IPO Analysis: BLS E-Services Ltd

IPO Rating: Apply for the long-term

About the Issue:  

BLS E-Services Ltd serves as a technology-enabled digital service provider, offering three key services including business correspondent services to leading banks in India, assisted E-services, and E-Governance services. It is launching its initial public offering (IPO) for equity shares valued at Rs 10 each. The IPO price range is set between Rs 129 and Rs 135 per equity share, resulting in a total issue size of Rs 310.91 crore at the upper price band.  

The IPO is scheduled to commence on January 30, 2024, and will conclude on February 01, 2024. The market lot size for the IPO is 108 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 1,404 shares or a total investment of Rs 1,89,540 assuming the upper price band.   

Objects of the Issue  

Considering that the offer is exclusively a fresh issue, it is crucial to note that the company will directly profit from the offer proceeds. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes: 

1. Strengthening the technology infrastructure to develop new capabilities and consolidating the existing platforms
2. Funding initiatives for organic growth by setting up of BLS Stores
3. Achieving inorganic growth through acquisitions
4. General Corporate Purposes

Promoter holding  

BLS International Services Ltd, Diwakar Aggarwal and Shikhar Aggarwal are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 90.25 per cent in the company.   

Company profile  

BLS E-Services Ltd operates as a subsidiary of BLS International Services Ltd, a well-established entity with a proven history of delivering visa, passport, and various citizen services to state and provincial governments across Asia, Africa, Europe, South America, North America, and the Middle East. BLS accomplishes this through its technologically advanced platform and stands out as the only publicly listed company engaged in this sector in India.

BLS E-Services Ltd serves as a technology-enabled digital service provider, offering three key services: (i) business correspondents services to leading banks in India, (ii) assisted E-services, and (iii) E-Governance services at the grassroots level in India.

Services Offered:

1. Business Correspondents: opening bank accounts, money transfer, loan deposits, term deposits, bill payments, micro-insurance, micro-pension, debt recovery.
2. Assisted E-Services: Pan card, Aadhar Pay, demat, gold loan, lead generation.
3. E-Governance Services: Services under various departments such as Health & Family Welfare, Home Affairs & Justice, Housing & Urban Development and so on.

Leveraging a robust network, the company establishes access points for delivering crucial public utility services, social welfare programs, healthcare, financial, educational, agricultural, and banking services. This encompasses services for both government-to-citizen (G2C) and business-to-business (B2B) interactions, as well as a range of business-to-citizen (B2C) services, catering to citizens in urban, semi-urban, rural, and remote areas. The company has signed an MoU with the National e-Governance Division (NeGD) to facilitate agent-assisted delivery of services through the Unified Mobile Application for New-Age Governance (UMANG).

Financials  

The company has experienced consistent and robust growth in both revenue and net profit in recent years. In FY23, the revenue reached Rs 243 crore, reflecting an impressive 150 per cent year-on-year growth compared to FY22. The net profit soared from Rs 5.38 crore to Rs 20.33 crore in FY23, registering a remarkable 278 per cent growth. The figures for H1FY24 were also exceptional, suggesting a robust growth trajectory for FY24. The company boasts a return on equity (RoE) and return on capital employed (RoCE) of 33 per cent and 30 per cent, respectively, for the fiscal year 2023. The debt-to-equity ratio stands at 0.05, indicating a negligible reliance on debt with a predominant focus on equity financing.

Valuation and outlook  

The issue is priced with a P/BV ratio of 7.01 times, calculated using its Net Asset Value (NAV) of Rs 19.25 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 33. In comparison to its listed peer, the company demonstrated superior performance.

The company plays a substantial role in supporting key government initiatives aimed at fostering financial inclusion, notably the Pradhan Mantri Jan Dhan Yojana (PMJDY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). With multiple opportunities for cross-selling and up-selling, coupled with an extensive reach for customer acquisition, the company has positioned itself advantageously. Furthermore, its business model, characterized by diverse revenue sources and minimal customer acquisition and retention costs, stands out as a notable strength. Hence, we recommend investors to consider subscribing to the issue with a long-term perspective.