BLS E-Services IPO: Should you subscribe to the Rs 310-crore issue?

BLS E-Services stock was commanding a 100 percent premium in the grey market

BLS E-Services IPO opened for subscription on January 30 and so far has been subscribed over eight times. Several analysts have assigned a subscribe rating to the issue owing to the reasonable valuation, decent return ratios and strong parentage of BLS International Services.

The stock was commanding a 100 percent premium in the grey market, which is an unofficial ecosystem where shares start trading before the allotment in the IPO and until the listing day. Most investors track the grey market premium (GMP) to get an idea of the listing price.

The business

BLS-E Services is a subsidiary of BLS International Services Ltd, which has a global presence and diversified range of services and is one of the biggest global players in visa application outsourcing. BLS provides digital and physical products and services in the G2C (Government to Citizens), B2C (Business to Customers) and B2B (Business to Business) categories in semi-urban, rural, and remote areas.

Also Read: BLS E-Services IPO opens on Jan 30: 10 things to know before you buy into Rs 310-cr issue

The company offers business correspondence services to major banks in India, assisted e-services and e-governance services at the grassroots level in India. As of September 2023, BC business contributed 66.05 percent to the total revenue from operations, e-governance contributed 28.34 percent and assisted e-services 5.61 percent. The company provides BC services to the State Bank of India (SBI), the largest PSU bank.

The company operates in three states namely Punjab, Uttar Pradesh and West Bengal. The merchants are organised into two categories: BLS touchpoints and BLS stores. As of September 30, 2023, the company had 98,034 BLS touchpoints which includes 1,016 BLS stores. Starfin India, Zero Mass and BLS Kendras are the subsidiaries of the company.

Offer details

The Rs 310.91-crore IPO is entirely a fresh issue of 2.3 crore shares. The company has reserved 23,03,000 equity shares for the shareholders of promoter BLS International Services. The eligible shareholders will get these shares at a discount of Rs 7 each to the final issue price.

The proceeds worth Rs 97.58 crore will be used for strengthening technology infrastructure to develop new capabilities and consolidate existing platforms and Rs 74.78 crore for funding initiatives for organic growth by setting up BLS stores. The company will also use Rs 28.71 crore to achieve inorganic growth through acquisitions. The remaining funds will be used for general corporate purposes.

Anchor investors

Ahead of the issue, the company raised Rs 126 crore from anchor investors on January 29. Sixteenth Street Asian Gems Fund, Saint Capital Fund, Silver Stride India Global Fund, Aries Opportunities Fund and Aidos India Fund are among the investors that took part in the anchor book.

Financials

The revenue from operations rose 151 percent to Rs 243.06 crore in FY23 compared to Rs 96.69 crore in FY22. Net profit surged 278.5 percent to Rs 20.22 crore in the same period.

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In the period ended on September 30, 2023, net profit came in at Rs 14.68 crore on total revenue of Rs 158.04 crore. Profit after tax (PAT) margin and earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin stood at 9.4 percent and 14.23 percent, respectively in H1FY24.

The company derives a substantial portion of its revenue from a single customer, SBI. In the six months ended September 30, 2023, the largest customer accounted for 59.75 percent of revenue from operations.

Valuation

The company’s only listed peer, as per the RHP, is EMudhra Ltd. The price-to-earnings (P/E) ratio based on diluted earnings per share (EPS) (Rs 3.02) for FY23 at the upper end of the price band works out to 44.7 times, which is cheaper than EMudhra (56.27x).

BLS-E Services reported a return on equity and return on capital employed at 33.33 percent and 30.62 percent, respectively, in FY23. However, in the six months ended September 30, 2023, RoE and RoCE stood at 12.92 percent and 16.69 percent.

Should you subscribe to BLS-E Services IPO? Here's what brokerage houses say

Anand Rathi: Subscribe long-term

At the upper price band, company is valuing at a P/E of 60x, with a market cap of Rs 1,226.5 crore post-issue of equity shares.

“We believe that valuations of the company are fairly priced, hence we recommend a ‘Subscribe- Long term’ rating to the IPO,” said analysts at Anand Rathi.

Reliance Securities: Subscribe

BLS International Service has an established track record for providing visa, passport, consular and other citizen services to state and provincial governments across various continents would help the company achieve superior growth in the domestic market.

“We believe that strong tailwinds, asset-light business model, and strong parentage offer strong growth, therefore we recommend a ‘Subscribe’ to the issue,” said analysts at Reliance Securities.

Canara Bank Securities: Subscribe

Taking into account the government's ‘Digital India’ initiative, this company has extremely promising future prospects. From FY21, the revenue is increasing at a 94 percent percent CAGR.

“The company’s P/E is valued at 44.70x. We recommend subscribing for listing and long-term gains,” said analysts at Canara Bank Securities.

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