Buy BLS International Services; target of Rs 300: HDFC Securities

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26 Aug, 2025 12:21

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HDFC Securities's research report on BLS International Services

BLS International  witnessed a mixed set of numbers in 2QFY18, with a miss on  revenue, but beat on margins (+105bps QoQ to 23.2% vs our est. of 20%). Margin  expansion  was led by a greater contribution from the higher-margin Spanish Visa (~25%) and Punjab e-governance businesses (~30%). Revenue came in Rs 1.86bn, down 4.4% QoQ, led by 6.4% drop in the Visa business (~75% of rev).  Visa revenue was soft, owing to seasonality. However, it is expected to  revive  in  2H,  led  by  a  rise in Visa applications in Spain, higher realisations led by VAS services, and contributions from new contracts.  We  like  BLS’  business model, as it is a niche G2C service provider, with growing  sustainably at high-teen margins, low working capital requirements and  high  return  ratios. Growth capital can be funded largely by internal accruals,  providing  scope  for  sustained  growth. Near-term concerns are mounting  receivables  (Rs  1.33bn  in  1HFY18 vs Rs 0.60bn in FY17), and a slowing  Visa business. High receivables suggest that no payments have been received from the Punjab govt. in the last six months.

Outlook
Niche  focus,  strong  execution  and  an  asset-light  model resulted in a healthy  RoE  of  35%  in  FY17. We expect revenue/PAT to grow at a CAGR of 13/38%  respectively  over  FY17-20E,  led by the Spanish Visa contract and Punjab e-governance project. Maintain BUY with a TP of Rs 300, based on 25x Sep-19 EPS.
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