Updater Services

Facility management service provider

Continues to expand service offerings as well as customer base

Updater Services, a Chennai-based company founded by Rahunandana Tangirala, is a leading integrated business services platform in India offering integrated facilities management (IFM) services and business support services (BSS) to customers across diverse industries and regions of the country. The company is the second largest player in the IFM market in India and have the widest service offering in the industry, making it a unique and differentiated player in the market.

Commenced operation in 1990 as a housekeeping and catering services company it has evolved into an integrated business services platform with a pan India presence serving customers across industries and business service lines.

It caters to diverse customer segments across sectors including FMCG, manufacturing and engineering, BFSI, healthcare, IT / ITES, automobiles, logistics and warehousing, airports, ports, infrastructure, and retail, among others.

Its portfolio of services in IFM includes soft services (include services such as housekeeping and cleaning services, disinfecting and sanitizing services, pest control, horticulture, and facade cleaning), production support services (are solutions offered to manufacturing facilities including material handling, material movement, on-site warehouse management, stores and inventory management, production support activities, and equipment maintenance), engineering services (services related to mechanical, electrical and plumbing), washroom and feminine hygiene services.

Within the BSS segment, its bucket of services offerings include Sales Enablement Services, Employee Background Verification Services (services comprise address verification, identity verification, educational qualifications verification, employment history verification, legal case history, among others), Audit & Assurance Services (offerings comprise supply chain audit including warehouse depot audit, distributer audit, and retail point audit as well as back-office services related to marketing programs and channel partner claim processing to global customers), Airport Ground Handling Services and Mailroom Management & Niche Logistics Solutions.

The other services’ business segment offers comprise warehouse management, general staffing, institutional catering, and others.

Sales Enablement Services are mainly provided through its subsidiaries, i.e., Denave and Athena. The services of Background Verification Services and Audit & Assurance Services are offered by its Subsidiary Matrix. The mailroom management service is offered through its Subsidiary Avon. Airport Ground Handling Services are offered/provided through its Subsidiary Global Flight Handling.

Denave is a sales enablement B2B company focused on serving global customers across multiple industries including information technology / information technology enabled services (IT / ITeS), telecom and other industries, through global delivery centres located in India, Malaysia and UK, and also through partners in other parts of the world. However, Athena is a B2C outbound tele-sales BPO, focused on the BFSI segment in India.

Through Denave & Athena, the company offers services related to sales, channel management and marketing to IT / technology companies and companies in the consumer durable, fast moving consumer goods (FMCG), telecom and BFSI industries. Its services include demand generation, lead management, inside sales, data base management services, digital marketing, sales and retail analytics, customer outreach, field force management, field marketing services and outbound tele-sales.

Airport Ground Handling Services offered by the company include baggage and cargo handling, passenger movement, and aircraft turnaround, among others. Ground handling is a critical activity at an airport and includes baggage and cargo loading and unloading, passenger movement, aircraft clean-ups, in-flight meals loading and unloading, aircraft marshalling and ancillary support services to aircrafts (ground power units ground air conditioning units), among others. It also provides meet and greet services at various airports around the country.

In case of Mailroom Management Solution, the company offers customized and personalized niche logistics solutions for specific needs of its customers and not in the core logistics space and hence do not compete with the major companies in warehousing, transport, and logistics.

Of the FY2023 revenue,the IFM & other Services segment accounted for 71.52% and balance 28.48% was from BSS. However, the integrated facilities management services provided by the company, under its IFM & Other services segment, are relatively low margin services. In comparison the BSS business of relatively higher margin.

The company’s service offerings are largely aimed at enabling efficiency in business operations its customers. Allits services are an integral part of its customers’ business and assist in forming an important part of the customers’ core value creation. These services are also mostly such that they are created and offered through a combination of people, processes, and technology. Except catering, none of its offerings involve any raw materials and are therefore not dependent on any commodity cycles or unpredictable input cost variations. Further, most of its offerings do not involve any major deployment of fixed assets and are therefore asset light.

Some of the marquee customers for its IFM & Other services business segment are TTK Healthcare within healthcare, Saint-Gobain within manufacturing, Hyundai, Honda Motorcycle and Eicher Motors Limited within automobile, Shriram Transport, SBI Life Insurance and IIFL Finance within BFSI, and Sony within consumer products, among others.

Some of the marquee customers for its BSS business are More Retail Private Limited and ABFRL within retail, TCS and Mindtree within IT- ITeS, P&G and Hershey India Private Limited within consumer products, Microsoft within global technology, Logitech (Electronics) India Private Limited within IT and electronics, SpiceJet Limited, and AIX Connect Private Limited within airlines sector, and Tata Communications within telecom and communications.

The company acquired 54.07% and 57% shareholding in Denave and Athena during FY2022 and FY2023.

The company employs a large workforce of 65,627 employees as of June 30, 2023.

The Issue

The offer comprises Fresh Issue of equities aggregating to Rs 400 crore and offer for sale (OFS) of 8000000 equity shares of Rs 10 face value. The OFS comprises sale of 4000000 equity shares by Tangi Facility Solutions (a promoter group company); 800000 equity shares by India Business Excellence Fund II (an Investor Selling shareholder) and 3200000 equity shares by India Business Excellence Fund IIA (an Investor Selling shareholder).

On post issue expanded equity, the holding of India Business Excellence Fund II and India Business Excellence Fund IIA will stand reduced to 3.13% and 4.41%, respectively.

Objects of the Issue

Of the net proceeds of fresh issue, the company will be using Rs 133 crore towards re- and pre-paymentof certain borrowings availed by the company, Rs 115 crore will be used towards funding working capital requirements, Rs 80 crore towards pursuing inorganic initiatives and the balance for general corporate purposes.

Consolidated outstanding borrowings (gross) as end of July 31, 2023, was Rs 194.126 crore.

Strength

A wide bouquet of service offerings in the IFM & BSS segment catering to customers in diverse industries.

The company is the second largest player in the IFM market in India and has the widest service offering in the industry, making it a unique and differentiated player in the market. Moreover, it is the second largest player in the highly fragmented soft services segment market in India with a share of 4.1% in the Financial Year ended March 31, 2023. Washroom Hygiene Concept, a subsidiary of the company, is the second largest player in the Washroom and Feminine Hygiene Care market with a market share of 21.7% as of end of March 2023. Similarly, Denave, a subsidiary of the company, is the largest player in Sales Enablement B2B segment with a market share of 20.1% in India in the Financial Year ended March 31, 2023. Matrix, a subsidiary of the company is the third largest company in India in the Employee Background Verification Check Services segment with a share of 5.4% in the Financial Year ended March 31, 2023. Avalon is a market leader in India with a share of 11.1% in the mailroom management services market.

A large and diverse customer base [3096 (IFM 1427 customers; BSS 1669 customers) as of end March 2023, that is, up from 2281 (IFM 1380 customers; BSS 901 customers), which is of longstanding relationship and across diverse sectors leading to recurring business. Its top five customers accounted for 26.57%, 29.17%, and 27.47% of its total revenue as end of FY2021, FY2022, and FY2023, respectively. Such a diverse base of customers reduces the risk of vulnerabilities to economic cycles.

Service offerings of the company largely being B2B in nature the annuity-based model 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 its customers.

Pan India presence, with a widespread network consisting of 4,331 locations (excluding staffing locations) managed from 129 Offices/points of presence including 13 overseas offices] with large and efficient workforce coupled with strong recruitment capabilities.

A steady growth of BSS business (PBIT margin of BSS business is in double digits compared to the mid-single digit margin of IFM). The company that got 90.44% of its revenue from IFM & others in FY2021 managed to diversify its revenue with steady growth in the BSS business, whose contribution to revenue increased from 9.56% in FY2021, then to 20.35% in FY2022 and finally to 28.48% in FY2023. So, scaling up of BSS revenue to boost the overall profitability of the company.

Track record of successful acquisition and integration of high margin business segments.

Highly experienced management team with support from PE Investors

Technology at the forefront of current and future businesses of the company.

Operating in high growth outsourced IFM/BSS market. IFM service outsourcing is currently just about 39.3% in India and is expected to increase going forward.

Weakness

Operating in an industry that is intensely competitive and have low entry barriers.

The business of the company is manpower intensive and any failure to attract and retain skilled manpower at competitive rates will impact the growth and profitability of its business. The attrition rates were higher at about 77.6% in FY2023 and it was 65.8% in FY2022 and 77.8% in FY2021.

Southern India operations of the company account for about 59.5% of its IFM & Other Services segment of the company in FY2023. This reflects a significant geographical concentration of its business.

Inability to acquire new customers or retain customers at competitive profitability or termination of contracts by customers without cause may impact the business growth of the company.

One of its businesses, i.e., private security agency services (accounts for 3% of its revenue) not eligible for FDI through automatic route. The company got FDI in 2017 through automatic route and, thus, any action by the regulatory authority in future could impact the business of the company.

Statutory Auditors of the company have included certain qualifications and observations in their auditor’s report on its audited consolidated financial statements for the Financial Year ended March 31, 2022, and to the annexure to the auditor’s reports as required under the Companies (Auditor’s Report) Order, 2020, as of Financial Years ended March 31, 2023, and 2022, and on the internal financial controls under clause (i) of sub-section 3 of Section 143 of the Companies Act, 2013, in respect of the Company and certain of its Subsidiaries, for the Financial Year ended March 31, 2022. Its Statutory Auditors have also included certain emphasis of matters in their auditor’s report on the audited consolidated financial statements for the Financial Years ended March 31, 2021, and 2022.

Has experienced negative cash flows from investing and financing activities in previous years and cannot assure it will not experience negative cash flows in future years.

Significant disruptions of information technology systems and/or ERP systems or breaches of data security could adversely affect the business.

Valuation

Consolidated sales for FY2023 were up 41% to Rs 2098 crore. However, with operating profit margin contract by 90 basis points to 4.4%, the growth at operating profit was restricted at 18% to Rs 92.59 crore. Hit further by lower other income (down 8% to Rs 13.20 crore), jump in interest cost (up 187% to Rs 14.57 crore) and higher depreciation (up 124% to Rs 37.04 crore), the PBT was down by 24% to Rs 54.19 crore. Thus, PAT was down by 40% to Rs 34.60 crore with higher tax incidence, but eventually net profit after MI was down by 35% to Rs 35.79 crore.

The fall in the bottom-line of the company for the fiscal is largely due to increase in Fair value changes in liability payable/paid to promoters of acquired subsidiary (up from RS 21.348 crore in FY2022 to Rs 41.363 crore in FY2023) coupled with increased catering business revenue which increased material cost compared to corresponding previous period. Further, FY2023 being first full year of Denave consolidation has also had its impact.

EPS on expanded equity (on upper price band) is Rs 5.4% and the PE works out to 55.6 times. The P/BV and EV/sales works out to 2.6 times and 1 time. In comparison though not an apple to apple comparison the Quess Corporation, SIS and Teamlease Services quotes at a PE of 33.7 times, 18 times and 39.8 times of their FY23 EPS, P/BV of 2.4 times, 2.6 times and 5.3 times; and EV/Sales of 0.4 times, 0.6 times and 0.5 times.