BLS E-Services

Business correspondence services provider to banks

To strengthen technology infrastructure by developing new capabilities and to fund organic and inorganic growth

BLS E-Services(BLS) is a digital service provider. The Delhi-based company offers services such as business correspondence services to major banks, assisted e-services and e-governance services at grassroots levels. It also provides the delivery of essential public utility services, healthcare, financial, agricultural, educational, and banking services for governments in urban, semi-urban, rural and remote areas.

The company offers digital and physical products or services in Business to Business (B2B), Business to Consumer (B2C), and Banking Services for Governments (G2C) in semi-urban, rural and remote areas, where penetration of internet is low and citizens need assistance in availing basic technology enabled services. It aims to promote economic independence and sustainable livelihood for the rural population, women, and un-banked individuals by connecting them with financial services.

The company provides e-services through partner retailers and stores called BLS Touchpoints, including ticketing services, PoS services, and assisted e-commerce. These partners allow BLS E-Services to provide citizen-centric services. There are over 200 government services it provides to departments like Housing & Urban Development, Health & Family Welfare, and more.

As of the end of September 30,2023, the company offered its services via 1016 BLS stores and 98,034 BLS touch points.

Object of the offer

The IPO consists of a fresh issue of 2,30,30,000 equity shares. There is no offer for sale. From the fresh issue, the company has reserved 10% (23,03,000 equity shares) to BLS International Services shareholders.

Out of the proceeds from the fresh issue, Rs 97.59 crore will be used to strengthen its technology infrastructures to consolidate its existing platforms, Rs 74.78 crore will be used to fund organic growth initiatives mainly by setting up BLS Stores, Rs 28.71 crore to fund inorganic growth through acquisition and the balance for any other general corporate purpose.

The company raised Rs 13.75 crore from investors in a pre-IPO placement, which reduced the fresh issue size in the IPO. The company has allotted 11,00,000 equity shares at a price of Rs 125 per equity share pursuant to the resolution of the IPO Committee of the Board, dated January 04, 2024.

Strengths

BLS E-Services follows an asset-light business model. The company has its own technology platform and is continuously developing the same for further innovations and improvements. It allows the company to cater to a wide range of merchants and their diverse requirements.

The company provides easy access to technology at the very grassroots level so that its services and opportunities drive financial inclusion and trust. The company‘s resources and understanding of regional needs make it the perfect choice for implementing different government schemes.

The company is operational across various models such as B2B, B2C and G2C. As a result, it is exposed to plenty of cross-selling and up-selling opportunities along with a wide reach for customer acquisition.

The company has designed its business model in a way that provides it with diverse sources of revenue along with negligible customer retention and acquisition costs.

The company has a successful track record of acquiring complementary businesses that complement its existing capabilities, revenue streams and marketing presence. For instance, (i) the company acquired in June 2022 Zero Mass Private Limited, a business correspondent of banks for financial inclusion across the country extending basic banking services to underprivileged and unbanked populations by operating micro-banks in semi-urban, rural, and remote areas of India, which have traditionally struggled with financial inclusion. It is the largest business correspondent for the one of the largest public sector bank, it has more than 12,784 active BCs as on September 30, 2023; (ii) the company in August 2018 acquired Starfin India Private Limited, a business correspondent of banks for financial inclusion; and (iii) the company on October 29, 2022, acquired BLS Kendras Private Limited by entering into an equity swap agreement with its promoter. It had 365 Sewa Kendras in Punjab at the time of acquisition.

Weaknesses

A significant portion of the company‘s revenue comes from fees and commissions. If BLS E-Services is unable to generate income from such sources, it can greatly hurt its financial performance.

As the company has limited experience, it might not be able to compete successfully with other players in the market.

A significant portion of its revenues are generated by the B2C segment from its banking partners. As the banking sector is entirely governed by RBI, therefore any changes in the RBI policies can adversely affect its overall profitability.

The company has entered into a master service agreement (MSA) with its promoter, i.e., BLS International Services, on November 19, 2020, to secure all e-governance contracts awarded and contracts that may be awarded in future to its promoter through competitive tendering process from the various State Governments. The company entered a non- compete agreement with its promoters. In view of the MSA and non-compete arrangements, the company cannot assure continuity of such contracts or ability to renew such contract upon expiry at the favorable terms or at all, which may adversely impact on the performance of the company.

Some of the company‘s operations involve handling significant amounts of cash, making it susceptible to operational risks, including fraud, petty theft, negligence and embezzlement by its employees or its merchants, which could harm the financial position of the company.

The company provides e-Governance services only in the states of Punjab, Uttar Pradesh, and West Bengal, and accordingly any adverse changes in the conditions affecting these regions can adversely affect the company‘s business.

The company significantly depends on its merchants for its product and service distribution network. Changes in its relationships, or adverse conditions (such as COVID-19 pandemic), could impair their respective operations and therefore their ability to meet their obligations under the company‘s agreements, which in turn could have an adverse effect on the company‘s growth.

The company relies extensively on its information technology systems and any failure, disruption or weakness in such systems, or breach of data, could adversely affect the operations and reputation of the company.

Contingent liabilities as on September 30, 2023, stood at Rs 22.74 crore.

Valuation

For the six months ended September 30,2023, the company earned net profit of Rs 14.68 crore on sales of Rs 156.18 crore.

In FY2023, consolidated sales were up by 151.4% to Rs 243.06 crore as compared to FY2023. The OPM increased by 644 bps to 13.60%, which led to 377.5% increase in operating profit to Rs 33.06 crore. Other income increased 90.7% to Rs 3.24 crore. Also, interest cost increased 283.9% to Rs 3.93 crore and depreciation increased 239.2% to Rs 2.78 crore. PBT increased 298.2% to Rs 26.98 crore. Tax expenses were Rs 6.65 crore as compared to tax expense of Rs 1.40 crore in FY2022. Net profit increased 278.0% to Rs 20.34 crore.

The FY2023 EPS on post-issue equity works out to Rs 2.24. The company issued 11,00,000 equity shares on January 04, 2024,on a pre-IPO placement to institutional investors at a price of Rs 125 per equity share. At the upper price band of Rs 135, the P/E works out to 60.31 times.

The company does not have any listed peers.