BLS E-Services IPO Review – GMP, Finance, etc.

BLS E-Services IPO Review: BLS International Services is a company with about 20 years of history that began providing visa processing services in 2005. Over the years, the company has consolidated its presence in Visa and provides e-government services and business letter services.

This division of business correspondence and e-government services will now be spun off by parent company BLS International Services in the upcoming IPO of BLS E-Services Ltd.

BLS E-Services IPO Review

The company is preparing for its BLS E-Services IPO. Review the question Rs. 310.91 Cr will be released on January 30, 2024. The issue will close on February 1 and be listed on the exchange on February 6, 2024.

So, let’s take a moment to understand the business in-depth and see what opportunities exist in BLS E-Services IPO Review. We’ll then take a look at the company’s financials and compare it to its peers before concluding what we think about the company.

About Us

The company is a technology-enabled digital services provider, providing business correspondence services, support e-services and e-government services at the grassroots level in India to leading banks in India. The company has a robust network of access points for the provision of essential public utility services, social welfare schemes, healthcare, finance, education, agriculture and banking services enabling government-to-consumer (G2C) interfaces.

BLS is able to provide seamless services across India through 1016 BLS stores and 97,018 BLS touchpoints. These points can primarily be used in semi-urban, rural and remote areas where internet penetration is low and citizens need help accessing technology-enabled services.

The Business Correspondent segment, through its subsidiaries ZMPL and Starfin, provides products and services such as deposit opening, term deposit accounts, cash deposits, withdrawals, remittances, transfers and bill collection services. The company generates revenue through monthly fees, transaction-based fees, and registration fees. We also provide POS services, ticket services, and e-commerce support services.

The Company also facilitates the delivery of various e-Governance initiatives of Indian State Governments by providing various Information and Communication Technology (“ICT”) enabled citizen-centric services (“e-Governance Services”) through its touchpoints.

PAN, Aadhar registration, property registration and other services are provided here. BLS E-Services has signed an MOU with the National e-Governance Division (“NeGD”) to provide New Era Governance (“UMANG”) services on a digital platform with agent support through an integrated mobile application. Access to e-governance services. Transaction fees are charged for all services provided along with fixed government fees. Transaction fees are then distributed to BLS Touchpoint and the Company according to the pricing dynamics established in each region under the Agreement.

industry information

As of fiscal year 2023, India has become the most populous country in the world with 142 million people. The country has experienced significant growth in wireless connectivity, reaching 114 million subscribers, with average monthly data consumption of 17GB, up from 420 million subscribers and 0.1GB per month in FY17.

Despite this increase in connectivity, India ranks 105th in the e-Government Development Index, according to a UN survey. In 2006, the Government of India launched the National e-Governance Plan, which included 31 mission mode projects across various domains. However, the plan faced challenges including lack of integration between government applications and databases, limited re-engineering of government processes, and underutilization of technologies such as mobile and cloud.

To address this issue, the Department of Administrative Reforms and Public Grievances (DARPG) formulated the National e-Governance Service Delivery Assessment (NeSDA) in 2019. In 2021, the framework covers G2C and G2B services across finance, labour, education and local governance. Social welfare, environment and tourism.

As of FY23, the state had committed to providing approximately 15,601 E-services across the country. Madhya Pradesh provides the most services with 936, followed by Karnataka with 866. Business correspondents like BLS E-Services have jumped into action by collaborating with several banks to expand their operations in towns and villages. According to RBI guidelines, at least 25% of the total bank outlets opened in a year should be in unbanked rural areas.

It also states that a bank teller is a fixed branch service operated by bank employees or business correspondents. This has led to rapid growth in the business correspondent network in India, increasing from 11.9 Lakh in FY21 to 22.1 Lakh in FY22.

The BC industry is currently growing at a CAGR of 19% from FY22 to FY25. Banks can work with these BCs to open banks in rural areas on their behalf, thus reducing operational costs and keeping up with RBI guidelines. Now that we have a brief understanding of the industry, let’s take a look at the company’s financial performance.

BLS E-Services IPO Review – Financials

The company expanded its net revenue from Rs. 98.4 Cr in FY22 to Rs. 246 Cr achieved a phenomenal growth of 150% in FY23 and has expanded at a CAGR of 94% over the last three years.

During the same period, net profit increased by 279% to 50 billion won. 5.37 Cr in FY22 to Rs. 20.33 Cr in FY23. Since FY21, the company’s net profit has grown at a CAGR of 155%.

The company’s net profit margin expanded to 8.36% in FY23 from 5.56% in FY22. That’s why net profit increased by 279%.

Return on equity and return on capital employed in FY23 remain high at 33.33% and 30.62%, respectively. The debt ratio peaked at 1.14 times in FY21 and decreased to 0.07 times as of September 2024.

main players

The company has only one listed peer, E-Mudhra Ltd, a licensing body engaged in issuing digital signature certificates under the e-Mudhra brand. Both the companies have almost identical revenue volumes, with E-Mudhra reporting higher earnings per share of Rs. 8.35 compared to BLS’s Rs. 3.02.

If we take the higher end of the BLS price range of Rs. Looking at 135 and calculating the IPO price-to-earnings ratio, the company’s PER is 44.7 times. However, this is significantly lower than EMudhra’s P/E ratio of 56.27x. Nonetheless, when E-Mudhra filed its RHP, the company’s underlying EPS was Rs. 2.49 as of FY21. At the highest price point of Rs. 256, the company was valued at a price-to-earnings ratio of 103x, and this IPO delivered a 75% return to shareholders since listing in June 2023.

Company Strengths

1. Asset-light business model: The company operates a franchise model in which sellers operate BLS touchpoints, which are either owned or leased by the sellers. BLS only provides access to technical infrastructure.
2. Numerous cross-selling opportunities: The company recently launched the BLS Sewa app, a one-stop solution for various services like remittance, recharge, Demat account opening, flight booking, etc.
3. Negligible acquisition cost: The services the company provides are essential to certain rural areas. This way, you incur zero customer acquisition costs.
4. Successful acquisitions: BLS acquired Starfin India Pvt Ltd and Zero Mass Private Ltd in August 2018. Both companies contribute 21% and 61% of BLS revenue, respectively.

company’s weaknesses

1. Dependency on commissions: The company primarily earns its revenue through fees and commissions it charges consumers. The rates charged are determined by agreements with state governments, which could significantly reduce the company’s revenue.
2. Dependence on promoter: It is important to note that all E-Governance projects are awarded to the company’s promoter, BLS International, and not to BLS E-Services, which accounts for 28% of the profits.
3. Profit Concentration Risk: Owing to the acquisition of numerous banking partners, the company’s revenue generated as a business correspondent has increased significantly from 27.84% in FY21 to 66.05% of its revenue as of September 2023.
4. Customer concentration risk: The company generates around 60% of its revenue from its single customer, large PSU banks. Additionally, the company does not have long-term contracts with banks.

BLS E-Services IPO Review – GMP

Shares of BLS E-Services Ltd were trading at a premium of 74.07% in the gray market on Jan 24, 2024. The stock in Gray Market was trading at Rs 235. This gives a premium of Rs 100 per share to the ceiling price of Rs. 135.

Key information

promoter: BLS International Services, Diwakar Aggarwal and Shikhar Aggarwal

Book Operations Lead Manager: Unistone Capital Pvt Ltd

Proposal registered by: KFin technology company

purpose of the problem

1. Strengthen our technology infrastructure and develop new features on our existing platforms.
2. Funding plan for organic growth through establishment of BLS stores
3. Additional acquisitions and inorganic growth
4. General corporate purposes

conclusion

BLS International Services initially found a strong niche in the visa processing business nearly 20 years ago. Since then, the company has successfully developed its own business and has also established another niche – business correspondence business.

The parent company appears to have an extraordinary ability to find niche markets in which it can operate as an informal monopoly, and thereby build a profitable and scalable business. Now the parent company is introducing one of those niches, BLS E-Services, in this IPO.

The company has been pursuing inorganic growth through mergers and acquisitions over the past three years. This allowed the company to report margins in the triple digits. However, it has maintained significant margins and profits while growing inorganically. Do you think it will continue to deliver multi-bagger returns like its parent company? So, would you like to apply for this IPO? Let us know in the comments below.

Written by Nasir Hussein

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