Krystal Integrated Services stock zooms nearly 9% as Nuvama initiates coverage with ‘buy’, sees 68% upside

Shares of Krystal Integrated Services climbed 8.5% to ₹883.90 apiece in today's intraday trade after domestic brokerage firm Nuvama Professional Clients Group initiated coverage on stock with a target price of ₹1,369 per share, indicating a significant upside of 68% from the stock's latest closing price of ₹814 apiece

Krystal Integrated Services, a leading integrated facilities management services company in India, specialises in diverse sectors such as healthcare, education, public administration, airports, railways, metro infrastructure, and retail. The company entered the Indian secondary market on March 21 at a listing price of ₹713, closely aligned with its IPO price of ₹715.

Since its listing, the stock has shown modest growth and is currently trading 14% higher than its issue price. However, Nuvama Professional Clients Group's projections suggest that the stock is poised for substantial growth, as it believes the stock is trading at a discount compared to its peers.

One-stop solution provider for its clients

The company's integrated facilities management services encompass soft services like housekeeping, sanitation, landscaping, and gardening; hard services such as mechanical, electrical, and plumbing maintenance and other specialised services including solid, liquid, and biomedical waste management, pest control, and facade cleaning.

Additionally, it provides production support, warehouse management, and airport management services. This diverse service portfolio allows the company to cater to a wide range of sectors with a large geographic footprint, making it a one-stop solution provider for its clients.

Well-positioned to capitalise on favorable industry dynamics

With 77.6% of its revenue sourced from government contracts, the company stands as a robust player in the industry. The company's revenue composition is as follows: 54.7% from Integrated Facilities Management Services (IFMS), 31.7% from Staffing Services, 10.7% from Security Services, and 2.9% from Catering Services.

According to the brokerage, the company's proven track record in executing large, multi-location government contracts positions it uniquely to benefit from the increasing outsourcing of facility management services by the government.

The outsourced government IFM market was valued at ₹49,295 crore in FY23 and is expected to grow at a 16.3% CAGR to reach ₹1,04,731 crore by FY28. Specifically, the government outsourced staffing segment is projected to touch ₹37,372 crore by FY28, with a CAGR of 20.7% over FY23–28, the brokerage said citing F&S analysis.

The company's expertise in healthcare, education, and infrastructure projects, which together constitute approximately 55% of the company's revenue, is expected to drive long-term growth as the company leverages its focused business model and enhanced government project execution capabilities.

Retaining, strengthening, and growing its client base

Operating exclusively on a B2B model, Nuvama said the company leverages its extensive service portfolio to provide bespoke solutions that enhance customer acquisition and retention. It said the company serviced 262, 277, 326, and 369 clients in FY21, FY22, FY23, and FY24, respectively, and onboarded 76, 70, 89, and 57 new clients in the same periods.

The number of locations served has increased from 1,962 to 2,487. The company's commitment to quality has resulted in long-term relationships, with four of its top ten clients in FY23 partnering with it for over a decade, it noted.

Strong growth ahead

The brokerage expects the company's revenue to grow at a 27% CAGR over FY24–26E, driven by strong client additions, aggressive bidding for profitable government contracts, and market share gains from smaller, single-service providers.

It expects the EBITDA margin to expand by 93 bps over FY24–26E, benefiting from scale and increased contribution from the high-margin catering business. Further, it projects the PAT to grow at a 39.6% CAGR over FY24–26E, fueled by robust operational performance.

At the current market price (CMP), the stock is trading at 11.1x/7x FY26E earnings/EBITDA, presenting a discount compared to peers with similar service profiles. Given the strong earnings visibility and discounted valuations, the brokerage maintains an optimistic outlook on the company.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.