BLS — earnings call

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Prepared remarks

Moderator · Conference Operator

Ladies and Gentlemen, Good day and welcome to the BLS International Services Limited Q3

Questions and answers

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question is from the line of Mayur Bapadora, who is an investor.

Please go ahead.

BLS International Services Limited February 13, 2024

Mayur Bapadora

Congratulations for the good set of numbers.

So, my question was regarding visa segment of our business.

So, in Visa segment how much we are going to grow in the future, like we said, we are going to grow 20% year over year and for nine months it is actually 11% growth nine months over nine months.

So, it is slightly slowing down.

So, what we must expect going forward without the acquisition we had iDATA and with the acquisition how much we expect in visa segment growth?

Shikhar Aggarwal

See if you see from a profitability point of view, you know from a PAT level we have grown more than 90% if you compare the same quarter last year, even if you see that from EBITDA level you know we have grown more than 33%.

So, definitely there is a major growth.

Regarding revenue, you know also we grew there was some seasonality in the business, some contingent open up this quarter that is why there was a little drop in the volumes.

But still if you see the revenue we have achieved is similar.

So, that is why there is an increase in the revenue that's actually and whatever numbers we have achieved we wish to maintain that.

If you have seen in the last 3-4 years we have given more than 50% CAGR growth, and next year also coming years our objective is obviously to grow the company.

We cannot give you any firm numbers or percentages where target to grow, but definitely we have aggressive growth internally set within the company.

Mayur Bapadora

Sir, my next question was regarding our digital service segment.

So, on the margin front, can we further see the margin improvement in digital service segment going forward?

Shikhar Aggarwal

See the margins that we have achieved, obviously this is a volume driven business spread across the length and breadth of the country where we have 4 lakh people coming into our centers every day.

Margin is little less than the visa business around 14.5% margin, whereas in our visa business we are doing upwards of 20% margin.

Definitely our even the margin for visa business was less, it grew with time.

So, definitely our objective and agenda is always to grow the margin in whatever business we get into and that will be the same objective even in E-services.

Mayur Bapadora

Sir, what is our thought process behind the acquiring the iDATA and how is the margin profile iDATA will have and can we expect similar margin profile in that acquisition also once we fully accommodate the company in our system.

Shikhar Aggarwal

See first of all, it took us 15 years to acquire such a big company.

The money that we have generated is our hard-earned money.

First we invested in Starfin then Zero Mass and now this €50 million, it translates 450 crores acquisition.

We expect the money to be recovered within five to six years.

This is a niche player based in certain geography of the world wherein they are operating only for Germany, Italy , Czech Republic also from many year, 2006 they have been in business.

Definitely margins in this company is little higher than BLS BLS International Services Limited February 13, 2024 International because it is a niche player working in certain geographies only with certain governments at higher service charges than us.

So, that was also the objective of buying this company to learn from them and obviously adding a new client base.

In this geography it gives us we can use economies of scale, combine our offices, lead to further growth, reduction of our expenses, we get qualified for more tenders.

So, definitely there are multiple advantages.

That is all added advantages other than the fact that we will recover our money within five to six years, and these are all extra advantages that we will get.

Mayur Bapadora

Okay sir.

Best of luck from my side for your future endeavors.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Ravi Naredi from Naredi Investments.

Please go ahead.

Ravi Naredi

First of all Nikhil ji and Shikharji congratulations to you and your team along with us for good listing of BLS E-services, because you have given the quota for shareholder of BLS and we get the allotment and sir 100% you acquired fully this visa company, so how much net profit in last calendar year 2023?

Amit Sudhakar

So, see, we have signed a definitive agreement.

Certain CPs are still to be done and after getting the approvals, we will be able to complete the buy out, the CY22 audited numbers, they have a calendar year was about 20 million revenue and had EBITDA of €10.2 million.

This is all in Euros.

Ravi Naredi

Very nice, very nice and our quarter three top line revenue could not grow any reason?

Shikhar Aggarwal

I think we just answered this question previously.

We just answered this question.

Ravi Naredi

OK, so I will listen in the system and this digital services, it will stand with us or it will transfer to BLS E-services.

Shikhar Aggarwal

No BLS E-services, which is the subsidiary of BLS International, will continue to remain a subsidiary of BLS International and all the revenue, profitability will get consolidated into BLS International.

But definitely the E-service arm will handle all the regional service business everything.

Moderator · Conference Operator

Thank you, Sir.

Our next question is from the line of Avnish Khara from Investec.

Please go ahead.

Avnish Khara

So, I just have two questions.

The first one is on the visa services.

I just wanted to understand whether the quarter-on-quarter increase is primarily, is it led by volumes or do you also see some kind of a price jump over there and secondly on the digital services, it's quarter on BLS International Services Limited February 13, 2024 quarter, it is falling a little bit.

So, maybe you could throw some light over there as well on what exactly happened?

Shikhar Aggarwal

So, I think on the visa service front, definitely, there has been a good growth in the revenue mix, the revenue mix has changed.

We have definitely gotten some additional service charges, some of our service charges have also increased.

If you see in the last year even the Spanish contract that we won or the new contracts for Germany, Italy, whatever we have won is at higher service charges and definitely there has been a good increase in different additional services like biometric, mobile biometric, etc. So, that is why also the profitability has increased and we expect to maintain that.

Regarding digital services, I think from quarter 2 to quarter 3 there could be a minute change, but going forward we see good growth coming in.

Moderator · Conference Operator

Thank you.

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.

Please go ahead.

Omkar Kamtekar

So, just a clarification to understand if the thought process is right as you said the iDATA acquisition that you have done - the entity is a niche player and it has a higher margins that's what BLS has.

So, I think by what time you will be able to complete the acquisition because if it is a higher margin business, once that becomes incorporated in the numbers of BLS, the margin from the visa services should increase and if you are saying that the visa margin we are currently at 20, they could jump higher.

So, would that be a material jump or a normal jump?

Amit Sudhakar

So, as I explained in the earlier question that iDATA has a much better EBITDA margin percentages compared to us because they are in niche market and the most lucrative market in which they work.

So, obviously once we acquire our margins will go up overall and we see value coming from synergies of operations and we both have offices in more than five countries which we are looking at how to synergize those operations and improve the margin further in the consolidated financials.

So, those are the potential EBITDA improvements which we are looking at.

Omkar Kamtekar

Understood sir, but would the margins jump materially higher or would be it incremental marginal gain?

So, would it be say for example if the margin is currently 20%.

Would it go like 25-26-27 percent would be like 1 or 2% higher?

It's just that would it be a material jump or a normal jump?

Shikhar Aggarwal

See, actually we cannot give any substantial numbers right now, because we are also not aware, but as you have seen in the past BLS international EBITDA margins have jumped from 15% to 20%.

Now we are up to 20% and our endeavor is definitely to grow the margins always even with this acquisition and other than this acquisition also our endeavor is to grow BLS International Services Limited February 13, 2024 the margins.

So, definitely, we will be focusing on that, but we do not have any visibility on exact numbers.

Omkar Kamtekar

And final question is with respect to the length of the contracts that you also have with respect to your awards that you get for visa and other processing and what iDATA has, do they have the similar length of contracts or do they have a higher or a shorter length of contracts and what is our length of contracts currently?

Shikhar Aggarwal

If you are following on the history of the company, maybe if you have seen that we have renewed our major contracts recently.

We recently won a contract again with the Indian Embassy in Canada.

Last year, we won again the Spanish global contract at a higher service charge.

So, every government has different topographies.

Germany typically works on a 7 year period even the new contract that we work with German government in USA is for seven years.

Accordingly, all the contracts with this company also are there for the next few years and whenever they come up for bidding, then there will be a tender.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Aniruddha Thackeray who's an investor.

Please go ahead.

Aniruddha Thackeray

I have 2 questions.

Can we expect this to happen in FY 2023-2024, the iDATA complete acquisition; also is there any probability or chance with our synergies to have a new business of forex exchanges for the customer?

Shikhar Aggarwal

Sorry, I understood your first question.

That answer is yes, you can expect this transaction to close soon after the approval.

I did not understand your second question.

Can you please repeat?

Aniruddha Thackeray

What I am trying to understand is that we are into visa services, and we are providing a lot of digital services.

So, in case can we have a new business line for the exchange of currencies like can we make available the currencies to our offices, Forex exchanges.

Shikhar Aggarwal

See, we are not averse to any value addition that can come to our existing customer base.

So, you know in some countries we have tie up already with certain banks wherein we are offering Forex card services at our centers and already this is happening.

So, you know we don't want to invest in any new line of business wherein we want to utilize the customer base that we have.

So, definitely we are very open or any business that can lead to incremental revenue from our existing customer base.

Moderator · Conference Operator

Thank you.

The next question is from the line of Nihar Mehta, who's an investor.

Please go ahead.

BLS International Services Limited February 13, 2024

Nihar Mehta

If you could reiterate, I have noticed recently the revenue growth was not significant so if you could highlight or give a color on the reason for the same.

Shikhar Aggarwal

Certain geographies that had not fully opened up or there was some seasonality in certain geographies.

That is why volume was a little less compared to a similar quarter last year, but in fact our revenue has increased because our revenue has gone up from the existing applications that we are getting and going forward also we see the volumes going up.

So, the volume should grow more.

So, that is why there should be a further increase in revenue.

Nihar Mehta

Understood and given the recent IPO that we had if you could elaborate on like how much funding was raised or where are we going to use that fund?

Shikhar Aggarwal

We can reiterate that, but we have also explained this a lot of times in the last 2 weeks to lot of investor interviews, but I can tell you that see we have raised around 300 odd crores.

Funding will primarily used for four verticals which is growing of all the three verticals of our banking correspondent, our E-governance and assisted E-services and we are going to spend the money on strengthening our existing technology infrastructure, to develop new capabilities, invest in inorganic growth, opening of different kind of BLS stores within our network.

So, couple of things that we have already mentioned in our RHP also and we have reiterated in our responses and interviews that we did in the last one / week 10 days.

Nihar Mehta

Understood, Sir.

And we had our subsidiary in the US.

So, correct me if I am wrong, we have recently stepped down that subsidiary which were in the US.

So, if you could tell me what the reasons behind that were and how do we plan to work on our growth prospects given in the US.

Amit Sudhakar

See, we have a presence in the US currently.

We have created this company with $200 of equity more from the operations point of view, nothing else.

So, it is just to streamline our operations in the US.

Moderator · Conference Operator

Thank you.

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.

Please go ahead.

Omkar Kamtekar

The question is with respect to the gross margins.

So, in the nine months we can see that there is a good jump in the gross margins go up close to 42% on a rounded basis.

So, my question was with respect to what it is attributed to, approximately 10% jump in the gross margin.

What is the breakup of this jump?

How much is it with respect to increasing prices and what is the breakdown of it?

Amit Sudhakar

So, it's a mix of all what we just talked about.

There have been new contracts where the revenue per application is higher.

We have added new value added services and they all are BLS International Services Limited February 13, 2024 higher margin businesses, which is improving our gross margin over the years.

You can see that changing over the last year, quarter on quarter.

The 5% overall EBITDA margins have been improved and we are now maintaining those.

Omkar Kamtekar

Understood and the cash on the books that is shown in the presentation is approximately 750 odd crores.

So, once the acquisition of iDATA is complete, that would go down, so that would be the correct understanding?

Amit Sudhakar

Yeah, that is right.

But we are generating around 80 crores a quarter also.

So, that will also go on adding to the cash.

Omkar Kamtekar

Understood and finally, one question with respect to the E-services business.

So, from what I recollect from one of the previous con-calls, you had said that we were experimenting and exploring with respect to last mile cash delivery system, cash delivery in the E-services business.

What is the status of that and are we seeing any traction with respect to that?

Nikhil Gupta

So, we went into an agreement with the public sector banks alliance where there are 12 public sector banks that have given us nearly 58% of the transactions across India whereby in the last mile we have started doing various services, to the residents at their at their homes, for example picking up cash or giving them cash and even any kind of checkbooks that they want, they want bank accounts to be opened.

We have already started many of these services in the last three months.

Omkar Kamtekar

Understood.

So, this would fall under the bank correspondence services or would it be different from the existing multiples?

Nikhil Gupta

It's separate contract, but within the BLS E-services.

Omkar Kamtekar

No, but would it fall under the bank correspondence sub segment or will it be a separate head?

Nikhil Gupta

No it's separate, it will be in the same segment, but it's a separate agreement.

Omkar Kamtekar

OK, understood and are we seeing traction or it is still in its nascent stage or are we seeing ramping up very quickly?

Nikhil Gupta

It's in its nascent stage, but the banks expected to be ramped up very rapidly over the next couple of months.

Omkar Kamtekar

Next couple of months, so maybe 12 months down the line it would be a much significant contributor to the revenues of the E-servicing business.

BLS International Services Limited February 13, 2024

Nikhil Gupta

It would be a contributor.

We will have to see how significant it is over time.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Mohit Doshi, who is an investor.

Please go ahead.

Mohit Doshi

Good afternoon, sir and so just two questions and the first one being a tech enabled service provider, So, what is our budget on R&D for innovation.

Shikhar Aggarwal

Are you talking about BLS International?

Mohit Doshi

Yes, Sir.

Shikhar Aggarwal

The budget for R&D, I think what we have been spending is 20 odd crores every year, and definitely now with the new things in place and not no new kind of business that we are targeting in visa consular services across the world, we are going to maybe have a little bit more investment going forward in the technology space as our revenue and profits increase.

Mohit Doshi

So, what would be an approximate scale up in this if you could provide a number.

Shikhar Aggarwal

No it is not defined the percentage as and when we get new contracts accordingly we have to invest in technology for each contract some different kind of technology.

So, probably that, but I think it will be utilized from the internal accruals of the company.

Mohit Doshi

And sir in the future, if one wants to assess the company I mean measure the company success in any particular indicator or something that we should look out for?

Shikhar Aggarwal

I think EBITDA and PAT are the indicator that we internally look at and definitely sustain growth that is what we are looking at.

Moderator · Conference Operator

Thank you.

The next question is from the line of Supan Parekh, who is an investor.

Please go ahead.

Supan Parekh

I just wanted to know about way forward for the investor as well as for the stakeholders to monitor the success of the BLS going forward.

Like, what are the main things that the indicators they should look upon?

Shikhar Aggarwal

See, you should look at the history of BLS last 3-4 years how we have grown as a company and this maybe definitely next few years the company that we have acquired, iDATA, the revenue profitability that is generated in that company will get consolidated into BLS.

We see growth coming in from that area, entering into new geographies.

So, I would say that definitely we as a company have now become a little matured in terms of our entry into BLS International Services Limited February 13, 2024 different geographies.

Now we understand how to aggressively grow the company even further.

So, definitely you know there could be good growth coming in the next few years.

Supan Parekh

Okay.

I wanted to ask about the current visa volumes per annum or quarter like what are the current volumes?

Shikhar Aggarwal

We have not disclosed that number properly because we are working in multiple territories and multiple countries or different governments.

So, I think we have to get back to you on that.

Supan Parekh

Okay.

Sir have you lost any contacts in the last few months?

Shikhar Aggarwal

No, we have in fact won new contracts.

Supan Parekh

OK, so I also wanted to ask the follow up question for the volumes regarding what is the volumes in China and Russia as well like what is the situation in Russia and China?

Shikhar Aggarwal

20% of our global volume, the volume that we are generating, any contract that we do 20% of used to come from Russia and China.

China is starting to look at coming back now.

Russia still has not started to come back.

Supan Parekh

Okay and the last question I would want to ask is like any short term or road map for BLS E- services post IPO?

Shikhar Aggarwal

We have already announced our road map, the money that we will be utilizing for it is all growth capital.

You know this is all fresh issue of equity, money has come into the company and we will be our main objective will be whatever we have mentioned in RHP we want to we want to follow that, and our main objective will be to implement that.

Moderator · Conference Operator

Thank you.

The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.

Please go ahead.

Omkar Kamtekar

Thank you.

Could you share the free cash flow generated for the nine months, if it is available.

Amit Sudhakar

You can check. we have given the cash as on 31st March as well as now I don't have the figure with me, but it was about I believe around Rs.

550 cr as on 31st March and now it is about Rs.

750 cr.

Omkar Kamtekar

Free cash flows, not the cash, free cash flow.

Amit Sudhakar

Free cash flow from the business.

BLS International Services Limited February 13, 2024

Omkar Kamtekar

Yes, free cash flow.

Amit Sudhakar

So, in our case, if you add the depreciation and the tax, you'll get the free cash flow from the business.

We have generated around 200 crores in the nine months, free cash.

Omkar Kamtekar

Understood.

Thank you and with respect to CAPEX, what is the steady state CAPEX that we would require?

I know it would be dependent more upon how many contracts do we get and where are the offices that are being opened in various regions but an approximate steady state CAPEX that we generally do on an ongoing basis so that the operations are running?

Amit Sudhakar

Sure. we have a normal CAPEX in the range of around Rs.

15 crores every year and additional comes from the new contracts which we win and its depends how much we need to invest in those new contracts, but the normal is about Rs.

15 cr.

Omkar Kamtekar

15 crores, so 15 crores is on average it could happen depending on the contracts.

Amit Sudhakar

Anything addition will be on account of new contracts.

Omkar Kamtekar

And all this is generally funded by us only or for example the counterparty, the government is also fixing a bit or is it fully funded by us?

Amit Sudhakar

No, it is done by us only.

No government supports on the CAPEX.

Omkar Kamtekar

Understood and can we share what is the approximate market share if we can disclose that what is the market share BLS has in the visa services business or domestically and globally or otherwise?

Amit Sudhakar

I think there is no authenticated source available to give that.

Omkar Kamtekar

Okay, no issues.

If the investor relation teams could share the number with respect to the volumes, would that be so I would separately ask them offline this question.

Amit Sudhakar

Yeah, we can discuss offline on that.

Moderator · Conference Operator

The next question is from the line of Ravi Naredi from Naredi Investments.

Please go ahead.

Ravi Naredi

Yeah, this higher margin we have get in this nine months will this margin stay for future years also, future quarter?

Amit Sudhakar

Yeah Ravi, if you see our results over the past, I would say one year, quarter on quarter we have been able to maintain over 20% EBITDA margin and we are quite confident of continuing and maintaining that.

BLS International Services Limited February 13, 2024

Ravi Naredi

Yes.

I am shareholder since last 10 years.

So, I am minutely studying everything and last for this digital services that is BLS E-services concall you will do separately?

Amit Sudhakar

Yeah, we will start doing that from next quarter.

Moderator · Conference Operator

Thank you.

As there are no further questions.

I would now hand the conference over to Mr. Shikhar Aggarwal from BLS International Services Limited for closing comments.

Shikhar Aggarwal

Thank you everyone for taking time to participate in our Q3 and 9M FY24 Earnings Call.

In case of any further queries, you may get in touch with Gaurav Chugh, our Head of Investor Relations or Adfactors PR.

We look forward to interacting with you again next quarter.

Thank you.

Moderator · Conference Operator

Thank you.

On behalf of BLS International Services that concludes this conference.

Thank you for joining us and you may now disconnect your lines.