SIS Ltd Q2 FY2026 Concall Summary

Key Takeaways

• All engines firing, revenue at record high: Consolidated revenue hit INR 3,759 crore, the highest ever, with India Security, FM and International each posting their own quarterly records.
• Margin journey past halfway, 6% target in sight: India Security and FM EBITDA margins have moved from ~4% to ~5.5%, covering more than half the distance to the pre-COVID 6% goal, with the remainder expected "within the next few quarters."
• AP Securitas acquisition closes, doubles market lead: The largest single acquisition in India's security sector consolidates from Q3, adding ~17% to the monthly run rate and making SIS's annual security revenue 2x the nearest competitor.
• International growth is booming but one-off: Mid-teens growth this year is an exception; the sustainable model is 2x Australian GDP, or 7-8% annually.
• What to watch next quarter: The pace of synergy extraction from AP Securitas, the DSO correction in SIS International, and whether the Cash Logistics IPO timeline firms up.

Segment Performance & Margin Trajectory

• India Security: EBITDA margin at 5.3%, a marginal 20 bps dip from branding costs, but the underlying trend is intact. The business has moved from below 4% to 5.5% plus, with management calling the 6% pre-COVID margin profile "quite likely."
• Facility Management: EBITDA margin hit 5.2%, up 90 bps YoY, with the highest ever quarterly EBITDA of INR 33 crore, a 36% YoY jump. The segment is on a constant improvement path as guided.
• International: EBITDA margins are flattish YoY and normalized after last quarter's charge. Management is rightsizing the business, restructuring SG&A, abandoning bad contracts and checking overtime rates to get margins back into the 4% range, though the journey to 6% will take longer than in India.
• Revenue mix shift underway: By year-end, roughly 75% of EBITDA and 65% of revenues will come from India. India will move closer to INR 850-900 crore next quarter while International stays where it is, so the overall margin profile will increasingly reflect the higher-margin Indian businesses.
• ROCE improvement: ROCE reached 14.3%, up from 11.7% a year ago, after a goodwill cleanup with a one-time charge.

Sinha: "I'm saying that 6%, which used to be the pre-COVID margin profile, is quite likely. So, in both Security and FM, you will see that we have covered more than half the distance in terms of margin, 4% to 6%. We are around about 5.5% now. So maybe 3/4 of the job is done. I think the remaining will fall through in due course, hopefully, within the next few quarters."

AP Securitas Acquisition

• Strategic rationale: The acquisition consolidates market share and provides an edge into high-growth segments like banking, logistics and warehousing. With APS, SIS's annual security revenue in India will be 2x the size of its nearest competitor.
• Deal structure: Acquired 51% for INR 71.2 crore after net debt adjustment, at an 8.3x trailing FY24 EBITDA multiple. The partnership includes a 3- to 4-year ratchet clause and incentive kickers. Consolidation begins Q3 FY26.
• Revenue impact: APS is expected to add ~17% to India Security's monthly run rate when consolidated.
• Synergy timeline is deliberately slow: Management will not rationalize branches and people in a knee-jerk reaction because people hold client relationships and branches maintain customer satisfaction. Synergies and savings from 100 branches will come "bit by bit, quarter by quarter" over the next 2 years. Initially it will look like a revenue kicker; significant margin traction will be yielded only over the 2-year period.
• Margin target unchanged: The 6% EBITDA margin target for India Security includes AP Securitas. The organic business is moving from 4% to 6%; APS will initially have no synergy or savings, and the objective is to deliver 6% from the combined security services business in India.
• Current APS margin undisclosed: Management declined to provide APS's margin profile, citing dated due diligence information and requesting investors wait for consolidation.

Sinha: "I see AP Securitas as a transaction that will consolidate our market share and give us edge into some key segments like banking, like logistics and warehousing, which will further consolidate our market position in these key high-growth segments."

International Business Dynamics

• Growth surge is one-off: Mid-teens growth this year is an exception driven by organic expansion, the highest in 10 years. The sustainable model is 2x Australian GDP, or 7-8% annually, and management was explicit that the current rate is "absolutely not sustainable."
• Margin normalization underway: International margins are back at 3.5% from 3%, with rightsizing, SG&A restructuring, abandoning bad contracts and checking overtime and bad OT rates all in progress. The target is to get back to the 4% range in coming quarters, though the path to 6% will take longer than for the Indian businesses.
• DSO blip: A one-day DSO increase stemmed from a one-time situation in SIS International and is expected to correct from next quarter.

Sinha: "Absolutely not sustainable. This is one-off. Australian GDP grows at 2%, 3% per annum. Our growth rate over the last 10 years on average has been more than 7%, close to 8% maybe. So, we are growing twice as fast as the Australian GDP, 2x Australian GDP is our growth."

India Growth & Demand Drivers

• Volume-led growth is a strong signal: Two-thirds of India's growth is coming from volumes, not just wage pass-through, which management flagged as a very good sign for demand execution. FY26 is seen as a rebound year.
• Wage inflation as a structural tailwind: Wage inflation is critical for attracting staff and drives revenues up because contracts are linked to minimum wage, making wage inflation a simple pass-through rather than a contract renegotiation. Management believes the government will eventually shift focus from the agri sector to a blue-collar worker agenda, driving a farm-to-nonfarm shift in organized jobs.
• Recruitment engine built for scale: SIS runs 21 residential training academies with 3,000+ people under training at any point, an Automated Recruitment Kiosk at 300 locations for digitized onboarding, and a patented G2G referral program. The government's ELI scheme (first-time PF registration incentive) has helped increase intake in recent months.
• Attrition is structural, not worsening: Attrition at ~40% is natural in this industry, and management stated there is no significant change year over year. When pressed on a discrepancy with a FY22 figure of 15.5%, management said it would refer to the annual report and get back separately; the question of why attrition increased from that level was not directly addressed.

Sinha: "I believe that sooner than later, the Government will have to shift focus from simply the Agri sector and MSP and the whole kisan agenda to the blue-collar worker agenda because ultimately, India needs a shift from farm to nonfarm organised jobs."

Capital Allocation & Upcoming Events

• Cash Logistics IPO on track: The IPO is largely a secondary-linked transaction, and significant proceeds will come back to SIS parent to help pay down debt and lower interest costs. Management expects to take a final view and call on timing soon, though no date was committed.
• Secondary investment in Wifi: INR 4.5 crore invested in a B2B2C home improvement and maintenance company providing tech-enabled installations and aftersales services.
• PAT note: Operating PAT was INR 93 crore at a 2.5% margin, flattish QoQ. Reported PAT was lower due to a one-time tax on a capital gain.

Guidance & Commitments

Key Metrics