Motilal Oswal initiates coverage on Updater Services with 'buy' call; sees 36% upside

Motilal Oswal initiated coverage on Updater Services with a "buy" rating on the business service provider's steady revenue and earnings, which the brokerage said will accelerate its growth potential.

The brokerage sees an upside potential of around 36 percent, with a target price of Rs 465 apiece. At 9.25 am, Updates Services was trading at Rs 354.8 on the NSE, up 3.8 percent from the previous session's closing price.

Updater Services is a leading business service providers in India, with a focus in integrated facilities management (IFM) and other business support services (BSS).

"UDS is drawing more attention to growing its high-margin business (BSS), while leveraging subsidiaries that offer full-stack tech capabilities and have a presence in multiple business lines," Motilal Oswal saod.

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The Integrated Facilities Management (IFM) is expected to deliver steady and sustainable growth, where both soft and hard services account for around 75 percent of the overall pie, with UDS being among the top five players.

The firm's IFM arm reported a sharp increase in volume in FY23 and achieved a 27 percent on-year growth due to the base effect. "We anticipate that revenue growth will moderate in FY24 before stabilising and maintaining a consistent annual growth rate of over 20 percent," the brokerage said.

The firm is drawing focus to its high-margin business, while leveraging subsidiaries that offer full-stack tech capabilities and have presence in multiple business lines.

Motilal Oswal said the firm is flexing multiple levers for margin improvement such as its subsidiaries enhancing their technological capabilities and the business development initiatives across all businesses being strengthened. Additionally, the firm is undertaking cross-selling initiatives.

With visibility of healthy earnings growth over the medium term and strong option value from the expansion plans, Motilal Oswal issued a "buy" call on the scrip based on a valuation of 18x FY26E P/E on adjusted EPS.

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