BLS E-Services lists at 129% premium over IPO: Should you buy more, hold, or book profit?

BLS E-Services IPO was entirely a fresh issue of 2.3 crore shares with a price band of Rs 129-135 per share

The stock of BLS E-Services listed at a 128.9 percent premium over the IPO price, on February 6, meeting the analyst expectations of a 125-130 percent gains.

“The premium listing is justified on the back of reasonable IPO valuations followed by a government push towards digital India initiatives and a scalable asset-light business model with opportunities to drive higher revenue growth going forward,” said Prashanth Tapse, senior VP of research at Mehta Equities.

The stock opened at Rs 305 on the NSE and at Rs 309 on the BSE against an issue price of Rs 135. The Rs 311-crore initial public offering was subscribed 162.47 times between January 30 and February 1, the highest subscription among the mainboard IPOs launched so far this year.

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“We strongly recommend all allotted investors to book profits on and those who failed to get allotments can wait and watch for better opportunities,” Tapse said.

The IPO was entirely a fresh issue of 2.3 crore shares at a price band of Rs 129-135 per share. The net proceeds from the fresh issue worth Rs 97.58 crore will be used for strengthening technology infrastructure to develop new capabilities and consolidating 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.

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BLS E-Services has a strong parentage of its corporate promoter ‘BLS International Services’ and has a robust margin profile and the management intends to improve this further with planned capex investments in technology and setting up more profitable BLS stores.

“We believe that the growth driver for the company would be setting up citizen service centres for overseas governments. We believe the company is an attractive proposition considering its reasonable valuation and advise investors who have received allotment to hold shares from a long-term perspective,” said Dhruv Mudaraadi, research analyst at StoxBox.

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

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

“Considering the ‘Digital India’ drive by the government, this company has very bright prospects going forward. Based on annualised FY24 earnings, though the issue appears fully priced. Investors may park funds for the medium to long-term rewards in this industry,” said Amit Goel, co-founder and chief global strategist at Pace 360.

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BLS-E Services is a digital service provider that 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, the BC vertical contributed 66.05 percent to the total revenue from operations, while e-governance contributed 28.34 percent and assisted e-services 5.61 percent.

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