ICRA upgrades LT rating of Updater Services to 'AA-' with 'stable' outlook

The agency has reaffirmed the company's short-term rating at '[ICRA] A1+'.

ICRA said that the upgrade of the long-term rating factors in the healthy improvement in Updater Services Limited's (UDS) credit profile with a healthy revenue growth of 11.9% in FY2025 on the back of a strong uptick in the business support services (BSS) segment and a healthy demand for integrated facility management (IFM) services.

Moreover, the share of revenues from the margin-accretive BSS segment improved to 34% in FY2025 from 28% in FY2023, supported by healthy scale-up of the recently acquired subsidiaries, which are involved in sales enablement and business process outsourcing (BPO) services. Increased scale, active low-margin contract rationalisation, and improved revenue mix helped the operating margin to rise to 6.6% in FY2025 from 6.2% in FY2024.

The company is expected to post a high single-digit revenue growth in FY2026, driven by a stable business environment and an uptick in revenues from the subsidiaries. The operating margins are expected to expand in FY2026, aided by improved revenues from the margin lucrative BSS segment and cost-control measures.

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 720 customers (standalone level), with the top 10 customers accounting for nearly 30% of its revenues in 9M FY2025.

The ratings remain constrained by the relatively moderate margins and intense competition. The IFM industry is highly fragmented, which 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.

Further, ICRA notes that despite the diversified geographical presence, UDS derived 60% of its revenues in 9M FY2025 from South India, indicating moderate geographical concentration risk.

Going forward, the company's 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 be closely monitored.

Updater Services (UDS) is one of India's leading integrated facility management services providers and staffing solutions companies. UDS provides soft (housekeeping, gardening) and hard facility management (electrical and server management) services to a diverse set of customers across industries on a pan-India basis. Its subsidiaries offer solutions in the space of audit and assurances, mail room management, catering services, employee background verification services, sales enablement services, and ground handling services at airports.

The scrip shed 0.52% to currently trade at Rs 288.40 on the BSE.

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