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Bls International Services Ltd
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Ladies and gentlemen, good day, and welcome to the BLS International Q1 FY '20 Earnings Conference Call. We have with us on the call today: Mr. Nikhil Gupta, Managing Director; Mr. Shikhar Aggarwal, Joint Managing Director; Mr. Karan Aggarwal, Executive Director; Mr. Archana Maini, General Counsel and CS; and [ Ms. Ruchi Singh ], Head of Communications. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Gupta. Thank you. And over to you, sir.
So thank you, Earl. To begin with, I'd like to also welcome on the conference call Mr. Rakesh Amol, who's the nominated Managing Director of the company; and Mr. Amit Sudhakar, who's been nominated as the Chief Financial Officer of the company at the Board meeting that took place yesterday. Good afternoon, everybody. Welcome to the first quarter earnings call of BLS International Services Limited. As you are all aware, BLS International is a leader in consular and visa process outsourcing and is the preferred partner for industries and governments across the world. Our results have been satisfactory during the quarter, and we have focused on transferring our existing structure and preparing the organization for sustained and profitable growth. I'd like to give you a quick highlight of the financial and other results and then open the session for the questions and answers. Total income for the quarter ended June 30, 2019, stood at INR 229.99 crores compared to INR 202.22 crores in the same period last year. Net profit for the quarter ended June 30 is INR 21.91 crores compared to INR 34.03 crores in the same period last year. Earnings before interest, tax, depreciation and amortization is INR 30.23 crores. During this quarter, we strengthened our footprint in Asia and -- with more partnerships. Firstly, we were signed up by Embassy of Lebanon to accept visa applications in India for which we opened 16 centers covering major hubs as well as growing regional cities in the country. Over the subsequent months, we were authorized to accept visa applications in Bangladesh, Thailand and Nepal. We also manage the attestation and legalization services for the Embassy of Lebanon. We launched 2 new visa application centers for Spain in this quarter at Durban and in Miami, bringing our total account of Spain back to 123. Figures suggest that BLS International has been able to process 6% more visas compared to the same quarter last year. With operational efficiencies in Spain project, the centers have regularly been fortified with a wide range of value-added services, partnership convenience. During this quarter, we enhanced our services further by creating a prepaid online appointment system for the convenience of the applicants at the Spain Visa Application Center in Morocco.With the introduction of the service CT prepayment, we wish to reduce the count of no shows and process more applications, while delivering a more efficient application process. This system shall also help in reducing the large amount of cash transactions at the back and increase the availability of appointment slots. This quarter also marked our complete acquisition of Starfin India. In August last year, BLS E-Services Private Limited, a wholly owned subsidiary of BLS International Services Limited, acquired 74% shares in Starfin India Private Limited. This is a banking business correspondent of India's largest bank, State Bank of India. We acquired the balance shared preference shares of Starfin India in this quarter, making it our 100% subsidiary.During this quarter, BLS International Services was given quality excellence award for the Best Operational Process in Visa Outsourcing at the World Quality Congress and Awards. In conclusion, I would like to say that the industry is evolving rapidly. And within this emerging scenario, we are already gearing up to provide innovative solutions to governments and citizens across the globe. We look forward to further expansion of business in FY '20 with new projects in domestic as well as international markets. With this, ladies and gentlemen, I invite questions relating to the results of the quarter. Thank you.
[Operator Instructions] The first question is from the line of [ Vikas Jain ], who is an individual investor.
My question is in relation to the profitability that has been shown in terms of EPS. I mean, though I hear you that the results have been, by and large, satisfactory as if I follow the commentary well enough, but it could be seen that the profitability has been struggling for almost 6 quarters now. So I want to understand more about what is the guidance in the next quarter and the following years hereinafter. That's one. Second is I can also see that the cost of service has being escalated substantially from the last year's expense ratio being somewhere between 57%, 58% to now approximately 70%. So if there is any major change in the way that we deliver service, because, as I understand, the business model is pretty much a scalable model and is a tightly driven model. Though I hear you that we have added many more centers. So is this because of CapEx or if something else that has been done because of which the cost of service has gone substantially high is what I needed to understand, sir.
Amit, can you try and explain this?
Do you want an explanation on the core -- on the profitability?
Yes, because as an investor, we were looking for an EPS to grow. But for the last 6 quarters, the EPS is remaining between that same band. There is no substantial increase irrespective of the fact that we have been getting new orders and the [execution] is also happening. The EPS has not been improving. And in terms of shareholder return as well. So we are a cash-rich company, but the shareholder value is really not getting created. I understand that the market sentiments are weak. But having said that, that what is -- what should be visible in terms of the value creation is also not happening, barring the market things, I mean. That's one. I was also expecting something in the opening commentary to comment on the management side on the Sopra Steria deal, which didn't work out perhaps. So what is the impact on that? And what has been there in the opening commentary, but unfortunately, I didn't get clear anything from the management on that, so I would request kind of insights on that point as well.
So let me attempt to this -- your question Vikas. See, firstly, what I want to explain to you is that whenever we take up a new project, there is a certain time period before the contract becomes stable and starts delivering the returns and value, all right? And that period could be 6 months or, sometimes, it could be up to 12 months also. What we've seen in the last 6 quarters, as you mentioned, is some new contracts which we have got or taken up which had additional stresses. But specifically, with relating to the Punjab which was renewed last year, sometime in August; and number two 2 was the UKVI project. Now coming to the Punjab project, firstly, after the first initial 5 to 6 months, this started breaking even in the project, and now we are seeing the positive cash flow coming out of it. So that is now pretty stable and running in a stable manner. The UKVI projects are slightly different. We thought that we had agreed with the Sopra Steria and the government in the U.K. for a certain number of services which were going to be provided through the launches that we had opened. Now, over a period of time, we found that the services were either getting delayed by the government or denied to us by the government, and therefore, to Sopra Steria. And therefore, we've not been seeing any returns. In fact, we have seen the typical losses which happened in the first 6 to 12 months going on in the UKVI project. And we really don't see that the projects can deliver the kind of value that we had expected and what we have committed to our stakeholders. So we've decided in discussions with Sopra Steria to hand over the project to them, and we are currently in the process of discussions with them on a smooth and cost-free exit for us. So that is what is going on, and which has resulted in some impact on us and a significant impact in the financial results in the quarter. I hope I've managed to explain that to you.
No. Yes, pretty much, Shikhar. The only feedback hasn't been mentioned that I want to put forward through this call is, I guess, such [indiscernible] things happened and I would also expect -- or a retail investor or an institutional investor for that matter of fact would also expect the management to come transparent on that and to have made and do an exchange filing in the [ right ] and the exchange filing, if you would track that on the basis as that came in 2 days later after the event happened. And more so, I was expecting this to be -- find some place in the opening comment of the management also that there's a development that has happened. But nevertheless, this is just a feedback, so I thought there's a good channel to put here.
Yes. Thanks. Well, thanks for the customer feedback. We'll note that for the future.
Because I also communicated with the BLS team on the social media and I did get a response. I appreciate that. But as you know, our [ focus in ] time says [ 9 ] , that's the same. So if something comes right in time, that also should give you an image of being a transparent management.So my next question was about cost of supply -- sorry, cost of sales, that has gone up from [ 600 ] between 57% to now 43%. So is it something to do with this Sopra Steria relationship?
Yes, yes, yes. It's exactly the same. Both Punjab and U.K. have taken time to kind of stabilize or they are not even stabilized now. So therefore, you'll expect that the costs will be close to the revenues. And therefore, the overall costs for the company have gone up. You'll see an improvement coming in in the next quarter as Punjab stabilizes and as UKVI kind of downsizes?
Because we had a huge kind of the top line expectations in next couple of years for the UKVI projects. So I understand there's a big setback for our organization here.
Yes.
Just to -- if you take [ money ] in the Starfin, as you mentioned, that we have now been able to acquire 100% of Starfin. And has it started contributing to our top line in a profitable manner by now?
Yes, yes. Starfin is actually, fortunately, for us -- was making profits even when we acquired it. And if we continue to not only maintain profit, we can substantially increase them over the -- after we've acquired the company. So that is pretty much stable now. And as I said, all our businesses today are all cash accretive and are giving positive results now. So it's much better than earlier, than 6 months ago.
No. Absolutely, indeed, I believe what you say here because we, obviously, are generating cash and we have cash in balance sheet as well. So this -- about the Starfin rules, I mean what's the kind of EBITDA margin that this business delivered? Because as I understand it, it's a kind of micro retail business, if I'm not wrong.
Well, it's a banking correspondent business is what the right description would be, so not micro finance. We don't give loans, et cetera.
I'm sorry. I didn't mean to say micro finance, but means we are getting to the last man in the line.
That's right. That's true.
So we may be higher, and because of this, the margins will deliver. So I see on that.
Amit, what are the margins? About 10%-plus?
So it's about 15%, 15% to 17% is the range we are getting.
15% to 17% of the EBITDA. All right. Thank you so much. Thanks, Shikhar, for answering my questions patiently. And I extend my congratulations and a sincere welcome to Amit on board as the CFO of the organization. And I wish the management team all the best for the coming quarters and the remaining part of the year.
[Operator Instructions] The next question is from the line of [ Chigar Mundra ], who's an individual investor.
Yes. So I wanted to understand the revenue this quarter, for INR 229 crores. So how much is that coming from the Punjab government and how much is it coming from the legal services?
Amit?
Yes. So if I break it, about INR 12 crores is from Punjab and balance is from visa.
And in the visa services, how was the split like? So how much is from Spain and how much is it from the rest of the services?
We don't have that working. But I can tell you, about 20 -- INR 32 crores was UKVI in this.
Okay. INR 32 crores on UKVI. All right.
And then it was all visa limited all combined.
All right. Okay. So just what will be the individual margins if I need to understand for your services prior to the Punjab government versus the visa services? Do you have that number in mind as there are some…
So overall, or whatever business we get into, we target around 15 to 20 as the margins that we should get in those businesses.
All right. Okay. And so I wanted to understand the Starfin business. So like what is the scale at which you operate, and what's the top line? And just wanted to understand the business model, cost at which you acquired the business. And how that's contributing to the returns and bottom line?
We've paid approximately INR 12 crores for the total cost of acquisition. Okay. It has revenues of approximately INR 18 crores to INR 20 crores to approximately 1,600 franchisees that we have who are operating this. And we deliver EBITDA, as Amit said, of about 15%.
All right. And so what is the business actually, as in what are we delivering through the franchises?
The people want to either -- there's something called direct money transfer. So the people come to our centers, they want to transfer money to their home town, et cetera. We take care of that. Plus, they want to open new bank accounts. They want to close accounts. So we take care of all of that in Bank of India.
All right. Got it, sir. And coming to this Lebanon project which we have signed. So can you give me an idea then how big? How big are we expecting the business to be from this deal?
I don't think Lebanon -- Lebanon is growing in India as a tourist destination. Lebanon in India is the first time they have outsourced globally in any country. So it's a good start for us. And the numbers are growing. I would not say the numbers are very huge right now. But we have opened offices in 16 cities for Lebanon already in India. So once we -- so as a pilot project that was started first time with the Lebanon government globally. So once I think the numbers are streamlined for this, then we will plan to give them a report for opening more offices across the world.
All right. Got it. And so what's the present cash on the balance sheet and is there any debt or what's the scenario there on the balance sheet?
So as on 30 June, we are 0-debt company. The cash balance overall is about ...
INR 170 crores.
INR 180 crores.
INR 178 crores.
INR 178 crores, cheers. So it's like a huge number. So we -- do we have any plans for more acquisitions? Or how do we plan to utilize this? It will be accountable?
Yes, sure. Acquisition? As of now, we are not looking at acquisitions which are not aligned to our core objective of visa. And so we focus on outsourcing companies only as and when we get a good return on investment in terms of strategic investment or can increase our profitability, that's where we're looking for that. But other than that, as we did say for the last 2 years, we are a growing company within [international]. We are right now investing money on acquiring resources. As you know, a new leader has joined at the company, the new CFO, Managing Director. We are spending money on business development. Different people are being appointed, as we speak, from across the world. We have changed our throughout -- our complete development strategy. So I think that this money will be needed for the growth of the company. We already declared a dividend at the Board meeting and AGM because this is a balance. This is the strategy for the money. We think that we need the money for the growth of the company.
All right. Because, typically, we are operating a very high -- our return ratios are pretty on the higher side. So if you see at your balance sheets and your cash flow and all, you -- the business does not require that high amount of money. Especially, it's a high [ROC] business. So I was wondering about the -- can we ...
Yes. But as when the price of the project gets bigger, the investment has to remain in that ratio. As we speak, a lot of governments now have understood the concept of outsourcing. Visa outsourcing or government out -- citizen-to-citizen outsourcing globally. So there -- but there is an initial [ outflow ] in terms of operating opposite. So if the scope of the project is big, even investing INR 20 crores of our value of a INR 1,000 crores project is not a big amount. So that is the reason we have kept this money in part, so we know that the projects are coming in the future, we would want to invest money in that, and do it on our own without the help -- financial help of local representatives in those countries.
All right. Got it. So then I wanted to understand. See we just lost the U.K. business [returns], unfortunately, which was supposed to be very big. And this Punjab business, also, right now, it's on a smaller scale. Plus, the visa business, it's growing at -- you said at a rate of 6% year-on-year. So how do we anticipate the growth in the short term, in the next couple of years to be [11%]? From where do you find the growth results in the next couple of years?
I think on the U.K., I would tell to Mr. Nikhil [indiscernible] there's any comment that you still need on that. I think the growth range of the company is still there from the day 1, as we have explained. The visa business, we are doing this 10% to 12% growth only in the organic space, the number of clients that we have, the number of visas are growing organically. But inorganic growth, to get, for example, in terms of acquisition or with outsourcing companies in the same field or in terms of acquiring new clients, it's a huge potential. Still, if you see the statistics next 2 to 3 years, there are a lot of tenders that are coming up for renewal. We are now talking to the government. It is not so easy just to convince the government to award the tender. We've been working on many governments from the day that we got [Spain]. Some have been certified for which we are not announcing the decision as of now in terms of the markets of the U.S. or Canada. So I think we feel there is still huge growth potential in the company as we have seen the last 2, 3 years, company was stabilizing now. We have seen what our projects we really want to do. So we are focusing on them. And I feel that there is growth in the company that will come.
[Operator Instructions] The next question is from the line of [ Akash Salay ] who's an individual investor.
I have a couple of questions regarding the UKVI contract. I believe UKVI contract has been the largest contract we ever won. Is that right?
Not really.
In terms of value.
Yes, even in terms of turnover value, Spain would be larger. The Punjab project, initially, which we got was higher. But yes, it's a big project.
Yes. Okay. Have we lost this contract completely or only a part of this is lost?
No. Actually, the -- what's -- last meeting, it's -- we are, as I said, in the process of transferring the operations to the company that awarded it to us, that area. So -- and they had no issues relating to the service delivery, et cetera, of the project. But we just thought that there wasn't the kind of money which was indicated to us initially in the business. So we decided that it doesn't make sense to make losses on it in a longer term if we don't see those -- the other services which were assured to us coming through. So I must say that it's an experience. It's a learning. We've got to know a lot of people in the -- from the U.K. government. And that was a huge opportunity for us on that space.
Okay. So I'll come back to that again. My question is really how -- I mean, are we completely coming out of this contract? Or are we going to be doing business in the future?
No, no. We are in the process of coming out of this particular contract.
Okay. But then I read some of -- some news reports that the U.K. partner has actually canceled the contract, terminated the contract with BLS because of some conflict of interest in U.K. with some of the services you provide in U.K. to the U.K. government.
No, no.
So there are a couple of really news reports -- it's not somebody blogging or something. It's actually news reports in some of the [English] newspapers.
I would say it's all speculative. A lot of people are making all kinds of statements. As you know, U.K. is going through the Brexit thing, and there's a lot of pressure on the Parliamentarians and Ministers. So everybody is making different statements. But we've -- it's -- we've given the facts of what's happened.
And you can also see the statement of our partner, Sopra Steria, that has been sent out with them.
Okay. So do you think this is going to be a negative impact on the -- in the context of future bidding and future contracts?
Not at all, not at all. We've got a certificate from our customer, Sopra Steria, to say that the quality of services, et cetera, were fine. There's no issue with that.
Okay, okay. And lastly, so what is the outstanding balance as of today from Punjab government? And when do we expect to record the full amount?
Yes. So Punjab government, if you recall, the peak outstanding was at something like INR 320 crores. Okay. From INR 320 crores, it's come down to approximately INR 98 crores today -- on 30th of June rather.
Yes. As of today, and what -- have we received anything since?
So we've been receiving money every quarter from the government. Last quarter, we got it on May. So the next installment is due in August. We hope and expect to get that installment in this quarter -- in this [current month].
Okay, okay. And lastly, we sold some of the assets to Punjab government at [25%, 44%] thing, which have they accepted the sales price yet or it's still waiting to be approved by the Punjab government?
See this is something which is totally included in the amount of INR 98 crores, which is due from then, okay? And as far as we are concerned, it's very clear, very obvious, but government being government, they would like to check out all the details before they release payment. In this case, incidentally, for your information, more than half the payment has already been released by the Punjab government to us for the assets.
[Operator Instructions] The next question is from the line of [ Karin Ramesh ] who's an individual investor.
Yes. I had one question on the Punjab government taking asset. And the question was, as announced recently, your costs had increased because of the Punjab contract and the UKVI contract. But in the medium to long term, what kind of margins do you expect for EBITDA?
As Amit said earlier, to clarify, that we typically take projects between 15% and 20% EBITDA margins, so we continue to expect to maintain that kind of guidance.
[Operator Instructions] The next question is from the line of [ Santanu Chatterjee ] from Mount Intra Finance.
My question is that you have mentioned in your result that in the previous year, your group has recognized [ nearer ] INR 33 crore profit out of sale of fixed assets by 3 subsidiaries. Now, is that particular profit -- is booked in the corresponding last year quarter?
Some of it was booked in December, Amit, and some in March, right?
It was in March, but all in the previous year only.
On previous year. Previous whole year. That last year's quarter is not included in that figure, right?
Last year quarter-on-quarter?
[ On the June ] quarter?
Last year, the June quarter, I mean to say.
No, it's wasn't the June quarter.
Not in June quarter.
It was December quarter and March quarter.
Q3 and Q4.
That was the last question in queue. I would now like to hand the conference back to the management team for any closing comments.
Yes. I'd like to thank all the -- all of you who've participated and asked very valid questions. And we're taking your feedback seriously, and we hope to come back with even better results next time. Thank you very much again. Goodbye.
Thank you very much. On behalf of BLS International, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.
Thank you.