Updater Services shares rise after Motilal Oswal initiates coverage with buy

Updater Services  shares rise: Shares of Updater Services climbed as much as 6.69 per cent to hit an intraday high of Rs 365 per share after Mumbai-based brokerage firm Motilal Oswal initiated coverage with a buy recommendation.

The facility management services company’s business support services (BSS) segment is set for exponential growth, with a focus on high-margin services, analysts at Motilal Oswal noted. 

Utilising subsidiaries with full-stack tech capabilities and a diversified service mix, Updater Services has strategically acquired Denave and Athena to enhance profitability. 

Meanwhile, projections indicate notable revenue compound annual growth rates (CAGR) of 27 per cent and 26 per cent for Denave and Athena, respectively, from financial year 2024 (FY24) to financial year 2026 (FY26). 

Moreover, the acquisition of Matrix in 2020 has expanded Updater Services' portfolio, capturing a 5.7 per cent market share and adding employee background verification and audit & assurance services.

Within the integrated facilities management (IFM) business, the company anticipates steady growth, supported by both organic expansion and strategic acquisitions such as Fusion. Despite a sharp volume increase in the financial year 2023 (FY23), revenue growth is expected to stabilise at over 20 per cent annually, the brokerage firm said in a note.

The company stresses upon enhancing its high-margin business support services (BSS) segment, projecting it to contribute 36 per cent to overall revenue by financial year 2026 (FY26). 

Additionally, the margin improvement strategies include technological enhancements within subsidiaries, strengthened business development initiatives, and cross-selling efforts. With expected earnings before interest, tax, depreciation and amortisation (EBITDA) contribution from BSS to reach approximately 60 per cent by FY26, entities like Athena and Denave are anticipated to drive margin expansion.

Updater Services forecasts consolidated revenue, adjusted EBITDA, and adjusted profit after tax (PAT) CAGRs of 19 per cent, 26 per cent, and 33 per cent, respectively, from FY24 to FY26. 

Furthermore, improved return on equity (ROE) and return on capital employed (ROCE) are anticipated at 13.8 per cent and 11.0 per cent in FY26, up from 9.8 per cent and 6.7 per cent in FY23.

Given the optimistic growth prospects in IFM and BSS, Updater Services is projected to witness robust and sustained growth. Therefore, Motilal Oswal recommends a ‘buy’ rating with a target price of Rs 465.

As of 10:43 am, shares of the company were trading 2.08 per cent higher at Rs 349.20 per share.