Updater Services listed at a 5 per cent discount at ₹285 on the bourses on October 4, 2023 against the IPO price of ₹300. The stock gained marginally intraday and was trading at ₹286.6 apiece around 1.45 pm.

At the issue price of ₹300, the IPO was priced at 57 times its FY23 earnings. This is expensive than its peers such as Quess Corporation and Teamlease which are trading at a trailing PE of 28 times and 40 times, respectively. At ₹286.6 per share, the PE of the company (FY23 EPS) is 55 times which is still higher relatively.

In our IPO research note, we had recommended that investors need not subscribe to the IPO and stock could be considered in future based on its performance as a listed company and at cheaper valuations.

Business

Updater Services Limited (UDS) was incorporated on November 13, 2003. UDS is a leading, focused, and integrated business services platform in India offering integrated facilities management (IFM) services and business support services (BSS) to the customers, with a pan-India presence. The company is the second largest player in the IFM market in India.

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The company offers services in B2B (business-to-business) space, and the services of the company can be classified as integrated facilities management services and business support services. Integrated facilities management and other services include services like soft services (housekeeping and cleaning services), production support services, engineering services, warehouse management, general staffing where field staff are provided to work in various roles under customer supervision, institutional catering, etc.

Business support services on the other hand include services like sales enablement services, employee background verification, audit, and assurance services (to ensure the integrity and performance of client’s distribution), and airport ground handling services.

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The services offered by the company are annuity-based services i.e., the customer, once acquired, generates revenue over an extended period. According to the company, the annuity-based model of the company helps in spreading out the customer acquisition costs and offers the opportunity to cross-sell and up-sell other services, thus resulting in a higher wallet share from customers. In FY23, the share of integrated facility management services revenue was 71.5 per cent, while business support services revenue was 28.5 per cent. BSS has higher margins than IFM.

Financials

The revenue of the company grew at a CAGR of 31.7 per cent from FY21-23 to ₹2,099 crore whereas the EBITDA of the company grew at a CAGR of 19.5 per cent to ₹99.7 crore. The EBITDA margin of the company for FY23 was 4.7 per cent and the adjusted EBITDA margin of the company for FY23 was 7 per cent (adjusted for ESOP’s and acquisition related charges). The net profit of the company in FY23 was ₹34 crore and the net profit margin for the period was 1.6 per cent in FY23 which is 3.8 per cent in FY22.

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