If valuation is higher shouldn’t one be taking longer term bet rather than short term?

Updater Services Ltd –

Q1 FY 25 financial outcomes –

Revenues – 658 vs 579 cr, up 14 pc
EBITDA – 47.4 vs 35.6 cr, up 33 pc ( margins @ 7.2 vs 6.1 pc )
PAT – 25.6 vs 12.4 cr, up 107 pc !!!
RoCE – 24.2 vs 20.7 pc
Company is net Debt free ( ie debt on books < cash on books )
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

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 Qtrs. Going forward, they should have a clean slate. Hence the growth from here on should be of better quality and margin accretive (the same has started to be incrementally visible in Q1 itself)

The total addressable mkt in the IFMS space in India is around 40k cr and is expected to double inside next 4-5 yrs ( that’s a very high rate of projected growth at the Industry level – should end up being a key positive for the company )

Outsourcing is a key trend picking up pace as companies increasingly want to focus on their key competencies. Company is confident of growing @ high growth rates in the IFMS space

In Q1, IFMS grew by 5 pc ( as the company was exiting non-viable business ). BSS grew @ 34 pc YoY

Despite the high growth witnessed in BSS segment, company witnessed a significant slowdown in Employee Background Verification services from the IT sector clients. Hence the company is diversifying its revenue pool away from them and towards – retail and BFSI segments

The BSS segment EBITDA margins stood at 9.9 pc in Q1 vs 9 pc in Q1 LY. For the IFMS segment, EBITDA margins stood at 5.7 pc in Q1 vs 4.9 pc in Q1 LY

The airport ground handling business has turned EBITDA positive for the first time in Q1. Company is currently operating across 22 airports

Company has aprox 900 clients in its BSS division. Key clients include – Microsoft, P&G, TCS, Hershey, Aditya Birla group, Tata Comm. 75 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

Company’s aspiration is to grow at rates 3X the nominal GDP growth rates !!! ( I ll personally wait for such promise / projection to play out )

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

Employee count in IFMS segment @ 51.8k employees, in BSS segment @ 14.3k employees

Company believes, the BSS segment’s revenue contribution should reach around 40 pc in about 2 yrs time ( vs 34-35 pc currently )

The 22 airport – ground handling contracts that the company has got have a life of 10 yrs. Company expects this business to start becoming profitable wef H2 this FY as the initial investment / gestation period of 1-2 yrs is ending for most of the airports that they are serving

In the IFMS space, company is guiding for 13-14 pc topline growth ( despite a slow Q1 )

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 1500 clients in the IFMS segment. Top 10 customers contribute to 31 pc of sales, top 50 customers contribute to 65 pc of sales

Clearly, the company has a long tail of clients in both IFMS and BSS segments. As a long term strategy – company intends to grow volumes / business with the higher volume customers and exit lower volume customers over a period of time

Company should be able to sustain EBITDA margins > 4.5 pc in the IFMS space

For the company and Industry as a whole, H2 is always better than H1 – as the festive season improves the demand situations across hospitality, travel and tourism sectors

Company’s revenues in the IFMS segment is almost 100 pc from the private sector. Company is likely to remain choosy wrt Govt business going fwd – as it generally involves long payment cycles

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

Disc: business looks interesting, planning to invest, not a buy/sell recommendation, biased, not SEBI registered

OMG … you people are really doing great work … such a long threat on Value Picker and I didn’t knew it even almost after using one year … thanks to all … good to see technical threat as well on the value picker

As per the estimation done by @sheekhuj, at a discount rate of 8.8%, we get Net present value of Rs 88/share. So this means, we get 8.8% return p.a. for the next 30 yrs. Asset addition is a bonus.
Is it not 8.8% a good return ? (if average interest rate for 30 yrs is expected to be much lesser in the next 30 yrs).
Can some one clarify…

Thanks for your answer. Since I’m new to investing directly, the confidence is usually low and then since all quality companies are at very high valuations we get quite tempted by PEs of 30s or so and then when the stock runs high we do get a sense of validation that we have cracked the value formula which people are ever learning and yet not there.

Btw – isn’t it true that as long as the quarterly results are yoy or qoq company Is showing ever increasing growth the stock could be relied upon, in this case Shakti Pump? Or?