Updater Services Ltd –

Q2 FY 25 results and concall highlights –

Company’s business model –

Company offers services under two broad business segments –

IFMS ( Integrated Facility Management Services ) – this segment includes services like –
Housekeeping and cleaning services
Disinfecting and Sanitising services
Pest Control services
Horticulture services
Facade cleaning services
Washroom Hygiene
Material handling
Warehouse management services
Inward and Outbound logistics management Equipment maintenance services
Mechanical, Electrical and Plumbing repairs Ventilation and Air Conditioning
Catering services to corporates, educational institutes and industrial facilities
Staffing services – where trained field staff are provided to customers for deployment in various roles

IFMS – currently comprise of 65 pc of company’s revenues and 51 pc to company’s EBITDA

BSS ( Business support services ) –

Sales enablement services to various kinds of companies via BPOs operating out of India, Singapore, UK, Malaysia

Audit and Assurance services – including audit of supply chains, distributor audits, depot audits, retail point audits

Channel partner claim processing services Employee background checks, address verifications, educational qualification verifications, employment history verifications, legal cases history etc

Airport ground handling services ( company has got ground handling contracts across 22 airports in India )

Mailroom and asset movement management

BSS – currently contribute to 35 pc of company’s sales and 49 pc to company’s EBITDA

Company has slowly exitied non-viable businesses in the IFM space over the last 3-4 Qtrs. Going forward, they should have a clean slate. Hence the growth from here on should be of better quality and margin accretive

Company has aprox 242 clients in its BSS division. Key clients include – Microsoft, P&G, TCS, Hershey, Aditya Birla group, Tata Comm. 82 pc of BSS segment’s revenues comes from top 50 customers. Company intends to go for strategic acquisitions in the BSS space – both to improve growth rates and margins

Biggest opportunities in the BSS segment lie in the Employee verification, sales enablement, audit and assurance spaces. All these are asset light businesses

Some key competitive advantages for the company include – scale of operations, ability to handle complex and large scale contracts

India is adding office space at a brisk pace. Hence the volume growth for the company should not be a problem going forward. Margins shall continue to improve – albeit gradually

Company has about 825 clients in the IFMS segment. Top 10 customers contribute to 26 pc of sales, top 50 customers contribute to 65 pc of sales

Six – main segments ( largest contributors ) for the company in the IFMS segment include – Cleaning services, engineering services, production support services, Institutional catering, warehouse management and washroom hygiene services

Q2 FY25 financial outcomes –

Revenues – 680 vs 600 cr, up 13 pc

EBITDA – 44 vs 26 cr, up 66 pc {margins @ 6.4 vs 4.4 pc ( excluding other income ) – massive margin improvement }

PAT – 28 vs 9 cr, up 205 pc

Segmental results –

IFMS revenues – 448 vs 408 cr, up 10 pc. EBITDA margins @ 6.5 pc – including other income

BSS revenues – 238 vs 198 cr, up 20 pc. EBITDA margins @ 9.1 pc – including other income

Company’s share of non-profitable IFMS business has now come down to single digits

EBITDA for IFMS grew by 57 pc YoY in H1 @ the margins stood at 6.1 pc vs 4.2 pc LY ( all because of company’s focus on higher profitability business contracts )

In India, outsourcing services are growing @ a healthy 10 pc CAGR – which augurs well for the company

Rapid infra development and development of large corporate parks, industrial hubs, manufacturing facilities – all bring more business opportunities for the company

In the BSS segment, company has developed AI enabled services and has on-boarded one of World’s largest IT company as their client

EBITDA for BSS segment grew by 31 pc in H1 vs LY. EBITDA margins in BSS segment for H1 stood @ 9.5 pc

Company expects to continue to grow their BSS segment’s revenues by 20 pc CAGR in near future ( organic growth ). This should further improve company level margins

Company’s track record in acquiring businesses in BSS space and integrating them + turning them around has been a key strength of theirs. Company is actively looking at acquisition targets in both IFMS and BSS segments

Company is also looking at cross sell opportunities between IFM and BSS divisions – this should be a natural catchment area for the company

UDS is a net cash company with Debt/Equity @ (-) 0.1 pc as on 30 Sep

Employee count in IFMS @ 53.9k employees
Employee count in BSS @ 14.6k employees

Company believes that the margins reported in Q2 are sustainable. Their internal EBITDA margin tgts for IFMS, BSS segments are >6 pc and >9 pc respectively

If the company doesn’t make any new acquisition this yr, expect the cash debt levels to trend lower by end of Q4

Company made 9 pc EBITDA margins from their new foray into airport ground handing ops in Q1. They improved their margins to 10 pc in Q2. Q1, Q2 revenues from this segment were at 12 and 13 pc respectively

Company’s preference for inorganic acquisitions is within India. However, they are open to explore overseas opportunities if they are comfortable with the country they r going to operate in. Also, most of company’s acquisitions should happen in the BSS space as these r high margin spaces

Because of the recent run up in the stock mkts, Promoters expectations have increased and hence acquiring companies has now become costlier. However, UDS is very clear about their valuations criteria. If they r not met, they ll walk away from the deal. They ll not acquire for the sake for making an acquisition

For full FY 25, IFMS segment should grow its sales by 10-11 pc. BSS should grow topline @ around 20 pc. Increased sales / toplines naturally result in better operational leverages and hence improving EBITDA margins. To meet this guidance, company will have to grow its IFMS segment @ > 13 pc in H2

Company’s sweet spot range for target acquisitions continue to remain in the 200-300 cr range

When company gets into a sales enablement contract with their clients, typically these r fixed rate contracts for 90 pc of payments and 10 pc payments are generally made depending on the sales improvement that the company is able to achieve for their clients

Most of company’s contracts ( 80-85 pc ) are yearly in nature and come up for renewals @ year end. More recently, company has started getting into 3-5 yr contracts with annual appraisals

Disc: holding, biased, may add more if business momentum continues as was demonstrated in Q2, not a buy/sell recommendation, not SEBI registered

Two senior management personnel resign within 5 days. Something brewing up?

Here is the latest update from company

dr.vikas

No doubt there is corporate governance issues, but many other companies with such issues have shined. Take for an example CG power… But yes we need to be careful. The future for KPI green is bright and as long as no major surprises, the earnings growth itself will push KPI green upwards even if P/E stays the same or falls. Atleast my opinion.