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

Ladies and gentlemen, good day, and welcome to the BLS International Services Limited Q3 and 9 Months 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 that 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 Managing Director, BLS International Services. Thank you, and over to you, Mr. Aggarwal.

Good afternoon, and good evening, everyone. Welcome to our earnings call for the quarter and 9 months ended 31st December 2023. I have on call with me today Mr. Nikhil Gupta, Managing Director; Mr. Amit Sudhakar, Chief Financial Officer of the company; Mr. Gaurav Chugh, Head of Investor Relations; and Adfactors, our IR team. I'm glad to share with you all today what we all have done lately and what we aim to do in the near future. We have made good progress in the past few months, crossing significant milestones and have entered the last quarter of this fiscal on a strong note. Talking about our strategy, we have been speaking to you regarding our strategy of focusing on both organic and inorganic growth opportunities and utilizing our cash in an efficient manner and generating significant returns. And in line with our strategy, we had acquired Zero Mass in 2022, which significantly expanded our operations. And in January 2024, we have announced signing of a definitive agreement for acquisition of 100% stake in iDATA for an enterprise valuation of EUR 50 million. iDATA is a prominent player in visa and consular services and is based out of Turkey. Interestingly, iDATA has been the exclusive provider of visa and consular services to the Italian diplomatic missions since 2006 and German governments since 2012 in certain geographies. The acquisition will be funded primarily through internal accruals of the company and would be EPS accretive from day 1 of the acquisition. We expect the acquisition to be concluded by end of the fiscal subject to government and regulatory approvals. iDATA operates more than 37 visa application centers across 15-plus countries serving diplomatic missions of Germany, Italy and Czech Republic. We believe this acquisition will mark a significant milestone in BLS International's journey. This strategic move underscores our commitment to becoming a global leader in tech enabled services for government and citizens. We believe that this acquisition will further expand our operational footfall as well as market share in the visa service segment. Post consummation of this transaction, we'll work towards integration of the business, keeping in view various synergistic aspects, including achieving operational efficiencies and exploring new opportunities. On the operational front, let me highlight various awards we have won during the period. We have been reawarded the contract for visa services for the High Commission of India and Canada. This includes operation at HCI in Ottawa and CGI in Toronto and Vancouver. We will continue to provide services like consular support, passport processing and visa facilitation. On digital service front, we secured significant contracts from state health agency Ayushman Bharat, Pradhan Mantri Yojana, Uttar Pradesh. This partnership involves handling Ayushman cards on behalf of National Authority IT platform, being chosen as an empanelled service provider/based international reliability in delivering crucial e-governance services. The company was awarded another significant contract from UIDAI to conduct a comprehensive data quality check for Aadhaar information. The project spanning over 3 years and is extendable by 2 years. Last but not the least, it is a momentous milestone. We recently completed the IPO of our subsidiary, BLS E-service successfully. As BLS E makes its debut in the public market, it provides an opportunity for us to participate in the company's growth trajectory while enabling BLS E to expand its operations and enhance its offering in the business segments. The proceeds will be utilized towards growing our E-service business, both organically and inorganically. We see tremendous headroom for growth in this business in the coming years. Our endeavor is to continue to expand our operations through both organic as well as inorganic growth of initiatives and serve people across the globe. Technology and process-oriented approach will remain a key focus area and we'll continue to innovate and strengthen our business operations to serve the government and citizen in the best possible manner. Thank you for your continued trust and support. I will now like to hand over the call to Mr. Amit Sudhakar, our CFO, for an update on our financial performance. Thank you.

Good afternoon, everyone. I am pleased to present the consolidated financial performance for the third quarter and 9 month ended December 31, 2023. In Q3 FY '24, we recorded revenue of INR 437.9 crores or 7.4% Q-on-Q rise primarily driven by continuous recovery in visa and consular services. During this quarter, our EBITDA reached INR 806 crores (sic) [ 88.6 crores ] compared to INR 66.3 crore in the corresponding quarter last year and INR 86.7 crore in Q2 FY '24. Notably, the EBITDA margin for the quarter stood at 20.23%, reflecting a substantial increase of 509 basis points compared to the same quarter last year. This improvement can be attributed to our cost optimization initiatives and the positive impact of value-added services. In Q3 FY '24, our profit after tax amounted to INR 87.18 crores, a significant increase from INR 45.85 crore in previous corresponding quarter and INR 82 crores in Q2 FY '24. Additionally, the EPS for the quarter stood at INR 2.05 compared to INR 1.23 in Q3 FY '23. Now shifting to 9 months' performance. The 9 months revenue reached INR 1,229 crore, showing a robust 15.13% Y-o-Y increase. This growth was primarily driven by the strong recovery in visa volumes, along with higher revenue from digital service business. The EBITDA for 9 months FY '24 amounted to INR 255 crores compared to INR 154 crore in the corresponding 9 months last year. The EBITDA margin for this period stood at INR 20.78 crore -- sorry, 20.78%, reflecting an increase of 631 basis points compared to 9 months FY '23. In 9 months FY '24, the profit after tax stood at INR 240 crores, substantial improvement from INR 127 crore in the previous corresponding 9 months. The EPS for this quarter is INR 5.64 compared to INR 3.2 reported in 9 months FY '23. Additionally, I'm pleased to highlight that the Board has recommended a dividend of 50% to the shareholders of the company. This translates into INR 0.50 per share as dividend. That's all from our end. We would be happy to take any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of [ Mayur Bapadora ] , who is an investor.

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 9 months, it is actually 11% growth, 9 months over 9 months. So it is slightly slowing down. So what we must expect going forward? Without the acquisitions we had iDATA and with the acquisition, how much we expect in visa segment growth?

See, if you see from a profitability point of view, from a PAT level, we have grown more that 90% if you compare the same quarter last year. Even if you see that from an EBITDA level, we have grown more than 66%. So definitely, there is a major growth. Regarding revenue, also we grew. There was some seasonality in the business. Some contingent opened up this quarter. That is why there was a dribble drop in the volume. But still, if you see the revenue, we have achieved is similar. So that is why there is an increase in the revenue, actually. And whatever numbers we've 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 we target to grow. But definitely, we have aggressive growth internally set we're seeing in the company.

Okay, sir. And sir, my next question was regarding our digital service segment. So on the margin front, can we further see margin improvement in digital service segment going forward?

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

Okay, sir. And sir, what is our thought process behind acquiring the iDATA? And how is the margin profile in iDATA end? Can we expect the margin -- similar margin profile in that acquisition also once we go through this -- once we fully accommodate the company in our system?

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 and then Zero Mass and now this EUR 50 million, it translates to INR 450 crore acquisition. We expect the money to be recovered within 5 to 6 years. This is a niche player based in certain geography of the world wherein they are operating only for Germany, Italy, these governments, Czech Republic also from many year, 2006. They have been in business. Definitely, margins in this company is a little higher than BLS International because it's a niche player or even 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 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 5 to 6 years. And these are all extra advantages that you will get.

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

First of all, Nikhilji 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 year, calendar year 2023?

So see, we have acquired iDATA. We have signed a definitive agreement. Certain CPs are still to be done. And after getting those approvals, we will be able to buy it out. But the audited numbers of their -- they have a calendar year was around EUR 20 million was revenue and they had an EBITDA of EUR 10.2 million. This is all in euros.

Okay. And our quarter 3 top line revenue could not grow. Any reason, INR 437 crores, INR 437 crores both the...

I think we just answered this question. We just answered this question.

Okay. So I will listen in the system. And this digital services, it will stand with us or it will transfer to BLS E-services?

No. Digital BLS E-services, which a 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.

Okay. So this digital services will also transfer to BLS E-services, right?

Sorry to interrupt, Mr. Ravi. Yes, may we request you to rejoin the question queue. Our next question is from the line of [ Anirudh Thakare ] who is an investor. Please go ahead.

Congratulations. Just wanted to check is there any feasibility of having...

Sorry to interrupt, sir, your audio is not clear. May I request you to use your handset? So the line for Mr. [ Thakare ] has dropped. May we move to the next participant. [Operator Instructions] Our next question is from the line of Avnish Khara from Investec.

I just have 2 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-quarter, it's fallen a little bit. So maybe you could throw some light over there as well on what exactly happened?

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 -- our service charge has 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 premium lounges, et cetera. So that is why also the margin -- the profitability has increased, and we expect to maintain that. Regarding the 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.

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

Congratulations on a good set of numbers. So just a clarification to understand if the thought process is right. As you said, the iDATA acquisition that you have done, the entity has a -- is a niche player and it has a higher margin, 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 margins we are currently at 20, they could jump higher. So would that be a material jump or a normal jump?

So as I explained in the earlier question that iDATA has a much better EBITDA margin percentages compared to us and because they are in that niche market and the most lucrative market in which they work on. So obviously, once we acquire, our margins will go up overall. And we see value coming from synergies that we have, that they and we both have offices in more than 5 countries, which we are looking at how we can synergize those operations and improve the margin further in the consolidated financials. So those are the potential EBITDA improvements, which we are looking at.

Understood sir, what would the margins jump materially high or it would be an incremental marginal gain? So would it be -- say, for example, if the margin is currently at 20%, would it grow like 25%, 26%, 27% or would be like 1% or 2% higher? Is this that -- would it be material jump or a normal jump?

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's EBITDA margins have jumped from 15% to 20%. Now we are seeing upwards of 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 the margin. So definitely, we will be focusing on that, but we do not have any visibility on exact numbers.

No issues, no issues. 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 is this -- do they have a higher or a shorter length of contracts? And what is our length of contacts for the current interesting contract?

If you are following on the history of the company, maybe if you've seen that we have renewed our major contracts recently. We recently won a contact 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 U.S.A. is for 7 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.

[Operator Instructions] Our next question is from the line of [ Anirudh Thakre ] who is an investor.

Congratulations for the set of numbers. Two questions. Can we expect this to happen in FY '23/'24, the iDATA completion -- complete acquisition? Also, is there any probability or chance with our synergies to have a new business of ForEx exchanges for the customer?

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?

So what I'm trying to understand like 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 the currencies? Like can we make available the currencies to our offices, ForEx exchanges?

See, we are not averse to any value addition that can come to our existing customer base. So 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 we don't want to invest in any new line of business, whereas we want to utilize the customer base that we have. So definitely, we are very open on any people that can lead to incremental revenue from our existing customer base.

The next question is from the line of [ Nihar Mehta ] who is an investor.

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?

Certain geographies that have not fully opened up or there were some seasonality in certain geographies. That is why volume was a little less compared to 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.

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?

We can reiterate that, but we have also explained this a lot of times in the last 2 weeks on investor interviews. But I can tell you that, see, we have raised around INR 300-odd crores. Funding will primarily be used for 4 verticals, which is growing of all the 3 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 a couple of things that we've already mentioned in our RHP also, and we have reiterated in our responses and interviews that we did in the last 1 week, 10 days.

Understood, sir. And we had our subsidiary in the U.S. So correct me if I'm wrong, we have recently stepped down that subsidiary, which were in the U.S. So if you could tell me what were the reasons behind that? And how do we plan to work on our growth prospects given in the U.S.?

See, we have a presence in U.S. 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 the operations in U.S.

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

The question is with respect to the gross margin. So in the 9 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 is this attributed to? So 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?

So it's a mix of all what we just talked about. There've been new contracts where the revenue per application is higher. We have added new value-added services, which have been there and they all are higher-margin, say, business mix, 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.

Understood. And the cash on the books that is shown in the presentation is approximately INR 750-odd crores. So once the acquisition of iDATA is complete, that would go down. That would be the correct understanding?

Yes, that's right. But we are generating around INR 80 crores a quarter also. So that was also go on adding...

Understood, 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?

Sorry, just 1 second. Nikhilji, if you can add on this?

Yes. Let me answer that. So we entered 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 are going to be -- we are -- we started doing various services to the residents at their homes, including, for example, picking up cash, giving them cash and even any kind of check books that they want, they want bank accounts to be opened. We've already started many of these services in the last 3 months.

Understood. So this would fall under the bank correspondence services? Or would it be different from the existing multiples?

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

No, no. So but -- would it fall under the bank correspondence segment -- subsegment?

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

Okay. Understood. Understood. And are we seeing traction? Or it's still in its nascent stage? Are we seeing it ramping up very quickly?

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

Next couple of months. So maybe 12 months down the line, it will be a much significant contributor to the revenues of the E-services business.

It would be a contributor. We'll have to see how significant it is over time.

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

Just 2 questions. And the first one being a tech-enabled service providers, so what is our budget on R&D or innovation?

Are you talking about BLS International?

Yes, sir.

The budget for R&D, I think what we have been spending is INR 20-odd crores every year. And definitely now, with the new things in place and no new kind of business that we're targeting in visa or 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.

So sir, what would be approximate scale up in this? If you provide a number?

No, it is not defined 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.

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

I think EBITDA revenue -- I think EBITDA and PAT, that is the indicator that we internally look at and definitely sustained growth, that is what we are looking at.

[Operator Instructions] The next question is from [ Supan Parekh ] who is an investor.

Sir, I just wanted to know about way forward for the investors 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?

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 different geographies. Now we understand how to aggressively grow the company even further. So definitely, there could be good growth coming in the next few years.

Okay. I wanted to ask again -- wanted to ask about the current visa volumes per annum or quarter, like what are the current volumes for that?

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.

Okay. Okay. So have you lost any contracts in the last few months?

No, we have in fact won new contracts.

Okay. 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?

It's around 20% of our global volume, the volume that we are generating. Any contract that we do, 20% of it come -- used to come from Russia and China. China is starting looking at coming back now. Russia still has not started to come back.

Okay. Okay. And the last question I wanted to ask is like any sort term or road map for BLS E-services post IPO?

We have already announced our road map, the money that we will be utilizing for. It is all growth capital. 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 follow that and our main objective will be to implement that.

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

Could we share the free cash flow generated for the 9 months, if it is available?

You can check on -- 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 INR 550 crores, now it is about INR 750 crores.

Free cash flow, not the cash. Free cash flow.

Free cash flow from the business?

Yes, yes, free cash flow.

So see, in our case, if you add the depreciation and the tax, you will get the free cash flow from the business and also what we have got generated in 9 months...

Sorry, sorry, I did not get that.

We have generated around INR 200 crores in 9 months, free cash.

And with respect to CapEx, what is the steady-state CapEx that we would be required? I know it would be dependent more upon how we -- 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?

Sure. So we have a normal CapEx in the range of around INR 15 crores every year and additional comes from the new contracts that we win and how much we need to invest in those. But the normal is about INR 15crores.

Okay. So INR 15 crores is on an average, it could ebb and flow depending on the contract chains.

That's right. Anything addition will be on account of new contracts.

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

No, it is done by us only. No government supports on the CapEx.

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 domestically and globally or otherwise?

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

Okay, no issues, 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, the volume.

Yes, that we can discuss offline on this.

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

Yes. This higher margin, we have get in this 9 months, will this margin stay for future years also, future quarters?

Yes. Ravi, if you see our results over the last, I would say, 1 year, quarter-on-quarter, we have been able to maintain over 20% EBITDA margin. And we are quite positive of continuing and maintaining that.

Yes. I'm shareholder since last 10 years, sir. So I am minutely studying everything. And sir, last, this digital services con call, this BLS E-service's con call, you will make separately?

Yes, we will start doing that from next quarter.

[Operator Instructions] There are no further questions, I would now hand the conference over to Mr. Shikhar Aggarwal from BLS International Services Limited for closing comments.

Thank you, everyone, for taking time to participate in our Q3 and 9-month FY '24 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 next quarter. Thank you.

Thank you.

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