Buy Updater Services; target of Rs 465: Motilal Oswal

Motilal Oswal's research report on Updater Services

Updater Services (UDS) is one of the leading business service providers in India, with a presence in Integrated Facilities Management (IFM) and other Business Support Services (BSS) segments such as sales enablement, BPS, recruitment, and sales audits. We see the company as a unique opportunity to benefit from the long-term trend of outsourcing non-core business operations for greater efficiency and service quality. With continued momentum in the IFM space (growing in the high teens), and an inorganic growth engine in the high-margin BSS vertical, we expect UDS to deliver sustainable and profitable growth. We expect its earnings CAGR (~33%) to outpace revenue CAGR (~19%) over FY24-FY26. The company sees inorganic growth, along with continued exceptional performance, as a core feature of its long-term growth strategy. This growth will be supported by its healthy cash balance of ~INR2,534m (10% of market cap) and a strong cash conversion rate (115% OCF/EBITDA in FY23).

Outlook

Considering the steady revenue and earnings growth potential, UDS’ valuation looks inexpensive at 13x FY26E Adj. earnings. Initiate coverage with a BUY rating and a TP of INR465 (premised on 18x FY26E P/E on adj. EPS).

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Updater Services - 06032024 - moti