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Bls International Services Ltd
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Ladies and gentlemen, good day, and welcome to BLS International Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shikhar Aggarwal, Joint Managing Director, BLS. Thank you, and over to you, sir.
Good afternoon, everyone. I welcome you all to our earnings conference call of Q1 FY '21. I have with me on the call Mr. Nikhil Gupta, our Managing Director; Amit Sudhakar, our CFO; and Pooja from Pareto Capital, our IR advisers. I hope all of you and your families are keeping well and safe. Further to our last call, I'm glad to share that we are starting to see the COVID situation improve. Our offices and centers have started to reopen in a phased and limited manner, keeping all precautions in place, with the health of employees and customers at the top most priority. We are getting some positive news on countries opening up with domestic and international travel resuming. Multiple destinations in Europe and Asia are slowly lifting restrictions, and international travel is restarting again. We are confident that our visa and value-added services and consular services will pick up in the coming months, and we aim to reach pre-COVID levels in the next 3, 4 quarters, subject to the extent of opening up of international travel. During the quarter, we reported revenues of around INR 54 crore, largely contributed by our consular service business, Punjab citizen service business, tech-enabled services and banking correspondence business. I'm glad to share that we reported profit at the operating level, largely on the back of our cost rationalization measures. We are very excited to also announce the winning of a couple of new tenders over the last 6 months by BLS International. So in March 2020, we started working for the Portugal Embassy in Russia, wherein BLS International will exclusively work on behalf of the Portugal mission in Russia to manage the visas for Portuguese visas, wherein we will be opening -- we have already opened around 7 to 8 offices for them in Russia. And now, it will be reopening after the COVID situation comes back to normal, and the Russian travel restrictions are lifted. What is interesting to know is that we have won this contract at an increased service charge of EUR 26.5 for the region of Moscow and EUR 30.5 for other regions other than Moscow. We have also started working for the U.S. Embassy in Canada, where we are providing greeter services and Dropbox and Pass Back services in 8 locations. We have also signed a contract for the Cyprus Embassy in Qatar, which is yet to commence after the COVID restrictions are lifted. As you already know, we -- last year, we also started working for the Brazil Embassy in Lebanon. With this, we have also started working for a couple of other governments, like Lebanon, Belarus, Morocco. So basically, BLS International has now started working. It added additional of 7 to 8 new governments within the last 6 months, which is very exciting for us as a company, and it permits us that we will be continuing to grow in the next couple of years. What keeps us hopeful and confident even in this trying times is the investments we have made in putting together strong technology base and processes. Another factor which differentiates us from others is helping us to write the strong balance sheet and liquidity position. As you know, we have put our best efforts to -- over the last few years to strengthen our balance sheet. Our receivables have gone down, debt has become 0 and cash balance has increased with over INR 250 crore of cash. On the back of our strong balance sheet, we are also exploring opportunities for inorganic growth in tech-enabled government service space. We believe that digitalization will be the mantra in post-COVID world, and thus we are focusing on leveraging our proprietary technology assets to tap emerging opportunities. We have made some progress there, but we would be able to share more at a later stage. Rest assured, we look at only those opportunities which meet our internal rate of return threshold. Going forward, we are more committed to leveraging our technology and operational excellence to enhance customer services and experience in a post-COVID world. Thank you. This is all from my side. I now hand over the call to Amit for updates on financial performances. Thank you.
Good afternoon, everyone. Let me take you through the financial performance for the quarter end June 30, 2020. During the quarter, we reported a revenue of INR 52 crores. Revenue was majorly impacted by the government lockdown and travel restrictions in place due to COVID. Our operations from visa and consular services were closed during April and May 2020, with partial resumption starting in June 2020. Punjab operations resumed in May 2020, thus making some contribution to the revenues. EBITDA in Q1 FY '21 stood at INR 3 crores. We were able to rationalize our operational costs in scale with our revenue, whereby came with positive EBITDA. Our employee costs came down from INR 18.9 crores in QY -- FY '20 to INR 6.1 crores in Q1 FY '21. Other operating expenses came down by about 50% to INR 8.1 crores in Q1 FY '21, mainly on account of reduction in consultancy charges, travel expenses, rental costs and Sewa Kendra expenses. We reported a profit before tax of INR 4 crores for Q1 FY '21, with a margin of 7.5%. Our tax provision was relatively higher to INR 4.7 crores in Q1 FY '21 as compared to INR 3 crores in Q1 FY '20, mainly on account of higher dividends received from our wholly-owned subsidiary of INR 25 crores compared to previous year of INR 15 crores in Q1 FY '20. As a result, this PAT came out to be negative at INR 0.8 crores. That is all from my side. I would request the moderator to open the call for question and answers. Thank you.
[Operator Instructions] The first question is from the line of [ Vaishali Parkar from Vihaan Investments ].
Congratulations on the good set of numbers in such a challenging environment. So I wanted to understand, I don't know, what is the -- since we have a ground presence in several countries around the globe, what is the sense you are getting about the various government response to COVID situation improving gradually? Can you share some feedback from your branch office or partners?
Correct. See, we are present -- as you know, BLS International is present in 64 countries with more than 2,000 offices currently. And till date, we have processed more than 5 crore applications. And every year, now we are processing around 70 lakh to 80 lakh application. We are constantly in touch with our branch offices. The feedback that we are getting from them is, in some countries, the situation is improving and in some countries situation is bad. So the problem right now is that countries are opening up. But if the cases -- their laws are constantly changing. So there is no certain clarity, as we stand today, on the situation. But we -- essentially, what we feel is situation is improving globally. Cases are reducing, and people are now wanting to travel. They do not want to sit at home, and everyone is inquiring. Our London offices have opened up, have seen a good traction. So globally, we see the situation improving.
Okay. Okay. So do you think that going forward, within 6 months, that situation should improve further?
See, going forward, definitely, situation is improving, as there is a big pent-up demand and people want to start revenge traveling. So I don't know if the situation will improve exactly within this month. But we have seen in the offices that have opened up a lot of traction and people have started to come in, and a lot of inquiries have started to come in. People are applying for long-term visas right now, which has validity of more than a year. So the people are applying. So we feel, going forward, in the next couple of -- 3 to 4 quarters, situation should come back to pre-COVID level or even increase more than that.
Okay, sir. And what is the typical size of investments required when we bag a new visa contract? And what happens to all those investments once the contract is expired or terminated?
So basically, typical investment to bag a visa contract is in terms of the R&D expenses, in terms of the consultancy expenses, in terms of a bid writing and on the ground research that we have to do in terms of -- when we have to send our people to do inquiries and getting those properties and everything in place. So investment, I would say, is not that huge in terms of -- depends on the size of the contract, if it is a global contract or a country-wise contract. So there is no typical size. But after the contract is over, essentially, our investment is in terms of CapEx of computers and in terms of infrastructure. So we try, first of all, to get the -- sell the assets in the market to recover our investment. Essentially, that investment is already recovered in the dilution of the contract with a profit. But whatever is left after the contract, we still try to sell them in the market and recover the money.
Okay. So typically, how much time this would be getting for the payback of those investments?
So payback depends on country to country. Typically, I mean payback period would be -- more than -- I think this is normally typically more than a year's time frame.
Okay. And consolidated quarterly revenue run rate has been around INR 200 crore for last 10 quarters. So how can this run rate move to the next level, say, INR 250 crore or INR 300 crore, maybe organically versus inorganically? Can you throw some light on that?
Yes. Organically, see, as we -- as the -- now situation improves and now demand of travel will increase even more than before. So organically, we will increase this revenue from the existing contract that we are holding currently and the new contract that we have won. Inorganically, we are actively bidding for new tenders, and we are also looking at acquisitions because of our strong balance sheet situation and cash position. So inorganically, that is how we intend to achieve our growth.
Okay. So right now, if I'm not wrong, we have got some 7 to 8 new government contracts recently, right? So how many are there in pipeline?
Other than these contracts, now -- already, there are many tenders also, which are out for bidding. So we are actively bidding at 4 to 5 tenders also. But might be now because of COVID situation -- this is thus -- it is an ongoing process. So results for them might get a little delayed. But this is an ongoing process.
Ma'am, may I request you to give an opportunity to the next person, please.
The next question is from the line of [ Padmaja from Dilip Investments ].
Sir, can you explain your business model in renewed Punjab contract?
Yes. Nikhil will answer that.
Yes, I'll do that. So earlier, what happened was that the government was giving us a fixed amount every month, 2 years ago -- up to 2 years ago, and we bore all the expenses from the revenue that we got from the government. Subsequent to that, we're now collecting the -- our revenues or facilitation charges from the citizens and meeting our expenses from those collections. So there is no investment of any money with the government. There is no receivables from the government, and everything is collected upfront from the citizens.
Okay. So one more question from my side. What was the logic behind purchasing Starfin? And how has the business performed since you acquired it? And what is the future potential of this? Can you throw some light on this?
Yes. So basically, Starfin, the reason was -- first of all, Starfin is a wonderful tech -- in the government tech-enabled space, it is a very good business for us, and it is aligned with what we are currently doing. So it -- this business has a very good EBITDA margin of 15% to 20%. We have an exclusive contract with State Bank of India, where we are operating more than -- around 1,600 to 1,700 branches for them in different parts of India in Tier 1, Tier 2, Tier 3 city. They are -- we are essentially operating as a bank -- in the -- now in the State Bank of India. So it's a very, very good acquisition for us. The revenue has increased this quarter from INR 3 crores to INR 5 crores, and the EBITDA margin is also increasing. So essentially, the business has doubled from the time we have acquired this business. Every day, we are looking at increasing our reach. As we talk now, we are also looking at increasing 400 to 500 of banking correspondents across India, State Bank of India. We're also looking at starting banking correspondents for other banks, other private and public banks. So it is a very, very lucrative business for us. And in times of COVID, we have seen a very big rise in the numbers in this contract -- in this company.
Okay. Great, great. And sir, last question from my side. Are there any more levers with the company to cut cost in order to improve profitability? Because despite cost cuts affected earlier, wage cost has -- as a percentage of revenues has increased to 11% and other expenses have also increased to 16%. So are there any more levers for cost cuts?
No. See, I don't see further reduction that we can do on our salary and wage costs because these have come to the bare minimum, which we need to maintain with the company being on a going-concern basis. This reduction which has happened over the period has been mainly due to a temporary COVID issue. And once it comes back -- operations come back normal, we have the existing basic pool of employees on roll. As far as percentages are concerned, that is mainly because of the lower revenues, which have been there. So percentages have gone up.
In fact, we are definitely looking at increasing our revenue -- our salary, wages because we are very bullish on the work that is coming up in the near future, and only -- and very bullish on the revenues also. So that is the reason we are looking at an increase going forward.
We'll move on to the next question. That is from the line of [ Mukesh Solanki ], an investor. I'm sorry, the name is [ Muskan Solanki ].
Yes, hello. Can you hear me?
Yes.
So go on, [ Muskan ].
So I think, the first thing that we'd all like to understand is that what is the outlook on travel participation now in the quarter moving forward? At what point are we expecting that we start seeing pre-COVID levels again?
See, there is no guaranteed days that we can give from our end. But what we have seen globally, in terms of talking to the European Union and other governments that we're working for, is that pre-COVID level, we see in the next few quarters. The next 3 to 4 quarters, demand could increase to pre-COVID levels, even exceed those, because a lot of people have been really wanting to travel now. There's a lot of pent-up demand. There's people who want to do revenge travel. So we see, going forward, demand for tourism travel increasing. There's no specific date. Right now, some countries have opened up for us. Example, U.K., we have started processing applications. Number was very high. Last week, they have averaged out. So it depends from country to country, what is the location. But we see in the next -- definitely, in the next 3, 4 quarters, demand coming up to the pre-COVID level.
Understood. Understood. And in terms of the tech services vertical, are there any orders/contracts in the pipeline for the next few quarters?
Can you -- sorry, repeat the question?
So in terms of the tech services vertical, our tech services business, are there any orders or the contracts in pipeline as of now?
Yes, correct. So we have essentially bagged 1 or 2 contracts in the tech-enabled government services space, and we will be announcing as and when the announcing period comes, and we are allowed to announce by the government. Also to add, for clarification to everyone, our consular services business in countries is doing very well in terms of renewal of consular services like OCI, PIO and passport applications. That is also leading to the revenue generation that we are doing and 0 losses that we essentially did in this quarter.
We'll move on to the next question, that is from the line of [ Sumit Parekh ] from Pinakin Advisors.
My first question is related to this -- our new Russian contract. So what is your revenue expected yearly once the situation normalizes post COVID?
Sorry, which -- you're talking about the new contract, for the Portugal and Russia?
Yes.
So see, essentially, exactly right now, we are not having a horizon on the numbers, once situation comes back to normal. So we are expecting maybe 30,000 to 40,000 applications in that country for this. And we have won that contract at a very good service charge of EUR 26.5 within Moscow and EUR 30.5 outside of Moscow. So essentially, going forward, as we told in the previous calls, our target is to get -- focus more on technical aspect of the tender rather than the pricing. So our EBITDA margins and gross margins improve. And that is what we have managed to do in this contract. So essentially, we don't have any visibility on the revenue right now because when the situation comes back to normal and the travel starts, because we only got 15 to 20 days of working before the COVID lockdown came in for this contract. It's a very new contract. But we see that entry into the Portugal market, which has more than 1.5 million visas outsourced globally, and we have just managed to get one of the major countries, which is Russia. So if we perform well here, I feel lot of more opportunities opening us for the Portugal government globally. In fact, for the other government also that we have managed to win contracts, like for the U.S. government, Cyprus and Brazil, same way we feel that globally, they have a big number. And slowly, slowly, we want to capture -- potentially to capture.
Okay, sir. That's great to hear. Sir, my next question is, upon other operating expense. What is the nature of this other operating expense? And if you can give the bifurcation between variable and fixed cost?
So as you know, we being the -- fixed cost being -- the salary and the rentals being the major component of fixed cost, which also, over the last quarter, being the exceptional quarter, we have tried to rationalize those costs also. And if you see the total INR 14 crores of -- in the Q1, the total cost, out of that, salaries and rental constitute about INR 8 crores of the cost. So technically, I won't say it is a phase. But yes, in the current scenario, this is a minimum, which we have come down to.
Q4, right?
Q1, practically...
Q4 compared to...
Yes. Sir, my next question is, if -- let's say, if the situation does not normalize in the next coming months or it takes more time to normalize, so does this EBITDA margin is sustainable?
Yes. See, Q1, as I explained, April and May were practically under lockdown. So revenues are quite low in the first 2 months. It's only in the last month that the revenue started coming in out of this INR 50 crores. And therefore, the costs which we have cut down or have rationalized over the first quarter has been to the minimum level, which we could get down to. But again, I'm saying this is minimum on the basis of going-concern basis. And we strongly believe that this was a temporary phase. And as the revenue starts building, we are positive that accordingly will increase.
Also, I would like to add, we would probably be one of the only companies in our industry, which has managed to take some hard calls and reduce with the current times. So as we had mentioned that we are a very lean company. So everyone has chipped in, and we have really taken -- everyone has taken a hit. But as situation improves, then things will become normal.
[Operator Instructions] The next question is from the line of Sudhir Padiyar from Otium Capital.
First of all, congratulations for the commanding -- commendable performance in these challenging times. I wanted to understand a couple of things, right? I mean, so -- which is very generic in terms, okay, business terms. So I just wanted to understand what factors lead to a change in service providers? So what I mean to say is assuming that the country is quite happy with the existing service provider, okay, visa service provider, and if the contract is coming up for renewal, is pricing the only determinant factors? Or what exactly happens over here?
Thanks, Sudhir, for that question. So basically, I can tell you the answer with an example of our recent win of Portugal in Russia. So see, we have won that contract at a very high price of 30 -- around EUR 30 outside Moscow and EUR 26.5 inside Moscow. So that -- and this was handled by our competitor before. So I would say pricing was not the factor in this contract. The quality of service and the technology that we were offering really convinced them to award us the contract. And it was the first win for us -- for a new client like Portugal, so the first time working for Portugal as a client. So they got convinced because of our service being already performed in Russia for various other governments, like Spain and India. And they visited our center. They saw the technology that we are offering. They saw our bid. They saw what our performance had been. They did verification checks with our client governments. So I feel that there are a host of things that lead to an award of tender. And pricing is only a miniscule part of it. So that is the reason our focus now is only on technology and quality of our centers and quality of our bids, and getting a good profit margin.
Pardon my ignorance on this, Shikhar. So just wanted to understand a little further. So when you're saying quality of service and technology as a differentiator, can you tell us something that you would be possibly offering, which maybe your earlier peer was not offering over there or something?
Correct. So see, one simple technology that we have right now, the biometric-capturing technology. There is a service standard that you have to adhere to in the biometric capture. So the error rate is reduced to a minimum level. So right now, the technology that we are using for biometric capture probably is -- I feel, the -- in terms of the European Union standards offer the lowest level of error rate. So that was one of the factors. The other thing is that the processing of data, the software that we are maintaining to accept the data and transfer it to the government, and that is the latest software, and that leads to a very fast turnaround time. And in terms of the error of transferring the application to the government, is reduced by a great extent. The appointment system that we are offering to the customers have been -- is audited on a daily basis. So there is no hampering to them, and customers can easily get access to our centers. On top of that now, we have introduced a very new technology, and we have tied up with some technology companies that are offering biometric capture from mobile phones. It is under beta testing phase. We are talking to some governments. So going forward, to some category of applicants, we can offer this service wherein biometric could be captured essentially sitting from their homes. So this is essentially what we are focusing on as a company, focusing on investing in technology and getting into more technology-enabled services. Right now, already in our couple of contracts, like citizen service contract in the state of Punjab, we are offering some services wherein citizens do not have to come to our centers and sitting from home all of their work is done.
Understood. Understood. Wonderful. The other challenge, Shikhar, that I have, okay, in terms of valuing your business is that the core business, which is made up of travel, right, related to travel. And this is where your business could be prone to a lot of volatility or fluctuations. So for instance, if Spain contributes a large part to your revenues today, I don't know how to take a call on the fact whether people want to increasingly travel to Spain or the preference is shift to some other country, et cetera, et cetera. So do these kind of things sort of come to your mind? And if so, how do you plan to contain this volatility?
See till now, for the last 16 years that we've been operating, we have been seeing a steady rise in the number of travelers for each country that we are operating. This is our benchmark. We operate at least 5% to 10% of travelers to each country that we are operating increase. Other than this, this black swan event of COVID-19 that has happened, we have not seen any other event like this for the last 16 years, where travelers have stopped going. So as you know, we have won contracts for new governments like Portugal, U.S., Cyprus, Brazil, Lebanon. So we are continuing to expand in different geographies, different governments. And we do not see a risk of particular events. Maybe temporary risk would be there if there's -- an event happens in particular part of the country, maybe for a week or 10 days, people do not want to travel and take the measure of safeguard. But then the travel resumes. Until date, we have seen that travel is increasing. The fact that we are working with many different governments also diversifies our risks.
Okay, okay, okay. So essentially, if you take a look at our business, where we are operating, over a period of last 2, 3 years, what would be the kind of increase in the number of applications processed?
So see, organically, we -- the number of increase, I need to check the exact numbers. Off hand, what I know is organically, we increased around 5% to 10% -- 10% is the average increase that we see. And inorganically, could be a different increase.
Okay, okay, okay. And the last question from my end. I'm sorry if in case I'm repeating this or a mistake. I mean are there any significant contracts which are coming up for bidding in the foreseeable 1, 2 years, which we are planning to bid for?
Yes. So basically, the government that we've already won contracts for, for example, Portugal, U.S., Cyprus, Brazil, they're all coming out with contracts in different geographies and a lot of European governments like Italian government, Netherland government, they are coming out with contracts. There -- also now latest contracts have been announced -- the tenders have been announced by the Indian government in a couple of countries for the consular services and the visa services. So in the next 1 or 2 years, a lot of contracts are coming up for bidding, and we are actively bidding for them.
Okay. And although this may sound like a superficial question. In the next 1 year, what kind of -- can you put a number as to how much -- how many of these contracts could come up for finalization in the foreseeable 1 year?
I think in the foreseeable 1 year, things -- I don't know, over the -- with seeing the COVID situation, things might get delayed. But at least if there are 5 tenders, I think at least 1 or 2 should come for finalization in the next 1 year.
[Operator Instructions] The next question is from the line of [ Vaishali Parkar from Vihaan Investments ].
Yes. Sir, one follow-up question, that in a quarterly OPM, we have seen, there would -- they were very volatile and moving all the way from 4% to 20% to 25%. So what exactly causes this volatility? And how can this be made more predictable going forward?
So I would say this is more of a factor of revenue. If the revenue moves a little volatile, the way it has happened in the last quarter, the margin changes into that. And the unique factor of the last Q1, where the percentage of margins went up, gross margin went up was mainly due to high-margin VAS business, which we did, like client preference for premium services, like VIP lounge. They wanted home delivery. That added higher margins to our GP calculation for the quarter. So no doubt, the revenues were low, but the margins were much better in the Q1 due to these, and people who wanted to stay home and social distance what they wanted to keep. So there was a premium lounge and other businesses, which we...
So one thing that I would like to add is now because of this new scenario of social distancing, we are introducing a host of value-added services, wherein people are not -- now comfortable, people -- higher-paying customers want to come to specific centers or VIP centers or they want to get home services, or they want to get mobile biometrics. So I think the conversion for these services will definitely improve in the next few quarters because of these social distances norms that everyone has to follow. So that is why we feel our EBITDA margins would increase.
Going forward, yes.
[Operator Instructions] The next question is from the line of Sudhir Padiyar from Otium Capital.
Sorry, just forgot to ask one question. On your G2C front, just like how we have the Punjab government contract, are there any other contracts that we are looking at bidding or actively participating in?
Correct. So now our strategy -- as we are doing the G2C tech-enabled services, we are essentially looking at -- in the ID space also, we are looking at some foreign governments, European governments that we have managed to convince and award us some work in terms of processing of ID applications. In terms of same -- similar contracts, with the Punjab government level, we are only looking at contracts that provide us the similar EBITDA margin and are -- where we have to collect upfront money from the public and are not dependent on the government for money. So these are all the contracts that we are looking at.
[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Amit Sudhakar for his closing comments.
Thank you, everyone, for your participation in our Q1 FY '21 earnings call. In case of any further queries, you may get in touch with Pareto Capital or feel free to get in touch with us. We look forward to interacting with you next quarter. Stay safe and healthy. Thank you.
Thank you. Ladies and gentlemen, on behalf of BLS International, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.