IPO: Updater Services

Updater Services, India's leading business services platform, has launched its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses and growth prospects to help investors make an informed decision. In a nutshell Quality : Updater Services' three-year average ROE and ROCE are 13.8 and 19 per cent, respectively. It also reported positive cash flow from operations in the last three financial years. However, the trade receivables constituted around 35 per cent of its total assets in FY23. Growth : The company grew its topline by 22.6 and 41.5 per cent in FY22 and FY23, respectively, mainly due to higher service demand. Moreover, in the last two years, the company acquired majority stakes in Denave India (54 per cent in FY22) and Athena BPO (57 per cent in FY23), further contributing to its growth. Valuation : The stock has a price at a P/E and P/B of 55.9 and 2.6 times respectively, compared to its peers' median and average of 29.9 and 3.6 times, respectively. Overview : Outsourcing various non-core business activities by companies to third parties is rapidly evolving. The main aim is to optimise the costs, free up internal resources and focus on core operations. These will act as a significant driver of growth for the integrated facilities management and business support services industry and help the company scale up further. Additionally, an increasing preference towards a safe, clean and secure environment will further support soft (housekeeping, disinfection, etc.) and hygiene services (air fresheners, washroom hygiene solutions, etc.). However, the business must monitor its high trade receivables and an aggressive inorganic growth strategy. About Updater Services Incorporated in 2003, Updater Services is India's leading business services platform offering integrated facilities management (IFM) and business support services (BSS). As per a Frost & Sullivan report, it is the second-largest player within the IFM segment, offering soft services, production services, engineering services and others. Within the BSS segment, Updater Services provides benefits like audit & assurance, employee background verification checks, sales enablement and mailroom management through its subsidiaries Matrix, Denave, Athena and Avon. Strengths of Updater Services It is India's second-largest player in the IFM market, contributing more than 70 per cent of the revenue in FY23. Within the BSS segment, its subsidiary Matrix holds 19.2 and 5.4 per cent market share (FY23) in audit & assurance and employee background verification services, respectively. It has long-standing relationships of over 10 years with prominent clients such as Hyundai, Saint-Gobain and P&G (as of June 2023). Weaknesses of Updater Services Trade receivables constitute around 35 per cent of the total assets in FY23. Thus, any uncertainty concerning default or delay in payment can impact the business's operations. It has a very high attrition rate of 78 per cent in FY23. The company has primarily grown through acquisitions. While it has not encountered significant hurdles, an overly ambitious investment could trouble the company. IPO details Total IPO size (Rs cr) 640 Offer for sale (Rs cr) 240 Fresh issue (Rs cr) 400 Price band (Rs) 280-300 Subscription dates September 25-27, 2023 Purpose of issue To repay debt, fund working capital and acquisitions Post-IPO