on, when we look at our security services business, we are the largest player there. Any color if you can help us with in terms of how much cross-sell we have been able to do in the facilities management business like tapping our security services customers? And what is the runway in terms of cross-selling this as a service to customers who are availing our security services business? Then the final thing was on what -- like when we look at our margins, since we are in the investment phase, there are times the margins have been volatile. And wanted a sense on operating margins from a longer-term perspective, what is -- should this business can make a higher margin than the security services? Or it would be kind of similar margin to security services? And if -- last one, if I can squeeze, is on the ROE and ROCE profile for this business. Again, whether this is a better ROE business compared to security services or equally -- equal to what we see in security services?

Kunal, may I also request to please introduce yourself? [Operator Instructions]

Sure, Shweta. So my name is Kunal Thanvi, and I'm from Banyan Tree Advisors. We are a SEBI-registered PMS fund. We manage around INR 4,000 crores of money for our retail clients.

Thank you, Kunal. That was a whole bunch of questions. I'll try and remember them in order. But to the first point where you mentioned all our 4 businesses are fairly complementary to each other. SMC was a very North- and East-focused -- geographically North- and East-focused business here. DTSS, when we partnered with SIS, was a very South- and West-focused business here. So it gave us a huge advantage as far as the coverage -- geographic coverage was concerned. Of course, today, DTSS by itself and SMC by itself have very high offerings around geographies. But by and large, it gave us a very holistic coverage as far as geography was concerned between SMC and DTSS here. The businesses are fairly similar in nature. Margins are in the 11.5%, 12% category gross margin. So they are similar in nature because client types are fairly similar. While we do some amount of B2G, business to government work in service, [ faster clean ], we don't do any -- we do very minimal B2G work in DTSS. So that's different. But RARE Hospitality is very, very health care-focused. So it gave us a client type here. It gave us a client type, which was -- it wasn't that we weren't not doing hospitals, but it gave us a client type, which was we really wanted to go after that client type because it's large, it's growing, it's -- it could be margin accretive as far as we are concerned. So to give us a huge advantage, they are a fairly West-focused company. So -- and of course, Terminix, by itself, is a different service line. So they operate in the service of pest control. And therefore, all 4 businesses, while some of us step on each other's doors very slightly, we compete with each other in the market as well. I mean that's -- it's not like SMC will not compete with DTSS. We compete with each other in the market as well. But there are huge amounts of synergies that we have across our facility management portfolio companies. Your second question was on margins. And what we are doing here is that we are very aggressively working on removing a fair amount of -- so we have a fair amount of fixed price margins as well, fixed rupee margins as well. And when you take a fixed rupee margin, you're in COVID, we've not been able to increase those margins and make them into percentage types. We are doing that very, very aggressively. We've done a lot of that work this year. We are continuing to do that work again next year. We are doing a fair amount of tail cutting through this period and into Q1. We are consciously taking calls on getting new customers, which are greater than 12% margin. So new customers are giving us a premium for all the segmentation work that we've done. They're giving us a premium for all the technology that we are using. In fact, we are able to go and monetize some of the technology that we are using. And there were dynamics that had come in onetime because of COVID. And because we're an annuity business, it takes time for us to change. Only when contracts come up for renewal are we able to go and represent to customers to change those onetime dynamics that had shifted on this side. And of course, there's this huge drive inside the company on SG&A cost. So all of these are giving us a sense that the margins for FY '24 are going to be hugely different from what they've been in FY '23 here. So we're looking at FY '24 to increase our margins to -- by 75 basis points, which is about closer to 5.25%, 5.5% category and another 75 basis points in FY '25.

Yes. If I may just step in there, so this is Bharat Bakhshi. For those of you that don't know me, I lead the Investor Relations, M&A and venture activity. So just very quickly, I think as Shamsher pointed out also, I think that's the general guidance we've been giving out just on the margin aspect that we are very surely but -- slowly but surely heading back towards sort of pre-COVID levels. And as Shamsher explained, I think we were running at around that sort of close to between 5% to 6%, around 5.5-odd percent margins across the businesses in India, both security and facilities, actually. But given all the initiatives, given some of the SG&A costs coming back in line, post-COVID, et cetera, I think, as Shamsher guided, I think similar to the guidance we've been giving generally on our quarterly calls that over the next year, I think we should hopefully see around a 75 bps type increase and then the year after that following back up. So I think in about a year or so, our quarterly run rate, I would suggest, I would think probably could be getting back to the pre-COVID levels. So just wanted to add that perspective, Shamsher. Thank you.

Thanks, Bharat. Yes, so margins is a top priority, Kunal, and is something that we are constantly and aggressively working on, not only on one front, on many fronts here. So that's one part of it. I think your third question was on cross-sell. Yes, we actually have a program to cross-sell. There is a huge program around cross-selling our entity companies. And not only -- so most of our sales book have this as part of their KPI. And while we've made small steps towards that now in the last couple of years, we are looking to see how we can aggressively move that cross-selling machine across service lines here. I think I've answered 3 of your questions. I lost you on the fourth one.

Yes. Sure. So the fourth one was on structural ROE, ROCE for this business compared to, say, net of security services. Like are we in line or better ROE compared to the security services?

Bharat, could you help me with that question? If Bharat is there, he'd be better placed to answer that question. Otherwise, you can -- I can come back to you, Kunal.

Sure, no worries. Thank you so much, Shamsher, for answering my questions, and all the very best. I will get back in the queue.

Thank you, Kunal.

Sorry about that. I had some issue unmuting myself. Can you hear me now, Shamsher?

Yes, I can hear you.

Yes, yes. So just going back to you, Kunal, I think fundamentally, in terms of the return ratio, I would say facilities, India and facilities and security India operates at similar levels. There's not a very strong difference in the return dynamics between the 2 businesses.

Thanks, Kunal, for your questions. We also have another question on the Q&A section. Vishnu, would you like to go ahead with your question? Vishnu, I think we had unmuted your line. If you want to go ahead with your question?

Vishnu from Singular Capital. We are an AIF based off in Mumbai. So I had 2 questions, more from a top-down perspective. So I just wanted to know what are the levers which are driving customers from the unorganized to organized players such as yourself? And is there a trend visible across industries? Or it is seen only in some particular industries? Also, I just wanted to get a sense of how much of the overall industry is yet to be organized. That's my first question.

So the 3 levers that are really working in our favor are largely centered around compliance, Vishnu. If you really see that compliance -- GST compliance, labor law compliance and the new labor code compliance that we have, compliance around some of the things on the operations side, around the things that I've spoken to you about whether it is U.S. FDA, NABH, those are on-site compliances that we do very aggressively for the clients, is definitely shifting the market from the unorganized sector to the organized sector exponentially. It's happening. These are 2 or 3 compliances. There are 2 or 3 things that are exponentially shifting, making it difficult for noncompliant vendors to operate. And these noncompliant vendors would be in Tier A or Tier 2 cities. They'll be in smaller cities, small clusters like Visakhapatnam or Sriperumbudur. And these are places that they operate in. But compliance is reaching all parts of the -- all parts of this ecosystem. I really don't have any data. What is -- there are many studies that are -- how much of this data is -- how much of this industry is noncompliant and how much of it is compliant. But like I said, a lot of our wins that we are doing from other existing facilities to our facility has been from customer shifting from unorganized to organized tier. Thank you, Vishnu.

Thank you, Vishnu, for your question. [Operator Instructions] Vidit, we have unmuted your line. Please go ahead with your question. Introduce yourself and go ahead with your question.

I'm Vidit from IIFL Securities. I have 2 questions. The first was generally around the sort of services that you mentioned when you have a multiple area of soft and hard services. You did mention that you never ventured into the food service business and all of that. But are they amongst the call facility management services that are there for the offering? Are there something -- other services that -- lower margin or higher competitive intensity factors like those? Or are you -- hello?

Vidit, have we lost you?

Vidit, could you just repeat your question? Your audio is not clear.

Sure. Can you hear me now?

Yes, now it's better. If you could just repeat your question.

Sure. I was -- my question was, are there other services that you shy away from because of either competitive intensity or lower margins or lower return ratios? Or is SIS, as a company, open to take on any services that the customer may choose to offer?

So I lost half your question, Vidit. So could you just -- I'm sorry to have...

I'm sorry. Let me just type up my questions in the Q&A box.

Let me just take a crack. I think I heard that, Vidit. Shamsher, Vidit is asking 2 questions. Fundamentally, are there any businesses within facility management that we would shy away from for any of the 2 reasons, i.e., they're low -- fundamentally low-margin businesses or whether very high competitive intensity? So are there any such businesses within FM that we would not push to take on is the question. Shamsher, you heard that? Hello? Shamsher, can you hear me?

So maybe you want to go ahead and address that. Just a request to the audience, are we audible?

Shweta, hello?

Yes, Shamsher, go ahead.

Yes, yes. I think you're breaking up. I didn't hear any of the questions. So I couldn't even hear Bharat.

Shamsher, let me take a crack at that again. I think what Vidit, he was asking 2 questions. Basically, the same one question, but the question is that, are we any -- are there any services within facilities management that we would not take on for 1 or 2 reasons: one, very high competitive intensity; or two, very high margins? Are there any such services that we're shy -- we would sort of not want to really push for?

Definitely, the food services, we don't want to push for because it's something that's not with our grain. I mean we don't understand that business. I don't think we have the ability to deliver that business. And in the short, medium term, I don't see ourselves getting into that business at all here. It's something of a competence issue, and it doesn't roll up into any of our core competence areas here. The second is transportation. Transportation is a very local business, transportation of people from the place of work to home and back and forth. It's not something that we want to do. Within the facility management business space, there are other services like energy management, smart facility management or facility management on-demand, which are emerging as trends with some of the slightly more innovative companies who want to engage. And we are definitely engaging with them to provide those kind of services. But other than that, I think there's a huge runway in our service offerings that we still haven't completely juiced out, and we would definitely like to continue to do that here.

Thank you, Shamsher. Due to paucity of time, we'll now take just one last question. Aejas, please go ahead.

Shamsher, thanks for that presentation. I thought a couple of those points that you shared were very interesting. One that I found very insightful was the cost reduction from INR 3,000 to INR 60. That actually sort of helps us in constructing where the leverage is coming from in the business. So thanks for that point, point number one. So 3 questions here. Point number one is, if you could speak about what is the operating leverage that this business really offers, if at all it does offer anything? And this also ties into my second question that you mentioned that there is a possibility to improve EBITDA by 75 bps. And that's really coming from the fact that you will move from a fixed price to a percentage model that you spoke about. But what I don't understand is that, how is the transitioning really taking place? Because you can't go back to the same client who is used to paying X and suddenly ask him as a percentage of -- how do you make that transition, really? So if you could answer these 2. And the third is also if you could talk a little bit about what has been the cross-sell percentage, say, 5 years back and what it is today? Yes, so that -- those are my 3 questions.

If I may just step in, Shamsher, just to clarify one thing, Aejas. And again, I'll let Shamsher answer. But just to clarify on that point about fixed price, it's not that we are transitioning from fixed price to percentage. A lot of clients, in fact, are on percentage. In some cases where there are some clients where there is a fixed price based on a certain output that was agreed, I think those are where, I think Shamsher mentioned, some tweaks are happening. So I just wanted to clarify that point from earlier because fundamentally, we like to operate on a percentage basis, not a fixed-price basis. Those are more the exceptions. But over to you, Shamsher, for the rest of the questions.

Yes, got it. Just as a follow-up, could you quantify how much -- how many -- what percentage of the universe is on fixed and what percentage are on a percentage basis?

So I think a significantly low number, I think, in the late single digits, early double digits would be more of a fixed kind of contract fixed fee. So fixed fee, really, what happens, Aejas, is that we have a fixed fee. You make good money in the first year. But second year onwards, as soon as minimum wages keep going up, your fixed fee percentage, as a percentage, keeps coming down here. While you are making the same amount of margin, you're -- if you're making INR 1,500 per employee, you're making INR 1,500 in 2020, you're making INR 1,500 in 2022 also. So we are changing that. So it's late like 9%, 10%, maybe 11%, that kind of number across the facility management business here. So that is definitely something that we, as a policy, are changing internally. So not only are we addressing it to say that no new customers will come this way, but also that old customers need to -- who have, over a period of time, gone into that bucket, are -- we are representing back to them to say that was, please, can you change this operating model and engagement model because otherwise, then we have to ensure that we might have to separate those customers. And that's really where the tail cutting is happening here.

But just to, again, just to clarify because that's an important point. I think, Aejas, to answer your question, I think what Shamsher said about, just about 8% to 9% to 10% could be probably a fixed price, which also we are moving, but the balance vast majority, around 90%, are all on a percentage basis. So I just want to make sure that point is clarified. Thank you.

And Aejas, not only this, I mean there are like 15 line items on gross margin improvement is that new clients have to come with better than gross margins today. Tail cutting technology giving us an advantage over fixed costs. SG&A costs, once we fix our cost, that becomes fixed for the year here. And if you keep reducing that cost as a percentage, gross margin just keep going to EBITDA. So fixing our SG&A, ensuring that operating advantage and benefit of scale completely goes into the EBITDA.

Thank you, Shamsher. Thank you, Aejas, for your question. Thank you, Shamsher, for that engaging session. I'd now like to close the session and also invite you for our next session, which is on the Security Solutions India business segment. This should be hosted on 6th of April at 12:00. You would have received the registration link as well. Thank you all for a wonderful session.

Thank you.