Updater Services edges higher after ICRA reaffirms ratings with 'stable' outlook

Updater Services rose 1.96% to Rs 322.35 after ICRA reaffirmed the company's long-term rating at '[ICRA] A+' with 'stable' outlook.

The credit rating agency has also affirmed the companys short-term rating at [ICRA] A1.

ICRA said that the ratings factor in ICRAs expectation that Updater Services (UDS/the Group) will maintain a comfortable credit profile on the back of healthy growth in revenues and earnings supported by stable demand for Integrated Facility Management (IFM) and Business Support Services (BSS).

The ratings consider UDS established presence in the highly fragmented IFM and BSS space with a large customer base. The company derives its revenues from various sectors like IT/ITeS, manufacturing, retail and banking, which coupled with the addition of new customers and increased wallet share with its existing customers have supported the growth in revenues. It has a diversified clientele of more than 700 customers (standalone level); though the top 20 accounted for nearly 64% of its revenues in 9M FY2024.

 

The ratings also consider UDS financial profile characterized by improving scale-up of operations, strong capital structure and comfortable coverage metrics. ICRA also notes that equity infusion of approximately Rs. 380crore (net of IPO expenses) as a result of the companys IPO in October 2023 has strengthened its net worth and liquidity position. IPO proceeds would be/ have been deployed towards repayment of debt, reduction in working capital requirements, inorganic growth and general corporate purposes.

The operating margins have reduced marginally to 6.6% in FY2023 from 7.2% in FY2022on account of increase in operating costs. ICRA expects the margins to improve in the near term on the back of uptick in revenues of higher margin subsidiaries, which were acquired in the recent years.

The ratings remain constrained by relatively moderate margins and intense competition. The IFM industry is highly fragmented and limits pricing flexibility for the players. The industry has high employee attrition rates owing to the unskilled/low skill and temporary nature of the job. The risk is partially offset by UDS extensive pan-India recruitment network and spends towards training and development to retain/re-hire talent.

Going forward, the companys ability to improve its profitability by successfully scaling up and integrating the newly acquired businesses, and its ability to maintain strong liquidity and comfortable debt levels, will remain a key monitorable.

Updater Services (UDS) is the flagship company of the Updater Group and is one of Indias leading integrated facility management services providers and staffing solutions companies.

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