BLS E-Services Limited (Subscribe)

Highlights

BLS E-Services Limited (BLSESL) incorporated in 2016, is a subsidiary of BLS International Services Limited and is a technology-enabled digital service provider, providing (i) Business Correspondents services to major banks in India, (ii) Assisted E-services; and (iii) E-Governance Services at grass root levels in India.

The company through their tech-enabled integrated business model, provides digital and physical products and services in the G2C, B2C, B2B categories in semi-urban, rural and remote areas where penetration of internet is low and citizens need assistance in availing basic technology enabled services.

BLSESL act as Business Correspondents to provide banking products and services on behalf of banks to people while performing a variety of services including opening savings, recurring deposit accounts, cash deposits, withdrawals, remittance, transfer, bill collection services, through its Subsidiaries, ZMPL and Starfin. They generate revenue from monthly commission, transaction-based commission, and registration Fees.

The company’s merchant led models are a capital light business strategy in respect of network expansion. They have developed their own technology platform and continue to invest in it for further improvements, which allows them to service a wide pool of citizens and merchants and cater to their diversified requirements.

The company’s merchants are divided into two categories: BLS Touchpoints and BLS Stores, which serve as customer interfaces and play a crucial role in delivering goods and services locally. As of September 30, 2023, the firm operated 98,034 BLS Touchpoints, including 1,016 BLS Stores.

Out of the total proceeds of Rs. 3,109 mn, Rs. 975 mn would go towards strengthening its technology infrastructure to develop new capabilities and consolidating their existing platforms. Rs. 747 mn would go towards funding initiatives for organic growth by setting up of BLS Stores. Rs. 287 mn would go towards achieving inorganic growth through acquisition and rest amount will use for general corporate purpose.

Key Highlights

• Between FY18 and FY23, the volume of digital payment transactions increased from Rs 14.6 bn to 113.9 bn, causing its share in overall payment transactions to increase from 59 pct in FY18 to 99 pct in FY23.  Digital payments value in India to reach Rs 3,200-3,500 trillion in FY25 from Rs 2,087 trillion in FY23, showing a CAGR of 25-27 pct between FY23 and FY25. During the same time, retail digital payments is expected to 2x and reach Rs. 1,100-1,200 trillion by FY25, translating into a 42-45 pct CAGR growth over the next two fiscals. BLSESL is well poised to benefit from such market size and opportunities.
• The company has entered into an MOU with the National e-Governance Division (NeGD) for agent-assisted delivery of a unified mobile application for new-age Governance (UMANG) services into its digital platform, offering convenient access to e-Governance services.
• BSLESL has a history of acquiring complementary businesses and integrating them into its eco-system. It has acquired Starfin in the month of August 2018 and ZMPL the month of June 2022. Further, in October 2022, they acquired BLS Kendras Private Limited, which had 365 Sewa Kendras, in the State of Punjab at the time of acquisition.
• The company’s strategy includes (i) Strengthening and integrating their technology backbone. (ii) Grow its merchants and BLS Stores network. (iii) Pursue strategic investments and acquisitions to enhance product and service capabilities. (iv) Leverage existing market position to grow each business segment, with an aim to improve cross-selling results.
• In an attempt to expand internationally, BLSESL is exploring partnerships with national and State Governments for the delivery of ICT-based citizen-centric services. BLS International has made applications to Governments of the United Kingdom, South Africa, Australia, Vietnam, Sri Lanka, Singapore, Philippines, Mauritius, Kenya, Brazil, Nepal, and Myanmar for setting up citizen services centers.
• Out of the total sales of Rs. 2,430 mn the BC segment contributes ~61 pct of revenue, the E-Governance segment contributes ~34 of revenue and Assisted E-Services segment contributes ~5 pct of revenue as of FY23.
• Sales of the company have grown by 94.25 pct CAGR during the period FY21-23 while EBITDA and profit grew 120 pct CAGR and ~160 pct CAGR over the same period respectively. During FY23, the company reported sales of Rs. 2,430 mn which increased by 1 pct YoY while EBITDA rose by ~320 pct YoY to Rs. 362 mn as the EBITDA margin jumped sharply from 8.9 pct in FY22 to 14.9 pct in FY23. The profit of the company stood at Rs. 203 mn in FY23 which has grown more than ~280 pct YoY. During H1FY24 the Sales/EBITDA/profit came at Rs. 1561 mn/Rs. 224 mn/Rs. 146 mn respectively.

Key Risk

• In the past Punjab State e-Governance Society has terminated its master service agreement with the Company. Any termination of the agreement in the future can impact the business of BLSESL.
• The company’s inability to renew its agreements can have a material adverse effect on its growth, business, financials and results of operation.

Financials

Valuation

BSL E-services remains a key beneficiary of the rapid acceptance of banking and digitisation in urban as well as rural India a trend that should accelerate further over the next 3-5 years enabling the company to clock healthy growth rates. At the upper end of the price band, the issue is commanding a PE of ~42x on FY24 annualised earnings. The issue looks fully priced However, one can Subscribe from a long-term perspective.

Also read: Why Is Financial Advisory Important?

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.