Operator
Ladies and gentlemen, good day, and welcome to Q2FY27 Earning Conference Call, hosted by SIS Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, leave signal an operator by pressing star, then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Dheerat Singh, CEO from SIS Limited. Thank you. And over to you, Mr. Singh.
Thank you. Good afternoon, everyone, and welcome to the Q2 F527 Learnings Call. Before we begin, It is with deep sadness that I share the passing of our Founder Chairman, Sri Ravind Kishore Tanaji, on the 30th of October. He was the visionary who built this company, and his leadership, values, and guidance have shaped everything we are today. His loss is deeply felt by all of us at SIS. On behalf of the Board, the management team, and all our employees, I extend our heartfelt condolences to his family. We will carry forward the legacy he leaves behind and remain committed to the values he stood for. It is with that spirit and commitment that we continue our journey, and I would now like to take you through our performance for the quarter. I hope you have had a chance to look at our results and the earnings note, which was uploaded on the stock exchanges and the company website yesterday. In Q1, we had called FY27 an inflection year. Q2 establishes the trend. This was a milestone quarter for SIS on every measure that matters. Record revenue, record EBITDA, record profit, and margin expansion across all three of our business segments. Consolidated revenue for the quarter was a record 4,816 crores, up 28.1% year-on-year basis, and 4.6% sequentially. Even excluding APS, on an organic basis, the growth has been 18.6% year-on-year and 4.4% quarter-on-quarter. Please note, this is a line consecutive quarter of sequential revenue growth. At the same time, EBITDA was a record 222 crores also, up 32.7% year-on-year and 7.8% sequentially. This is the fifth record EBITDA quarter in a row. Even without APS, This has been a growth in EBITDA of 23.8% year-on-year and 6.8% quarter-on-quarter basis. Margins also expanded and came in at 4.6%, which is up 16 basis points year-on-year and are best in the past six quarters. 111 crores, up 37.1% year-on-year, and the highest in the company's history. And one point in particular, both EBITDA growth of 32.7% and PAT growth of 37% ran ahead of revenue growth of 28.1%. So it means we are not simply getting bigger, we are getting better also as we get bigger. This is the operating leverage we have been building forward. On scale, trailing 12-month revenue now stands at 18,094 crores. Our annualized run rate is now nearing the 20,000 crore mark, and we are at 19,300 crores. For the half-year, revenue was up to 9,420 crores, which is up almost 29%, and it is already 59% of our entire FI26 revenue. H1 EBITDA was at 430 crores, up 34.4%. With margins up 19 basis points, and H1 profit was 212 crores, which is up 22.3%. Let me now spend a moment on the labor codes, because this is central to our outlook. The codes are clear positive for SIS, and our early readiness is now visible in the numbers too. We began our internal compliance program on the June 1st, and India EBITDA has grown 13.8% over the six months. Since the codes were introduced, with the India margins improving from 5.2% in Q4 FI26 to 5.4% this quarter. Higher wage and statutory costs are being fully passed through to customers, lifting both the revenue and the margin. Enforcement, though, is state-by-state and still surly. Karnataka, Haryana, Ustaprajesh and Uttarakhand have revised the minimum wages. Others are expected to follow as state model rules are notified. The major part of the repricing benefit is therefore still ahead of us. Over time, the codes will also create a level playing field between organized and unorganized providers, which we expect to be accretive at both EBITDA and PAT levels. Now, turning to the various business segments. Security solutions and gas. Delivered a record revenue of 2,144 crores, which is up 38.9% year-on-year and 7% sequentially. This is the 10th consecutive quarter of sequential growth. Even without APS, the organic growth for Security Solutions India was 15.7% year-on-year and 6.8% quarter-on-quarter. EBITDA was a record 113 crores. It is up 37.2% year-on-year and 10.4% sequentially. Without APS, it is 18.9% year-on-year and 8.6% quarter-on-quarter basis. Also the fifth record quarter in a row now. Margins improved 16 basis points in the segment sequentially to 5.3% now and are broadly flat year-on-year basis. International Transsecurity Solutions internationally recorded its highest ever revenue at 2,020 crores, up 25.7% year-on-year, and 6.3% on a constant currency basis. EBITDA was 72 crores, which is up 35%, with the margins improving 23 basis points year-on-year to 3.6%. Following the Fair Work Commission's 4.7% minimum wage increase in Australia, Price revisions under a number of client contracts are tied to contract anniversaries, which create a temporary lag between cost and price. So City Management Solutions posted a record revenue of 677 crores and a record EBITDA of 38 crores is 9 consecutive record EBITDA quarter. Expansion continues. It is now at 5.7% and is the highest in the past six years, up almost 50 basis points year on year. On our return ratios, the return on capital employed stands at 16.5% up from 14.3% a year ago, and the return on equity is also at 16%. During this quarter, we also completed our fifth buyback. SIS was among the first in the market. We announced an open market buyback, and we completed it in 45 reading sessions, acquiring approximately 25 lakh shares for 106 crores. With this, the total capital return to shareholders since listing now stands at a little over 700 crores. Let me address also the working capital, which was the one soft spot in this quarter. Operating cash flow was negative, 99 crores on a working capital outflow of 273 crores, of which 216 crores sat in our international business due to delayed collections from one of the largest clients, the defense segment. This is a timing issue, not a credit issue, and the payments, in fact, have already been received in October. Net debt to EBITDA moved to 1.24 times from 1.05 times at the end of Q1, primarily due to the working capital outflow in Security Solutions International, and a bit because of the buyback payouts of 92 crores. However, gross debt was broadly flat at about 2047 crores. On the DSO front, India's security actually improved in spite of all the labor code reforms happening at the same time. It improved to 73 days, which is better both sequentially and also on year-on-year basis. FM was stable at the 93 days. The increase was largely concentrated in international, as I mentioned, which is cost due to a temporary timing difference and will be normalized through this quarter. To summarize, this has been a quarter of record revenue, record EBITDA, our highest ever quarterly profit, We are growing faster than revenue, margin expansion in every segment, both Roti and Rhoi above 16%, and a structural tailwind from the labor courts where most of the benefit is still to come. We remain focused on margin expansion and on bringing working capital back in line. As I end, I would like to mention that Group Milking Director Mr. Rudraaj Sina has not been able to join the investor call due to the sudden demise of his father, and I am sure you will understand this. However, on the call, we have with us Mr. Brajesh Kumar, Chief Financial Officer, Mr. Mooli Krishna, COSI International, to address any of your queries. We will now turn it over for question and answer. Thank you so much.
Operator
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Amit Saxena, who is an individual investor. Please go ahead.
Thank you for the opportunity. So, my first question was on the special security right-off that we did a few quarters back, which was close to 250 crore number. So, I wanted to understand how much of it we have recovered.
Do you want to ask about the gratuity one-time cost we have taken in Q3 of class financial aid, right, for 290 crores? So there is no further write-off as we have mentioned at that time, that is a one-time exceptional item we have accounted for as per the guideline of ICI. And in the due course, whenever any employee putting to that period is getting separated or leaving, and we have to pay the guarantee, we are claiming that from the customer and making that payment. So there is no cash flow impact because of that. And going forward also, there is no additional impact we are expecting on this round. So whatever has been done in Q3 or Q25, the figure we will set, after that there is no change. I hope that clarifies.
I remember after Q325 in the next quarter or last quarter, there was a reversal of some amount out of that 290 crore or so. If I'm correct.
So that was accounting. You're correct. In Q4, we have taken some reversal. That was an accounting adjustment because on the basis of actual valuation, some portion has been transferred from LIVT to OCI. So that was just an accounting adjustment. It's not related to any business transaction.
And we have been talking about the new labor code, which we think will be quite favorable for us because of the minimum wage code. So, however, we have been talking more on the qualitative terms that, you know, the minimum wages will be increased and that will show up in our contract values and further in revenues. But in terms of quantitative aspects, is there any... Any rough guideline as to how much revenue rate can increase? Of course, we cannot have exact numbers, but is there a rough guideline wherein we can say, for example, we do expect a revenue increase of 30% just because of the minimum wage act?
So, as we mentioned, definitely both on the revenue side, we've seen the uptick, and this is the early stages in this quarter. But going forward, our guidance will like to remain at the 15-18% growth overall, and we are in line with that. The margin expansion has happened from 5.2% to 5.4%, even in the early stages, and while we can't give you a particular number, but the trend should continue. In the next few quarters.
On the dividends and buyback, we have returned almost close to 700 crores in the last few years since our IPO. Is there any guideline or kind of, you know, the kind of, we are roughly making, say, 400 crores set and which may move to 450-500 crores over time. So is there any rough, you know, how do investors look at it in terms of how much on an average? The company plans to return back in terms of, because all the events, students and the buyback have been staggered and there is no clear trend. See, we can let.
Apologies for the dividend and the buyback, and we have been fairly consistent with that. Going forward to... of both dividends and buyback, while we will continue to invest in the business also, and look to retire some of our debt also. So it will be a combination of all these.
Okay, perfect. And last question is on the cash logistics idea. So, we have been holding it out because of the adverse market circumstances. Dover, is it staying over there, or is there any change in our thinking as of now?
So, as of now, as you know, the... The approval period has expired, and we will look at it at the opportune time in the future, but the business continues to do very well. It has had a record revenue of 220 crores in this quarter with more than 17% EBITDA. So we are focusing on the business, and at the right time, we will look to go back to the market.
Thank you very much for your patiently and for your patient.
Operator
Thank you. A reminder to all the participants that you may press star and 1 to ask a question. The next question comes from the line of Abhirav Mandoavra from Equitas Investments. Please go ahead.
Yeah, congratulations on good chance of numbers. My first question is regarding AP Securitas revenue number and EBITDA numbers. If you could provide me.
Thank you very much. The revenue number they have reported for this quarter is 388 crore, and the EBITDA number is 15.1 crore. So they have shown a growth of 8% on quarter to quarter basis.
Okay, EBITDA of 15.1 crore, right?
Yeah, it's 4.2% EBITDA they have reported.
Okay, and second question was regarding the international business. You mentioned there has already been a wage hike in Australia from July onwards. How much lag does it have in our contract reprising, and when would we be able to pass it on?
Hi, this is Moodley Krishna here. This is a yearly event, so there is nothing new, first of all. So nearly every year in the month of July, the fabric announces its increase for the wage, and as per contractual term, we are entitled to pass through those costs onward to the customer. Typically what happens is it happens at the anniversary of the contract. So this is spread across over through the year, but the bulk of it actually happens within the first quarter and the second quarter.
Okay, so you mean a lot of contracts we would be renewing now would be getting the benefit from one or two quarter like?
Yeah, it's not renewal, but it's at the contract anniversaries. So, what happens is if we have signed up a contract, customer contract in, let's say, November. So, it's all dependent on individual contracts, but I'm just giving you a very generic thing, which is a very fairly standard one. It happens at a contract anniversary usually. But bulk of it happens very close to and soon after the 1 July. So July to September quarter is a good material portion of the hike happens through the quarter. And the next quarter, between October to December, a very tisable one also happens. And the remainder happens in the next couple of weeks.
The contract will be up for development. If you could just give me a direction on this.
Sorry, I didn't quite catch that question. Can someone repeat the question?
Also, while we mentioned that the pass-on would be on a staggered manner and it's already contractual basis, I just wanted to understand in the next couple of quarters, say Q3, Q4, how much percentage of quarters are up in your list?
No, these are not renewed, Adina. These are not renewals. What happens is, let's say we sign a three-year or a five-year contract. At every contract anniversary, typically the pass-through happens. And we have usually costed for it well ahead as well. So it's not that we are taking a loss or anything. It just happens subsequently. So a good portion of that happens in quarter one and a good portion, sorry, not quarter one, quarter two, which is the quarter that just went by, and a good portion happens in quarter three. Quarter 4 and Quarter 1 are very small ones. So, these are not dependent on renewal. These are obligations at the end of the customer, contracted obligations to pass through the whole review.
Got it. Also, in terms of international business, our working capital has deteriorated. Apart from this one major order of defense, which has a payment delay, how much will be our operating cash flow?
I will just answer you with respect to that one customer receivable. It is a major customer for us. So what happened last quarter, typically your film follows a July-June calendar, financial calendar. So by the end of June, typically customers tend to, and actually some of the major ones, governments and so on and so forth, typically tend to clear off just before June the outstandings. So, June was a better picture, but September, typically, we come back to the normal cycle of working capital. Unfortunately, one particular connection got missed out, which we did collect subsequently in the month of October already. So we can get back to the usual terms of the international business roughly what was about. About 50 days of DSO, 50-51 days of DSO, and we should get back to that in the next quarter. We are already back there. It should be seen in the next quarter.
Got it. And net debt has also increased on a basis, I think, around $200. What is the kind of sustainable debt level you want to keep in the company, considering that, I understand some cash is there in the international business and the utilization is there in that. Considering all these factors, how much would be the debt you are comfortable with?
Is this for all-in, all-in, all-in, all-in, all-in group or is it for an international group?
For all-in group, no. Okay, sorry.
Okay, from group perspective, if you can see that the net debt for India has not increased. It has come down from 796 to 769. Yes, only for international, it has increased. Last quarter, it was 11 crore of net debt. This quarter, it has increased to 256 crore, and the region has already explained. So, when we will be back to normal, when the international will be back to normal DSO of around 50 days in Q3. We are hoping that the net date of 5 December will be on the reducing side. Whatever increase has happened is only because of international, because of one last customer where the payment has gone delayed.
The quantum for that order was around 120 million dollars.
100 million dollars, yeah. Thank you.
Operator
Thank you. A reminder to all the participants that you may press stop and one to ask a question. The next question comes from the line of Gopin Aadha Reddy from PNR Investments. Please go ahead.
Sir, what is the interest rate we are paying on the debt that we have now on an average?
So, in India, it is around 8.5%. Murali, what will be in international? Can you help me on that?
I think we'll be hovering about 6.5%.
So, we are comfortable having... We did have to be around 7.2%. So, are we comfortable having this debt instead of, I mean, my doubt is, because we are doing buybacks and giving dividends instead of paying this debt. So, are we comfortable holding this debt and we want to continue like this, or what is the plan? So, as a policy, we have been studying that we want to maintain this debt-to-fifty ratio somewhere around 1. This quarter, due to one special region, it has gone up to 1.24. Hopefully, it will be back to 1 or less than 1. So, keeping the debt at that level, we will also need to see the commitment towards our shareholders, and currently, we take the decision of returning back the money to shareholders by way of buyback and dividend. So, I'm not saying that we will... Our total focus will be the reduction debt. We will be doing that also, but at the same time, by maintaining a proper balance in debt equity issue, we will be meeting our commitment towards buyback and dividend payout to our shareholders.
But our comfort level is at one, is it? Yeah. Somewhere around one, we need to maintain. Okay. Okay.
Last question, sir. How is the Singapore business doing, sir?
Mr. Gobi, thanks for that question. The Singapore business is doing well. It's continuing to grow. I think same quarter, compared to the same quarter last year, I think we posted somewhere about 20% plus growth, which is a fairly good growth. We are continuing to keep the orders with us, so we are renewing all the revenues and so on and so forth. The business organically is doing very well. The grant, which is usually a big part because the PWM wage hike happens, is kind of sunsetting, and that's the reason the EBITDA has kind of declined a little bit quarter on quarter. But other than that, there is nothing fundamental to worry about, and I think the business is doing really good.
Thank you, sir. That's just one way to say. Thank you.
Operator
Thank you. A reminder to all the participants, they may press staff and one to ask a question. The next question comes from the line of Abhinav Mandovara from Equitas Investments. Please go ahead.
Thank you so much for the follow-up question. Are we planning with the cash that we have, and you were mentioning in the interview also that we are planning for inorganic acquisition. What kind of nature of business are we planning, and what would be the time duration when you are seeing such kind of acquisition to happen?
Is this specifically directed at the international business?
I don't know about specific international, what kind of inorganic opportunities are you seeing? Because I think in the interview with Ian, you were mentioning that you are looking for, so I just wanted an update and follow up on this.
I don't think I could quite ask the question, but I'll answer for the international business. Your question is about that we do have cash, and are we looking at acquisitions? So, yes, acquisitions as a part of growth is a strategy that is well established in the international business. So, we have specific areas where we want to acquire, but we don't want to acquire in every area. Where it gives a specific capability or a geographical expansion or capability expansion and so on and so forth, or maybe scale is where we typically acquire. We are in the market looking for possible targets, and as a moment in present system, we will be cultivating a few targets as well. As and when, you know, the opportunity shapes up, we will definitely consider acquisition. Acquisition is a good strategy for international business, typically, considering the multiples that, at which, or the prices at which the asset is currently.
Oh, sure, I got that. And in Bermastik, are we looking for any acquisitions?
Operator
The next question comes from the line of Amit Saxena, Individual Investor. Please go ahead.
Yeah, so on the test logistics, I mean, I think, um... We're going to see the roof of EBITDA, 113 in India's securities, 72 in international securities, and...
So, the characteristic is a JV company. We are not holding 51%. So, this is not getting consolidated in our accounts. We used to report it separately in our earning notes. But since till last quarter, it was under process of IPO. We were proud not to disclose those numbers. So, it was not included. From next quarter onwards, the number will be separately disclosed in the earning note. Currently, it is not included in our balance sheet also because we are not holding 51% there. It's a JV company. We are the minority shareholder.
So, is it like it's part of P&L in the other comprehensive income? P&L line, it will be shown, right?
Yeah, the share of profit is only being shown in the PL account. For the published account, it will be appearing under the heading of share of profit from joint venture. Yes, because that PL account.
Perfect. Perfect. Okay. Thank you very much.
Operator
A reminder to all the participants that you may press star and one to ask a question. A reminder to all the participants, the IDOMI Press staff and one to ask a question. As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session. I now hand the conference over to Mr. Dheeraj Singh for closing comments.
And thank you to all the participants. We are confident that we shall continue the good numbers and the performance in this quarter and with additional focus on improving the working capital. And we will continue to look at interesting inorganic opportunities. And the whole year, on a year-on-year basis, we are confident that it should be one of our better years. Thank you all for participating. Happy Diwali again to all of you, and happy and safe Diwali again.
Operator
Thank you. On behalf of SIS Limited, that concludes this conference. Thank you for joining us. You may not disconnect your lines.
