BLS International Services Limited (BLS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to BLS International Services Limited Q2 and H1 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The statements are not the guarantee of future performance and involve risks and uncertainties, which are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shikhar Aggarwal, Joint MD from BLS International Services Limited. Thank you, and over to you, Mr. Shikhar Aggarwal.

Thank you. Good afternoon -- good evening, everyone. A very welcome -- warm welcome to all of you, and thank you for participating in our earnings call for the quarter ended 30th September 2023. I have on call with me today Mr. Nikhil Gupta, Managing Director; Mr. Amit Sudhakar, Chief Financial Officer of the company; and Mr. Gaurav Chugh, who has recently joined us as Head of Investor Relations; and Adfactors, our IR team. I'm happy to share our recent development and achievements during the last few months and our future plans for the company. We have set the stage for an exciting journey in the current fiscal year, commencing on a strong note with the more promising financial results for the second quarter of financial year '24. Our business continues to witness growth momentum as well as strong profitability. We saw highest-ever EBITDA being reported by the company. And in addition, our EBITDA margins continue to be in excess of 20%. On the given basis, we believe that this momentum will continue for the foreseeable future. Any new contracts or acquisition will further add to this momentum. Regarding the industry we operate in, we believe the outsourcing market, particularly the visa outsourcing market, has been expanding rapidly with many new countries scouting for partners who can facilitate visa as well as consular services for them. Additionally, the travel industry continues on a trajectory of revival worldwide. This global recovery is expected to translate into a surge in visa applications, fueling the growth of our visa business. Month-on-month, we are witnessing a steady upward trend driven by both growth in applications as well as improving realizations. The last quarter has been quite eventful for us. In our visa business, we signed up with the government of Slovakia to offer outsourced visa services across 18 countries. This is an exclusive global visa contract. Slovakia is fast becoming a sought-after tourism destination for travelers across the globe. We also recently opened up new application centers in Beijing, China for the Spanish embassy. As China is opening up, we expect to see further growth in volume from the region. This growth could also be complemented with further openings in CIS countries. Furthermore, we recently expanded our operations in Saudi Arabia and Nigeria, where we have opened new offices. These offices also will further help enhance our visa service business. On the digital service front, I am thrilled to share a significant milestone achieved by our subsidiary, BLS E-Services. We have successfully integrated UMANG services into our digital platform. This strategic collaboration with the National E-Governance Division aims to make over 500 e-governance services easily available. This integration underscores our commitment to provide seamless and convenient services to citizens, both in India and overseas and in multiple languages. In addition, BLS E-Services also tied up with Kotak Mahindra Bank for offering banking correspondence services. Looking ahead, our focus remains twofold: growing both our visa and consular services and digital service business organically and exploring opportunities for inorganic growth in India as well as abroad. We continue to be optimistic about the ongoing fiscal and are committed to fostering growth. In conclusion, I want to emphasize our confidence in the next few quarters. The BLS team is resilient and committed to growth in both our segments. We firmly believe that the strategies we adopt would pave the way for a bright future for BLS International Services in the coming years. Thank you for your continued trust and support. I would now like to hand over the call to Mr. Amit Sudhakar, our CFO, for an update on our financial performance. Thank you.

Good evening, everyone. I'm pleased to present the financial performance for the second quarter and half year ending September 30, 2023. In Q2 FY '24, we recorded a revenue of INR 407.7 crores, up 14.3% Y-o-Y increase, driven by both business segments, visa and digital services. We continue to witness growth in both our business segments and are optimistic about sustained growth in the coming quarters. During this quarter, our EBITDA stood at INR 86.7 crores compared to INR 56.8 crores in the corresponding quarter last year, witnessing a growth of 52.7%. The EBITDA margin for the quarter stood at 21.27%, an increase of 535 basis points compared to the corresponding quarter last year. Cost optimization, higher volumes and favorable business mix helped expand the EBITDA margin for the quarter. Profit before tax stood at INR 87.2 crores, a growth of 55% over the corresponding previous quarter. The profit after tax for the quarter stood at INR 82 crores as compared to INR 51 crores in the previous corresponding quarter, strong growth of 60.8%. The earnings per share for the quarter stood at INR 3.59 per share as compared to INR 2.46 in Q2 FY '23. Coming to the half year performance, the half year revenue stood at INR 791.2 crores, growth of 25.6% versus corresponding previous period. EBITDA for the H1 FY '24 stood at INR 166.8 crores compared to INR 88.3 crores in the corresponding half year last year, witnessing a growth of 88.9%. EBITDA margin for H1 FY '24 stood at 21.1% versus 14% in H1 FY '23, an expansion of 706 basis points. Profit after tax, PAT, stood at INR 153 crores as compared to INR 81.7 crores in the previous corresponding half year, a growth of 87.3%. That is all from my side. We can now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Ravi Naredi from Naredi Investment.

Sir, you are doing a really fantastic tailwind with our business. We are doing very fantastic things. This enhanced margin will continue in H2? What is your expectation?

Amit?

So thanks for joining the call. See, margins, we -- if you see from last year, we were around -- EBITDA margins were in the range of 15% to 16%. Now in the current year, we are maintaining it around 20s -- in our 20s. And we see the potential that we should be able to continue these margins in the coming quarters.

Okay, okay. And sir, how many more visa contracts we have applied? And what is success rate that we can expect from them?

No, see, we are -- as part of the ongoing business [ factors ], we'll keep on applying for different tenders. And as you have seen, the last 1, 1.5 years, we have won a lot of tenders for different governments. Like recently, we won a contract for Slovakia, different European governments, Germany, Italy, Poland, Portugal, and we also renewed our contract for the Spanish government. So definitely, we keep on applying for different tenders. And as we have told before, there's a big pipeline. And out of this pipeline, only some of the tenders we are winning, and some of the results are to be announced. So as and when everything is done, we will be announcing.

So this 80% visa volume, can we expect in the next few years also?

Correct.

Yes?

Yes, yes.

Okay. Okay, okay. I am not able to listen. That's why [indiscernible]. And sir, how we utilize the INR 700 crore cash, which we are having and because ROCE is 35%. So how you achieve 35% ROCE in future? This is my question.

Sure. So what we are seriously looking at, which we have talked about in our last call also, we are looking seriously at new acquisitions in the similar field. And as well as, as Shikhar said, we are bidding for big contracts, so we may need some funding requirements for setting up new offices. So we are going to use that fund for these.

This big contract in visa service?

In both, in visa as well as digital services. So we are bidding in both the [ subject requirements ].

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

Am I audible?

Yes, we can hear you.

Yes. Okay. So firstly, with respect to the rate of growth in the digital services, we can clearly say that the digital services business is growing more than twice the rate of the visa and consular services. And its share in the revenue is also increasing. So first question is how much do -- for how long will this sustain? And what will be the effect, say, 2 years or 3 years down the line, the share of the digital services business?

So see, digital service business, as we stand today is around 21% of the entire visa -- of the entire revenue of the company. Base was quite small compared -- similar -- compared to last year. That is why we grew quite well. But as you know that this company, we have rapid plans for growth of this e-services business also. In the next few years also, we can see good growth coming in from different future contracts that we are eyeing, acquisitions in the digital services. So I think growth momentum should continue in both of these.

Okay. So we can expect similar kind of growth or maybe higher going forward for the next 2, 3 years?

Percentage, I don't know. I cannot comment on any percentages, but as you have seen our track record, we have been focused on the growth. So definitely, next few years also, we are targeting growth.

Okay. Okay. And with respect to the -- so we had also applied for the listing of the e-services business. What is the status of that? Can -- is there any update from the SEBI with respect to that?

As for the norms, we have filed our DRHP with SEBI. And as and when we get the approval, it depends on the approval that whenever we get it, we will be listing the company and as we have stated that we want money coming into the company. So -- and that will be utilized for further growth of the company.

Okay. Okay. And just to comment on the visa space specifically. Now because of the conflict that has happened in the Middle Eastern region, we also have a certain amount of business in that region. So how much of an impact has that had on the business? And do you see this business impacting other regions such as Europe or adjacent areas? Can you comment on that?

Well see, we operate in a global environment. We operate in 64 countries. We work with 40-plus governments. So for us, this -- first of all, this event has not particularly impacted our business. So our revenue, as you have seen, has grown even in the last quarter. [ So definitely ], there is zero impact for us. But as we are a global company, different events keep on happening in different parts of the world. But on an annual basis, it does not -- they hardly matter.

Till now, we have not seen any.

The next question is from the line of [ Supan Parikh ], who is an individual investor.

So I'd like to ask about the IPO. So like you plan to propose an IPO of BLS E-Services. So like what is the aim for that? Like could you elaborate much on that?

See, it has been filed with -- the DRHP has been filed with SEBI. So we can say that the whole idea of the IPO is to -- for the -- funds will be for the growth capital of the company because we see a big potential of growing this digital business into a -- first, in India and then globally. And for that, we are looking at this growth capital for the digital business at the moment.

Okay. So like what is the future road map for the BLS E-Services?

I think once the SEBI approval comes in, we will share the road map and the presentation of the whole business.

Okay. Okay. No problem. So next question I would like to ask like the current growth rate and EBITDA margin, is that sustainable for long term? Like, what are the things like you're looking out for the next quarter or the -- this fiscal year like?

Yes. As we have stated, I think we already answered that question that for long time, we were doing the EBITDA margin of 15%, 16%. And from first quarter this -- we achieved a margin of 20%, and we have sustained that in the second quarter also. So we are -- every day, we are working very hard to obviously sustain and improvise. So definitely, I think from where we stand, we feel that can sustain the margins.

Okay. And also on the purpose of the cash utilization, so this quarter has been like -- has been highly cash generative. So what are the company's plans regarding the utilization of cash in the coming quarters?

We are very conservative in effective utilization of the money. And so as you know, that this cash that we've generated is because of the hard work that the company has done from the inception. Definitely, we are looking at particular opportunities. And as and when we think that it qualifies all our conditions, we will be going in for acquisitions. Other than that, we are regularly -- company is paying dividends to the shareholders. And the opportunities that we foresee, money will be utilized in growth, opening new offices, on technology, everything else.

Okay. So I'm just shifting my questions right now, like the -- I'm seeing like the volumes have recovered from China. So what are the expectations with the Russian right now?

See, volumes are pre-COVID. Definitely, we are better than what we are doing in COVID in China. Now things are start opening up, we've also opened our offices. In Russia, still, the volumes are low. So if you talk about the numbers that we've achieved, still from 2019 level, we have not achieved. The volumes are not back, but still, revenue and profitability is higher.

Okay. So like we can expect it to go -- like moving forward, it can go up.

Correct.

This is not the base volume. So base volume, 2019 levels, we still have not reached.

Okay. Okay. And that the impact of Canada issue been so far, like how has that impacted us?

I don't think there was any impact, as we have stated also that the visa business was our annual -- 2% of our annual revenue, that has also come back. That business has also come back. So we don't see any impact from the Canada business.

Okay. And also like, the last question I would like to ask is that the status of U.K. tender, is there any progress in terms of these things like winning any geographies?

No, there is no status. We are filing for many tenders. And as and when results are announced and we are notified, we'll inform.

[Operator Instructions] The next question is from the line of [ Vicky Patel ] from [ Artica Wealth ].

Congrats on a good set of numbers, sir. My first question is, I would like to know like any recent news, we heard that regarding the Egyptian embassy. So what is the current status? Are we -- like have they denied to work with BLS or...

No, no. See, we work for them, and one of our -- we are one of the authorized partners. There is an exclusive contract with them. So numbers are quite negligible from the start and still. So no one has denied, but we are not the exclusive partner. We are -- Egypt does not follow exclusive outsourcing policy anywhere in the world. So yes, that is the status.

Okay, okay. And sir, the ongoing Israel situation, so will it affect the current -- our current line of business?

No. Actually, we have not seen any impact on it, and we see strong growth in our numbers.

Okay. And sir, the revenue, the total income has grown, I think, roughly 14%, 15%. So do we see a similar range of growth in the coming second half of the year?

Whatever we have achieved, I think our wish is definitely to maintain it, and we are working hard towards that.

Okay. And sir, there has been a rise in the increased interest cost. The short-term borrowings or the long-term borrowings have not increased. So can you please throw some light where why has there been an increase in the interest cost?

So see, the interest cost is mainly because of the new accounting standard, AS 116, where the lease -- right of lease has been booked in the asset and the expense has been routed through the depreciation and the interest. But there's no debt on the books, and there is no interest payment in the financial charges.

Okay. And also employee cost as a percentage of sales have increased if you see Y-o-Y. So is this because of the increments or we are expanding the manpower?

Right. So you're right, it is because of both. The increments have been there or to the existing employees. And currently, the company is investing in people at the senior, at the middle level to ensure the growth, which we are planning to do in the next couple of quarters.

[Operator Instructions] The next question is from the line of Omkar Kamtekar from Bonanza.

One thing that I wanted to ask was on the fixed assets, we have seen an approximate INR 24 crores, INR 25-odd crores of difference. So how much of a more CapEx for fixed assets and other equipments are we looking ahead for the H2 and FY '25 also if you can?

So Omkar, this is -- the CapEx, which is showing in the balance sheet for the increment is mainly during this half year is mainly due to the accounting standard of use of assets which we have leased.

Okay. So the lease assets, the lease liability, okay, it's that. Okay.

Otherwise, we normally have a normal operation CapEx in the range of INR 15 crores to INR 20 crores in a year.

Okay. So that would be the steady state, INR 15 crores to INR 20 crores CapEx that we do annually. That would also continue, FY '25?

That's correct.

And with respect to -- I was not able to catch the number. What was the volume growth in the number of visa applications that we did for the period?

Volume, we don't normally declare the exact volume. So we need to check. This, we can send you an e-mail, yes.

Okay, okay. So as a suggestion, just if you could -- if it is possible, if you could add that bit on the investor presentation, that would be very helpful. I mean we...

Sure, we'll keep that in mind.

Then what would happen is because we can see in the EBITDA that the EBITDA margins have increased and because the high-margin business of the digital services is increasing, so we could break it down as to how much of the revenue is the...

High margin is in the visa business.

So that is right. So if the volumes there are also going to pick up, the margins would also meaningfully pick up. So that would become [indiscernible].

Definitely, volumes over there will increase further.

So the analysis becomes much easier for us, so that's it.

[Operator Instructions] The next question is from the line of [ Rajiv Venkatesh ], who's an individual investor.

Congrats on great set of quarter. A couple of questions from my side. I want to know on -- from the tender pipeline for the visa business, would you be able to provide the split on the retenders and the new tenders that we are in? And secondly, would you be able to provide the split in EBITDA for visa and the e-business? And would you be able to provide more details on the ZMPL business? Like I think before we had like Punjab, UP and all, we used to provide some details, some color on that. So would you be able to -- yes, sorry.

Whatever tenders that we're currently doing, we have retained and we have rewon of our tenders. So if you see Spain tender also, we again rewon in April for the next 5 years at an increased service charge. And we recently won tenders like for the Slovakia government, there's a global tender that we won for visa. And we won tenders for Portugal, Poland, Germany, Italy, a couple of governments that we started working for within this year. So definitely, there has been a growing in number of governments that we're working for. And going forward, as I've been telling, there are multiple opportunities in visa outsourcing. Different governments are coming out with tenders and different geographies, which we're eyeing for. Out of this, some of them announced the results, like Slovakia, which we have announced. So other governments as and when -- we are working on it. As and when results are announced, we'll be announcing, but the opportunity size is quite huge. There are many governments which are outsourcing for the first time, and there are many government which are coming out for the retenders. That is on the visa business. And on the ZMPL, ZMPL which is part of BLS E-Services, as we have declared that we have already grown, I think, more than 100% in that business compared to last year. We see -- we have already won a lot of contracts with new banks like Kotak Mahindra and different banks. We have tied up with different government, things like Umang. And also, we see further growth happening in that. We are now started -- before, we're already public sector business. Now we also started the private sector business. We've tied up with HDFC, Kotak, a couple of other banks. So we see huge growth coming in that business. And from that reason only, we wanted to list that company separately. And as and when growth capital comes, it will be utilized for growing the company further.

Great. And I have one request from my side. Like would you be able to provide some sort of, say, during the IPO, some sort of the employee or for pre-investors who are already invested with BLS as a priority for getting the IPO?

See, we have to follow SEBI rules. So whatever SEBI rules allow, we can only work on that.

Okay, great. And what is the growth guidance for the next year for the FY '25? I think last call, you had iterated that it will be like somewhere north of 50% or 60%.

We have not given any guidance, I think, till now, but -- of any percentage terms. But as you know, whatever growth that we've achieved in the first 2 quarters, we wish to maintain that.

[Operator Instructions] The next question is from the line of Dhvani Shah from Investec Capital Services India.

One question was on digital services. You all saw the highest margin this quarter of growth to 14%. So can you explain the drivers for the same and the sustainability of it?

So in digital business, this quarter, there was a new contract which we have won. And under that, they have given us an advance, which was part of the new revenue in the business. So that will -- that has increased the revenue in the current by about INR 3 crores, and that has impacted the bottom line.

Okay. So the cost for that will be booked in the future.

That's right. The CapEX cost which we have done in that case -- in this case.

Okay. Got that. And also just to confirm, the previous participant asked about ZMPL. So you said the growth has been 100% Y-o-Y. If I'm not wrong, the Y-o-Y -- the previous quarter that was reported was close to INR 40 crores from ZMPL. So the 100% growth on that was around INR 800 million. Is that correct? Or can you just tell us...

Now if you see this quarter, the revenue that we've done for digital business is around INR 82 crores, I think, if I'm not mistaken.

INR 90 crores for the quarter.

For digital business, we have done INR 85 crores, which is compared to INR 68 crores. No, this is quarter 2 FY '23.

Yes, quarter 2 is INR 90.1 crores as reported.

I think we had some segment -- intersegment. I don't know which number, I don't -- Amit, can you say it exactly?

As reported in your MDA, segmented revenue of [ 900.72 ].

So that -- it may have an intercompany netting off in that because the intercompany segment get -- under that, you write that [ minus ].

Fair enough. So how much of the ZMPL was this?

I can't hear you. How much of the ZMPL...

How much -- yes.

ZMPL is for the quarter, Q2 is about INR 49 crores.

Got it. So that's over last quarter, which was last year, which was INR 40 crores. Okay.

INR 45 crores last quarter. Q1, it was INR 45 crores. And last year, INR 40 crores, right. Q2 last year was INR 40 crores.

Okay, understood. And in terms of the visa volume recovery for the -- your FY '24, do you expect to close around at least 75% to 80% of the higher levels of FY '19 considering China has opened up and Russia is in initial stages?

Correct. I think we definitely expect the numbers to be higher than last year. And last year, I think we have achieved around 65% to 70% of the numbers. So this year, it should be closing at 75% to 80%, definitely.

Okay. And just one more question. On the realization for visa application, are you seeing significant growth there after the Spanish contract, which was at increased level?

So actually, what -- this is not because of any particular contract. Definitely, our service charges from contracts have gone up in the last few years, but also, the consumer pattern has changed. So demand for different kind of services will also increase. So in the last few years, after COVID constantly, we tried to offer more services. We have seen increase in revenue per application from the last 2, 3 years.

Understood. And just one more question. This quarter has witnessed some kind of seasonality in the visa and consular services with higher international or -- like higher European country visa applications. And that could be a reason for the higher gross margin. Is that a correct assumption?

See, definitely in this business, seasonality is there. But since we are operating in a global environment, now seasonality does not impact usually in terms -- but if you talk about EBITDA margins, they are particularly not because of seasonality because EBITDA margin, we account it for application basis. So we have seen rationalization of cost and increase in revenue. That is why there has been a higher EBITDA margins.

Okay. Now as you're all referring more to the gross margins and EBITDA margin, I understand. I just wanted a little bit more color on the gross margin improvement.

Sorry. Amit?

I wanted more color on the gross margin improvement.

So gross margin has been on the similar line. If you see Q1 versus Q2, they have been on the same line of, I think, around 57% or so. The cost has been around that.

Ladies and gentlemen, due to time constraints, that was the last question. Request participants to get in touch with Investor Relations team for further queries. I now hand the conference over to Mr. Shikhar Aggarwal for his closing comments. Please go ahead, sir.

Thank you, everyone, for taking your time out to participate in BLS International's earnings call today. Wish you all very happy and prosperous Deepavali. 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 next quarter. Thank you so much.

Thank you. On behalf of BLS International Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.