Updater Services Limited IPO Summary

About the company

Updater Services Limited is an integrated business platform offering Integrated Facilities Management (IFM) and Business Support Services (BSS) services to its customers, with a pan India presence.

The IFM category includes soft services, production support services, engineering services, washroom and feminine hygiene, warehouse management, general staffing, institutional catering, and other services.

The BSS category provides sales enablement services, employee background verification services, audit and assurance services, airport ground handling services, mailroom management and niche logistics solutions.

For the FY 2022-23, the company served 1,427 customers under the IFM segment and 1,669 customers under the BSS segment and 71.52% of the revenue from operations was generated from the IFM segment and 28.48% of the revenue from operations was generated from BSS segment.

The customers of the company operate across a variety of industries and sectors such as manufacturing and engineering, BFSI, healthcare, IT / ITeS, automobiles and ancillaries, logistics and warehouse management, airports, railways and infrastructure, retail, and business consulting.

P&G, ABFRL, Microsoft, Hyundai, Saint-Gobain, TCS, Mindtree, Honda, IIFL Finance, SBI Life Insurance, Sony and Shriram Transport are some of the marquee customers of the company.

As of June 30, 2023, the company has a widespread network consisting of 4,331 locations (excluding staffing locations) managed from 129 points of presence with 116 offices situated in India and 13 offices situated overseas. However, at present, the Company does not export its services.

Industry Overview

India has emerged as the world’s fastest-growing major economy with its robust democracy and strong partnerships and is anticipated to be one of the top three economic powers in the next 10-15 years. Real GDP at current prices is ₹ 147.72 lakh crore in the Financial Year ended March 31, 2022, as per the provisional estimates of annual national income for the Financial Year ended March 31, 2022. The Indian GDP growth rate posted a V-shaped recovery in the calendar year 2021 and rose to 8.9% as compared to -6.6% in the calendar year 2020.

The Services sector is the major contributor to the growth of the Indian economy. The services industry not only accounts for the majority of India’s GDP, but it also attracts significant foreign investment, contributes significantly to exports, and employs many people.

The Global Facilities Management (FM) market recorded revenues of USD 890 billion in Calendar Year 2022, registering a growth of 7.5% from Calendar Year 2021. Asia is the largest FM market with a share of 32.6% of the total market followed by North America and Europe.

The Integrated Facilities Management (IFM) market in India has been growing steadily over the last decade and is set to witness significant growth momentum over the next 5 years.

The total IFM market in India in the Financial Year ended March 31, 2023, is valued at ₹ 100,386.7 crore and around 39.3% of this is outsourced to 3rd party companies. Between the Financial Year ended March 31, 2018, and the Financial Year ended March 31, 2023, the outsourced Indian IFM market grew at a CAGR of 9.5%. In the Financial Year ended March 31, 2023, the outsourced IFM market was estimated to be worth ₹ 39,480.0 crores.

Business Support Services (BSS) is defined as a set of ancillary services that are provided to companies for the smooth conduct of business operations.

The market for BSS is valued at ₹ 7,115.0 crore in the Financial Year ended March 31, 2023. The market recorded a CAGR of 8.0% from the Financial Year ended March 31, 2018, to the Financial Year ended March 31, 2023.

During the pre-COVID-19 period, the market grew at a CAGR of 12.2% from the Financial Year ended March 31, 2018, to the Financial Year ended March 31, 2020, driven by the growing demand for outsourcing from the growing industrial and commercial sectors. However, it witnessed a decline of 27.1% in the Financial Year ended March 31, 2021, due to restrictions imposed during the COVID-19 pandemic. It is expected to grow at a CAGR of 15.3% from the Financial Year ended March 31, 2022, to the Financial Year ended March 31, 2028 and reach ₹ 14,477.6 crore in the Financial Year ended March 31, 2028.

IPO Objectives

1. Repayment and/or prepayment of certain borrowings availed by the company.
2. Funding working capital requirements.
3. Pursuing inorganic initiatives.
4. General corporate purposes.

Financials

Valuation

The company's PE Ratio stands at 44.78, while the industry's PE Ratio is 29.59. Additionally, the company's PB Ratio is 4.17, compared to the industry's PB Ratio of 3.65. Consequently, it can be concluded that the issue price is deemed overvalued based on both criteria.

Peer Comparison

Quess Corp Limited and SIS Limited are positioned as market leaders in revenue generation. Team Lease Services Limited, on the other hand, boasts the highest EPS. Furthermore, all these companies exhibit relatively comparable EBITDA Margin, PAT Margin, ROE, and ROCE.

Key Risks

1. The company employs a large workforce (65,627 employees as of June 30, 2023) and faces significant employee-related regulatory risks. Therefore, any significant disputes with the employees and/or concerned regulators may adversely affect the business prospects, cash flows, results of operations and financial condition of the company.

2. The business of the company is manpower intensive and any inability of the company to attract and retain skilled manpower could harm the growth, business, and financial condition of the company. Further, in the past, the company has faced a high attrition rate of 77.78%, 65.80% and 77.60% in the Financial Years ended March 31, 2021, March 31, 2022, and March 31, 2023, respectively. In the event, that the company is not able to manage the attrition, it may not be able to meet the expectations of its customers, which may harm the financial condition of the company.

3. The company has significant employee benefit expenses, such as workers’ compensation, staff welfare expenses and contributions to provident and other funds. Employee benefit expenses constituted the largest component of total expenses, representing 67.26% of the total expenses for the Financial Years ended March 31, 2023. In case the company faces an increase in employee costs and is unable to pass it on to the customers, the profitability of the company may be impacted.

4. A significant portion of the company’s revenue is derived from the services offered to customer locations in southern India. The contribution of southern Indian operations as a percentage of revenue from IFM and other services segment of the Company during the Financial Year ended March 31, 2023, was 59.49%. Any adverse developments affecting such regions could harm the business, cash flows, results of operation and financial condition of the company.

5. There are certain outstanding legal proceedings involving the Company, the Promoters, the Subsidiaries, and the Directors. Any adverse decision in such proceedings may render the company liable to liabilities/penalties and may adversely affect its business, results of operations, cash flows and reputation of the company.

IPO Details