New Delhi, November 3 SIS Ltd is expecting to return to pre-Covid level EBITDA margins of 5 – 6 per cent for its India security solutions business by this fiscal-end. The margin expansion will be driven by growth in business here and the posisble upward revision in contracts because of higher minimum wages.
According to Devesh Desai, CFO, SIS Group, the EBITDA in India business (security solutions) during Q2 FY23 increased significantly and “are tracking back to pre-covid levels”.
The EBITDA (earnings before interest, tax, depreciation and amortisation) for security solutions vertical increased to 4.4 per cent (around ₹51 cr) in Q2 FY23; up from the 4 per cent (or ₹41.9 cr) in Q1.
Margins in the facility management solutions vertical has remained flat and is expected to improve Q3 (quarter ending December) onwards. Large players looking at consolidation of their facility management service providers would also help integrated and organised players like SIS.
“We believe margins in the India business will improve. New order wins in security solutions during the quarter was ₹25 cr of monthly revenue; while in facility management new order wins were around ₹12 cr of monthly revenue. There has been a minimum wage revision – a significant upward one – after two years. For example, Sikkim announced a 67 per cent increase; Karnataka – a 23 per cent increase; Bihar and Punjab announced 15 -17 per cent hike; and Central minimum wage were increased too. This minimum wage hike is expected to positively impact both our revenue & EBITDA,” he told businessline.
However, EBITDA margins in its international security solutions business – operations in Australia, Singapore and New Zealand – witnessed a decline following wage increases in Australia.
“This decline is a temporary phenomenon which is caused by timing differences between the increase in wages and the contracted increase in the revenue and prices from clients,” Desai explained.
Closure of all COVID related temporary high margin contracts also led to decline in EBITDA margins. “The gap caused by these timing differences are expected to be eliminated by Q3 FY23 and the full quarter effect will be visible in Q4 FY23,” he added.
The segment EBITDA was 3.3 per cent, which was q-o-q decrease of 160 basis points.