Updater Services
- Updater Services is coming out with a 100% book building; initial public offering (IPO) of 2,22,85,714 shares of Rs 10 each in a price band Rs 280-300 per equity share.
- Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
- The issue will open for subscription on September 25, 2023 and will close on September 27, 2023.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 10 and is priced 28.00 times of its face value on the lower side and 30.00 times on the higher side.
- Book running lead managers to the issue are IIFL Securities, Motilal Oswal Investment Advisors and SBI Capital Markets.
- Compliance Officer for the issue is Ravishankar B.
Profile of the company
Updater Services is a leading, focused, and integrated business services platform in India offering integrated facilities management (IFM) services and business support services (BSS) to its customers, with a Pan-India presence. 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. Within its BSS segment, it offers Audit and Assurance services through its Subsidiary, Matrix and according to F&S Report, Matrix is a leading Audit and Assurance company for dealer / distributor audits, and retail audits and its strong branch reach and field associate reach has driven the company to reach the top spot in India, with a market share of 19.2% in the Financial Year ended March 31, 2023.
The company also offer employee background verification check services through Matrix and in this segment, Matrix is the third largest company in India with a share of 5.40% in the Financial Year ended March 31, 2023. In addition, the company provides sales enablement services through its Subsidiaries Denave and Athena and as per the F&S Report, Denave is the largest player in this segment with a market share of 20.1% in India in the Financial Year ended March 31, 2023. In addition, the company offers mailroom management services through its Subsidiary, Avon which is a market leader in India with a share of 11.1% in the mailroom management services market in the Financial Year ended March 31, 2023.
Proceed is being used to:
- Repayment and /or prepayment of certain borrowings availed by the company
- Funding its working capital requirements
- Pursuing inorganic initiatives
- General corporate purposes
Industry overview
The global Facility Management (FM) market is witnessing a major transformation driven by technology innovation, new business models, emerging value propositions, competitive disruption, and new service offerings as value propositions are shifting to service outcomes, user experience, and business productivity. Outsourcing is evolving rapidly across the world; in the past decade, the main objective of outsourcing was cost optimization but today organizations want to outsource FM services to free-up internal resources to deliver strategic value. The global FM market recorded revenues of $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.
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 Rs 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 Rs 39,480.0 crore.
The market revenues declined in the Financial Year ended March 31, 2021 due to the global pandemic and then recovered bulk of it in the Financial Year ended March 31, 2022. The demand for IFM services has increased as people’s preferences for a safe, clean, and secure environment have grown. The government’s plan to develop 100 smart cities will result in a surge in infrastructure creation. The Union Budget for the Financial Year ended March 31, 2024 has proposed a total CAPEX outlay of Rs 10 trillion, which is 33.0% increase year-on-year and 3.3% of the total GDP. Given the current expansion and increase in investments in IT, IteS and BFSI segments, the demand for professional IFM services are increasing, IT sector is shifting to more personalized/ customized services utilizing both Hard and Soft FM services. Investments in other segments such as healthcare and retail are also propelling the demand for IFM services.
Pros and strengths
Leading integrated business services platform: The company is a leading, focused, and integrated business services platform in India offering IFM services and BSS to its customers, with a Pan-India presence. It commenced operations over 30 years ago as a Chennai based facilities management organisation and have since, grown to have a Pan India presence and become the second largest company in the IFM space across the country. Within the IFM & Other services segment, the company operates across service lines such as soft services, production support services, engineering services, warehousing management, pest control and horticulture that have been added by it organically, over a period of time. It has also organically expanded into procurement and supply of consumables, machines and related items for the facilities management industry.
Successful acquisition and integration of high margin business segments: The company has established a track record of successful inorganic growth through strategic acquisitions to supplement its business segments, diversify its revenue streams, and integrate such acquired businesses to further strengthen its services portfolio. It has pursued selective strategic acquisitions as a means to expand its operations, enhance its global competitive position and capitalise on potential operational synergies. The company’s focus has been to acquire companies and businesses whose offerings are complementary and supplementary to it. All its acquisitions have added either a new customer segment, new service line, or a new geography to it. The company has been able to selectively identify strategic acquisition and investment targets in the past, and make successful acquisitions and integrate them as well as to grow them. These acquisitions have also enabled it to leverage the existing businesses and brand equity and to diversify its revenue streams, obtain employee talent and thus expand its presence across the value chain.
Pan India presence with large and efficient workforce: As of June 30, 2023, the company had a widespread network consisting of 4,667 locations (excluding staffing locations) managed from 125 points of presence with 112 offices situated in India and 13 offices situated overseas. These offices are spread across 25 states in India, comprising 22 offices in north India, 45 offices in south India, 14 offices in east India and 31 offices in west India, giving it a nation-wide presence as well as 13 locations overseas. Locations refers to the sites where the company provides services, while the point of presence refers to the places where the company has an office where it is currently operating out of. This nation-wide presence enables it to offer services to customers who prefer a single service provider for their operations at multiple locations. Through these points of presence, it has deployed resources for SBI Life Insurance at 535 number of locations and for Sony, it has deployed resources at 516 number of locations, across the country.
Well-developed technology function: Technology has been an integral part of its business. Technology is a huge enabler in driving speed, accuracy, efficiency, customer satisfaction, better service delivery and as a result, deriving revenue and profitability. The company as well as its subsidiaries have adopted and developed appropriate technology that not only helps them become more efficient and effective but also drive customer satisfaction and market competitiveness. It has a well-developed technology function with its group Chief Technology Officer and an in-house operating team driving many initiatives such as building cloud based digital attendance and onboarding platform for the workforce in order to help optimize productivity and improve cost efficiencies as well as digital transformation to re-platform and upgrade the current background verification application underpinning the core platform for its Subsidiary Matrix.
Risks and concerns
Maximum revenue comes from few geographical regions: A significant portion of the company’s revenues are derived from its services offered to customer locations in southern India. The contribution of its southern Indian operations as a percentage of revenue from IFM & Other services segment of the company during the Financial Years ended March 31, 2021, March 31, 2022 and March 31, 2023, was 62.26%, 59.10% and 59.49%, respectively, amounting to Rs 6,819.95 million, Rs 6,965.57 million and Rs 9,054.01 million, respectively. Any decrease in revenues from south India, including due to increased competition or supply, or reduction in demand, in markets in which it operates, may have an adverse effect on its business, cash flows, results of operation and financial condition. Further, any significant disruption, including due to social, political or economic factors or natural calamities or civil disruptions, impacting these geographical regions may adversely affect its business. Additionally, changes in the policies of the state or local governments of these regions may require it to incur significant capital expenditure and change its business strategy. The company cannot assure that it will be able to address its reliance on these few geographical regions, in the future.
Faces high attrition rate: The integrated business services it offers are manpower intensive and it hires a considerable number of personnel every year to sustain its growth. Further, in the past, it has faced a high attrition rate of 77.78%, 65.80% and 77.60% (which is the gross attrition rate that is computed as total employees left during the year / Average number of employees during the year) in the Financial Years ended March 31, 2021, March 31, 2022 and March 31, 2023, respectively. For instance, the company’s total number of employees were 54,289 within its IFM & Other services segment and 11,338 within its BSS segment, as on June 30, 2023. The IFM & Other services segment includes soft services, production support services, engineering services and washroom and feminine hygiene solutions under IFM, while warehouse management, general staffing, institutional catering, amongst others, falls under the other services segment. Further, the BSS segment includes sales enablement services, employee background verification services, audit and assurance services, airport ground handling services, and mailroom management & niche logistics solutions.
Significant working capital requirements: The company’s business requires significant amount of working capital primarily due to the fact that a significant amount of time passes between when it makes payments to its vendors and personnel, and when it receives payments from its customers. Consequently, there could be situations where the total funds available to it may not be sufficient to fulfil its commitments, and hence it may need to incur additional indebtedness in the future, or utilize internal accruals to satisfy its working capital needs. The company’s total outstanding borrowings as on July 31, 2023 were Rs 1,941.26 million, on a consolidated basis. The company intends to utilise Rs 1,150.00 million from the Net Proceeds to fund working capital requirements of the company in Fiscals 2024 and 2025, which, will help it in achieving the proposed targets as per its business plan.
Intensely competitive industry: The industries in which the company operates comprise a number of very fragmented and competitive markets, particularly at the local level, with smaller operators competing for local contracts. There is intense pricing competition from private business services agencies which operate at the local level and provide one or more of the services it does, which may be preferred by certain customers, due to factors such as better pricing and local relationships. Unlike most of its competitors, it has a portfolio of businesses and must allocate resources across these businesses while competing against players focused on one or more businesses or service lines. As a result, its competitors may have greater financial, technical and marketing resources available to them than its businesses that compete against them. It also faces the risk of its current or prospective customers deciding to utilize their internal workforce or use independent contractors or service providers in the unorganized segment to manage their facilities.
Outlook
Updater Services offers facility management services and business support services. The company operates in the Business-to-Business services space offering a spectrum of business services, which are broadly classified into the two following segments: IFM & Other Services Segment; and BSS Segment. The company is a pan India player, with 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, as of June 30, 2023. On the concern side, a significant portion of its revenues are derived from a few geographical regions and any adverse developments affecting such regions could have an adverse effect on its business, cash flows, results of operation and financial condition.
The issue has been offered in a price band of Rs 280-300 per equity share. The aggregate size of the offer is around Rs 624 crore to Rs 668.57 crore based on lower and upper price band respectively. Minimum application is to be made for 50 shares and in multiples thereon, thereafter. On performance front, the company’s total income increased by 41.00% from Rs 1497.89 crore in Financial Year ended March 31, 2022 to Rs 2112.09 crore in Financial Year ended March 31, 2023. This was driven by a growth in its (i) revenue from contracts with customers, (ii) other income, and (iii) finance income. Moreover, the company’s restated profit for the year decreased by 39.68%, from Rs 57.37 crore in Financial Year ended March 31, 2022 to Rs 34.61 crore in Financial Year ended March 31, 2023. Meanwhile, the company seeks to grow its business through the acquisition of new customers across industry segments such as commercial real estate, industrial facilities, warehousing and public infrastructure such as airports, amongst others. The company’s customer acquisitions are usually undertaken through two mechanisms: mining and business development. Mining is where its customer facing teams get additional business from existing customers. The role of its business development team is to procure new customers including through its digital presence. Going forward, the company is well placed to capitalize on the expected growth in the IFM & Other services industry owing to its strong brand presence and its ability to effectively undertake its services, by targeting not only its existing customers, but also new customers.
