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Bls International Services Ltd
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Ladies and gentlemen, good day, and welcome to BLS International Q2 and H1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Lokesh Pareek from Christensen IR. Thank you, and over to you, sir.
Thank you, Aman. Good evening to all the participants on this call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risk that could cause future result performance or achievements to differ significantly from what has felt or implied by such forward-looking statements.Please note that we have mailed the results and the presentation, and the same are also available on the company website. In case you have not received, you can write to us, and we will be happy to send the same over to you.To take us through the results and answer your questions today, we have the top management of BLS International, represented by Mr. Nikhil Gupta, Managing Director; Mr. Shikhar Aggarwal, Joint Managing Director; Mr. Sanjay Baweja, Head of M&A and Strategy; and Mr. Amit Sudhakar, Chief Financial Officer.We will start the call with a brief overview of the quarter gone past and then conduct Q&A session.With that said, I will now hand over the call to Mr. Shikhar Aggarwal. Over to you, sir.
Good afternoon, everyone. I welcome you all to our earnings conference call of Q2 and H1 FY '21. I hope that all of you are safe and are taking necessary precautions to keep your family safe.Let me briefly update you on the recent developments and our business strategy going forward. Despite extreme challenges, we have managed to post healthy performance during the quarter and are taking necessary cost-rationalization initiatives to safeguard our margins during these tough times.Our total operating revenue has gone up from INR 52 crores in quarter 1 FY '21 to INR 131 crore in quarter 2 FY '21, as all our services started gaining momentum during the quarter. If we look at our citizen services, Punjab contract has started functioning at pre-COVID levels, and we are actively in talks with other states where similar services can be offered.The passport and consular services also picked up momentum and is now close to pre-COVID levels. We expect improvement in visa application services in the coming quarters, which will be a big boost to our profitability. Our payment support services, being carried under the subsidiary Starfin, continued to perform well and is expected to do well in the coming quarters.On new business development, I'm happy to share with you that our company with a strategic alliance partner, Al Wafi Government Services Corporation (sic) [ Al Wafi Governmental Services Corporation, ] has been awarded contract with -- by the Ministry of Egypt for issuing of Movement Certificate for Egyptians who want to travel to Schengen countries and legalization of documents for Egyptians diaspora living abroad.Your company has also won a contract from Republic of Estonia to provide services with regards to issuance of digital ID to e-residentship granted by the Estonian Police and Border Guard Board. Had 5 new added locations vis-à-vis Japan, Thailand, Singapore, Brazil and South Africa.Also, your company has got acquainted by RCMP's Canadian Criminal Real Time Identification Services to run fingerprinting services on the Royal Canadian Mounted Police, Government of Canada.Other than these, we are continuously in the process of bidding for new tenders and are hopefully of winning many more tenders.Our balance sheet continues to remain strong with 0 debt and cash and bank balance to the tune of INR 241 crores. This gives us confidence to continue exploring opportunities for inorganic growth in tech-enabled government service rates.However, as I mentioned in earlier con call, we should look at opportunities which meet our internal threshold rate of return. I'm pleased to inform you that CRISIL has recently upgraded its short-term ratings on the bank facility to CRISIL A2+ from CRISIL A2. This upgrade in short-term rating is driven by gradual improvement in liquidity risk profile and reduced debtors outstanding from the Punjab Government and reflects our established market position in visa consular outsourcing service sector and strong financial profile.This is all from my side. Thank you. And now I hand over the call to Amit for updates on financial performance.
Good afternoon, everyone. Let me take you through the financial performance for the quarter and 6 months ended September 2020. During the quarter, we reported revenue of INR 131 crore versus INR 204 crore in Q2 FY '20, a decline of 36% Y-o-Y, mainly due to delay -- decline in visa processing services business. However, we witnessed improvement in Punjab, Starfin and consular services business, which helped to cushion the decline in renews.H1 FY '21 revenue declined by 57% Y-o-Y to INR 183 crores, in line with our cost-cutting measures. Our employee costs came down from INR 17.9 crores to -- Q2 FY '20 to INR 12.5 crores in Q2 FY '21. And other operating expenses came down to INR 12.5 crores in Q2 FY '21 compared to INR 18.2 crores in Q2 FY '20.EBITDA in Q2 FY '21 stood at INR 17 crores compared to INR 30 crores in corresponding quarter last year. EBITDA margin in Q2 FY '21 stood at 13% versus 15% in Q2 FY '20. The decline in margin was on the back of reduction in revenue mainly. However, we managed to limit our decline in our continuous focus on the cost rationalization initiatives and have realigned expenses in line with our current level of business operations.For H1 FY '21, EBITDA stood at INR 23.2 crores with 13% margin. Reported PBT for Q2 FY '21 of INR 14 crore against a loss of INR 1 crore in Q2 FY '20. However, Q2 FY '20, PBT and PAT included onetime impairment charges of INR 27.82 crores on account of closure of UKVI business. For H1 FY '20, reported PBT is of INR 18 crores compared to INR 25 crores in FY -- F1 -- [ H1 FY '20. ] We reported a net profit of INR 13.9 crores for Q2 FY '21 as compared to INR 1 crore in corresponding quarter last year. PAT margins stood at 10.6% in Q2 FY '21.That is all from my side. I would now request the moderator to open the call for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Ravi Naredi from Naredi Investments.
Just I would like to know how you deploy the funds which we are having with us to increase the ROC of company?
See, basically, the strategy of the Board currently is to look at inorganic growth as well as certain big contracts. So the current focus currently is more on looking at new acquisitions in the similar line, which are -- improve our ROC, return on our investments. And if we are not able to get any interesting acquisitions or expansion plan, then the Board will decide if they need to increase the dividend payouts in the future.
Okay. So any discussions are going on for acquisition?
Yes. Currently, we are seriously looking at a few acquisitions, but they are in a preliminary stage. So we'll come back to you once something gets crystalized.
In acquisition stage, but can you tell without naming the company name in India or outside India?
Currently, the status is not in a position that we can share any information.
No, no problem. It is well and good. And sir, how much is due from Punjab Government as on 30th September?
It's about INR 67.3 crores.
Okay. And when we are going to receive the same amount?
Things have got delayed because of the COVID. And hopefully, in this financial year, we are trying that we should get most of it.
Okay. And Punjab contract is going on?
Yes, yes. The contract is going on, and the new contract is all working -- negative working capital. So there is no receivables from the new business.
And how much revenue we can book from Punjab in this quarter?
Punjab, we have -- in this quarter, we had about INR 15 crores.
[Operator Instructions] The next question is from the line of Ragini Mehta as an individual investor.
Sir, I wanted to understand a little bit about your visa processing business, and how we are seeing any improvement? Are we seeing any improvement? And new tenders in the pipeline?
Correct. So see, visa business, as you know, right now, globally, there are a lot of travel restrictions and countries are not allowing people to come in. But provided that the good thing is that BLS International globally is working for consular services plus visa services. So that business is for consular services, be it of passports, OCI, PIO or taxation services that has come back in full swing.The Punjab Government, the citizen service business, our Starfin business, all of that has come back in full swing. But the visa business, definitely, right now, the Indian government has also started for some category of visas. The European government is starting in some countries. So we have seen some traction, but I think it will take some time.But the consular services business and the government citizen service business and the financial business that we are doing for the bank correspondent has come back to pre-COVID level, even has improved. The reason for which is that we have introduced a new variety of value-added services because of COVID, we would like more people to get these services at the comfort of their homes and more people are opting for these kind of services. So our revenue from value-added services is still increasing, in fact, in these times.
Okay. I think -- great. This is fine. So we can assume that after maybe once this fiscal year is ended, we can see the pre-level COVID thing in this visa processing business, is it right understanding?
See, we are very positive right now what we see globally. And we are hopeful that when things come back to normal, we have -- we are right now currently getting a lot of queries and inquiries from the public who want to travel. And they are asking us when will you start accepting the applications, but we are dependent on the government policies. But we expect -- we are -- we want to make our capabilities ready to see a surge in demand that was there in -- at pre-COVID level.Also going forward, since we know that it has taught us, in this COVID time, that everyone has a desire to travel and to -- with the different places, we are thinking there will be a big revenge travel going forward.Also, at this time, we are focusing on our business development activities. Obviously, you cannot meet the government as such that you were meeting before since no one is ready to meet right now. But there are some tenders in the pipeline that we are actively working at, both from the growing markets, the governments which had not outsourced before and some governments in North America and Europe. So we are actively looking at them, and we are hopeful of doing that.
Okay. One more question, if I can ask. I just wanted to understand if you see any impact from the lockdown announcement in some parts of the Europe? And do you think that in the second half, will this be -- there will be any headwinds due to this restriction?
See for us right now, where we stand and operate, we are operating in the countries where -- so we do not see a situation getting worse for us. From now on, only things can get better. What we have seen -- as you know, in the last one year, we have won a contract for the Estonian government, where we are processing e-resident card visas. We have won a contract for the -- on behalf of the Canadian Mounted Police where we will be doing the biometric verification. And we are working for the Egypt government also.So we are very excited on basis of these new contracts. We started working for the Portugal government in the March of this year. So we see things only getting better for us. And this quarter also, the results wherein we have done a very decent EBITDA of around INR 17 crores as compared to the last quarter. So I think things can only get better for us.
[Operator Instructions] The next question is from the line of Sanjay Dam from Old Bridge Capital Management.
Yes. Congratulations gentlemen, very encouraging financials from you all. Just 1 question I had. When I look at your balance sheet, the trade receivables are there at similar levels to March. So could you just explain this a little bit?
So see, if you see receivables have come down from, if you see, 31st March versus now, there's a reduction in receivables. Mainly, if you see there, it has been the Punjab receivable of INR 67 crore, which will -- we expect that we should be able to get that by this financial year, and then you will see a major reduction in the receivables. But there -- luckily, there are no sticky receivables except this, which is taking a little more time. Nikhil sir, will you be able to give some on the Punjab receivables?
Yes. Basically, just remember that the -- because of this COVID period, governments in general are hard up for cash and central government has asked the state governments to borrow, et cetera. So we've got stuck in this a little bit because of the issues around borrowing with the government, and therefore, there is some delay in getting this money. But we're still confident of collecting the money from the government.
Yes. No, that's fine. So ex the Punjab receivables, it's still stuck at around that INR 40 crore, INR 45 crore, though our revenues have understandably come up. So is there any -- are you guys stuck anywhere else?
No. Basically, because of COVID, certain collections have got delayed. But now once the operations start, they will start coming in. So we don't see any problem in that as for the other receivables are concerned. And this other receivable is actually money belongs to BLS that is stuck in other countries.So normally, typically in countries -- in African countries like Algeria, Morocco, transfer of money takes time. So that is the only reason that this money is coming in the receivables because banking system is not fully developed. So banks take a lot of time to transfer money, and there is a challenge of foreign currency in those countries. So that is the only reason we will already -- always come, but they come to us. This is a money which is not due to us from anyone else.
Perfect. Perfect. And any large -- so is there any tangible visa contracts that come up for renewal that we can participate in? I mean I understand the revenues are not there because travel is not there. But other than that, are there any contracts that are coming up for bidding?
Correct. So within -- I think within a year's time, we expect some country in North America and Europe plus U.K. to come out with some big tenders. So we are -- we will be actively participating in them, and we have already been working them from last 1 or 2 years. So we expect to get a certain market share from them as and when they come up for bidding and renewal. Even now, right now, we are expecting if things become normal from standing where we are at the current EBITDA level, we expect that things become novel and travel starts again resuming. Our EBITDA to easily go up by 3x -- 2.5 to 3x, I think is easily achievable for us from the current market scenario, things become normal.
The next question is from the line of [ Swaroop Dev ] as an individual investor.
Am I able -- are you able to hear me?
Yes. Sure. We can hear you.
Okay. Actually, I have a couple of questions. So first question is regarding the Estonia that new contract that you have received like for 5 countries. But I saw that they are also eager to expand to 20 more countries worldwide. So are we also procuring those expanded contracts as well?
Correct. So basically, the contract that we have with the Estonia government is currently to start operations in 5 countries. And if we are happy with the work, it will be extended to 20 addition countries. And we are very excited since that opens us a new domain, the tech-enabled government to tech-enabled services domain for us wherein we'll be processing e-resident cards for people who would want to open or establish a company in Estonia.Currently, there are more than 50,000 e-residents across the world for Estonia, and this program has only started in the last couple of years, including more than 2,500 people in India itself who has e-residence for Estonia. So this is a very new kind of business that has started by the government, new card that we have started to give. So we are very excited that in the near future when we roll out all these offices, and then we will definitely plan to scale it up to other countries.
Okay. Next question is around the Spain contract. So i.e., if I am correct then the contract will be expired, I believe, by 2021 December, right? So is there any news for the contract renewal for Spain?
Correct. Correct. So currently where we stand, we already have an extension in place with the government. We have already signed with -- before the COVID was announced. So by the end of 2022 -- around the middle end of the 2022, but we expect now we are in the negotiations with the government. Definitely, we will get a further extension.
Okay. Okay. And I have a last question, maybe this is a bit different. So actually recently, I saw news regarding the Indian Embassy is -- like for U.S.A., they have given some contract to VFS Global. So did you participate also in those, like, tenders or something?
So we are -- see, we are not winning tenders below the rate of return. So we are focusing on winning profitable tenders. So yes, we definitely are bidding for a lot of tenders. But if -- we are not bidding below the benchmark price, that gives us a rate of return.
[Operator Instructions] The next question is from the line of [ Rajiv Gupta ] as an individual investor.
Yes, sir. Am I audible?
Yes, please.
Yes, sir. My first question is, could you share your CapEx plans for FY '21 and FY '22?
Yes. So basically, see, for us, right now, if things becoming -- where we stand today, regular CapEx that we require is around INR 8 crores to INR 10 crores every year for our existing operations, not more than that. But provided if we have -- like we are right now thinking of bidding, we are already bidding for some new tenders and there are some countries in the pipeline wherein if we win the tenders, there will be some CapEx -- additional CapEx requirements.
Okay. And sir, my next question is just regarding your subsidiaries. So just wanted to have some sort of a color or light regarding your subsidiary, Starfin, as to what is the kind of growth opportunity that we can see in that particular space? And how it will develop going forward in next, like, 4 to 5 years?
Yes. So see, Starfin is a very, very steady and very secure business for us. We are one of the top banking correspondents for State Bank of India, wherein when we got -- we bought this company around 2 years back, we had only around 1,500-odd branches. Now we have already increased it by 150, 200. So we have around 1,700 branches currently across India working for the State Bank of India, where we are doing approximately monthly average volume of INR 360 crores.It's a steady growing business. In these COVID times, a lot of direct distribution of money was dump through these centers to the employees in different government schemes. We have got approval of 400 more centers in 5 different states, where we are identifying our people who will set up shops. We have -- also other than State Bank of India, we have started approaching different other banks. They have the same mechanism of bank correspondent across India.So we feel it's a very steady secure business for us, and we are very happy we are generating a EBITDA margin of around 20% in this business. So it's a very growth-oriented model for us. And we have -- we expect in the next few years as and when the banks are using new services to happen through these centers. And it is very economically advantageous for the banks for giving banking services through the bank correspondent centers.So in the future, you could see that banks are not operating their own centers because they are very costly for them. And these all centers have been operating by banking correspondent partners like us.
The next question is a follow-up question from the line of Sanjay Dam from Old Bridge Capital Management.
So on the previous question, you spoke about the extension of Spain into the future till '22 end. So would it be correct to understand that the commercials of the extension would by and large remain the same as was earlier?
No. That -- I think -- see, under the contract, commercial will be remain the same. But as I told you now because of the change in scenario, we have introduced a host variety of new services because of COVID. And where we have -- in the consular services, we have already started those services and the revenue has increased for us. So definitely, when the visa services become -- resume to normal, we will be introducing those services in those contracts also, those value-add services that will definitely lead to increase in revenue for us.So currently, we have visibility 2022, but we are [Technical Difficulty] and we feel that because of this COVID scenario, we will definitely and we are happy with the performance how we have handled the entire scenario. So we definitely feel that we will be expanding these services the first month of 2022.
Yes. So it would be better only and not worse, right?
Correct. Correct. Also now you must understand with the new scenario, governments are very open to outsourcing services, which -- other than the visa services, which they have not outsourced. For example, some consular services for some governments which they wanted to handle themselves now with the change in scenario of COVID, they don't want to deal with customers themselves.So even governments which were averse to outsourcing before are now very open to outsourcing. So this is a very positive scenario for us. Now we feel going forward, things will improve much further. A lot of new government, which had never outsourced before, are now open to outsourcing. They don't want to deal with the customers. They are very finicky about this. So I think it's a very good future for us.
Absolutely. Absolutely. In fact, I mean, you guys done your business well. So normally no advise is required. But this is a time when very few people have a lot of cash on their balance sheet. And this may be a very short window for BLS to kind of quickly ramp up and broad base what Spain is to us today, right? So this could be a very unique opportunity where we could kind of really derisk Spain in our business model and kind of broad base things while a lot of other companies are -- they don't have the kind of resources we do at our disposal. So I'm sure...
Yes. Actually, while this is not a very happy situation in terms of COVID, but we believe that it is for us to take the biggest advantage out of that. You mentioned about the cash. Amit had just talked about we're looking at various opportunities for inorganic growth. I think this is our moment in terms of expanding our horizon, not only from an M&A perspective, but also look at other -- expanding our other services that continue to come into our foray. So definitely, this is a start point. While it is a different situation, but I think we will make the most of it going forward.
Yes. And -- I'm sure you will. And coming to back in -- back to India, you've done a reasonably good job in Punjab in various modes, right, the earlier avatar and the current model that you operate in, and digital transactions and all sort of digital activities are only increasing. So don't you -- I mean are other state governments not kind of in a serious mode to do something? Or if you could just give some sense?
No. I think what you are saying is totally right. A lot of governments are seriously looking at this kind of revolution, but you also must understand that governments have actually -- they have to work on a set system in place. So for them, it is not 1 day job to decide all the departments. They have to go department-wise, and they have to detail all the departments on back-end system, only then the front-end services could be used. So that is the reason it gets delayed sometimes, but definitely, this is the future, and we are at the forefront of technology in government services to adopt those technologies as and when government announce those kind of works.
[Operator Instructions] The next question is from the line of [ Shekhar Mundra ] from -- as an individual investor.
So just wanted to know, out of the INR 131 crore we did this quarter, how much of it was from the Punjab government contract and how much is from the rest of the visa processing and all?
So around INR 15 crore, as we explained with the earlier call, was from Punjab, the rest was combined whatever is from the visa and Starfin.
Okay. And how are we seeing the month-on-month growth in the visa processing segment? Like how was September compared to August and how was October, like?
See, September -- if you talk only from the visa numbers, right now, growth is happening slowly since countries are opening up and locking down again and again. So we have no clarity on that right now, at least for next 1 or 2 months. But we feel once it opens, things will really change because people are eager and wanting to travel more than ever before.
All right. And about the Canadian contract, so can you throw a light on the Canadian contract, like what is it, how big is the opportunity size? And what are we doing there exactly?
Correct. Correct. So see, the Canadian contract that we've got from the Royal Mounted Police over there is essentially people in Canada who would want to work in different jobs, they need to get a pre-background check verification done. And we have been authorized by the government to do on their behalf -- that on their behalf.There are around 500,000 to 700 -- 600,000 applications annually that are processed within Canada and outside Canada for this service particularly. We have been authorized by the government. So we -- right now, there's a complete process, they have to come to each and every one of our center and do complete surety diligence from that center. So after that is approved only then we are allowed to start this up.So currently, we have started that service in 1 center in Toronto. And now the plan is to scale it up to 9 centers, the due diligence is going on. And I feel within next couple of months, we would be starting with all those centers. So we are aiming to capture a sizable market share of these total applications at a service charge of CAD 50 we will be charging for application.
I missed it, sorry. How many Canadian dollars per application?
CAD 50, 5-0.
5-0. Okay. All right. All right. Got it. Okay. And so just wanted to confirm it's INR 15 crore from the Punjab and INR 115 crore is from the rest of the business, so that includes visa processing and -- as well as servicing -- hello?
Yes. Please, go on.
Yes. So that includes visa processing and -- as well as?
Visa processing, consular services, our financial banking services.
Okay. Okay. And so how much -- can you give me a split between the consular services, visa processing and the financial services? Is it...
See it will be better that you get in touch with the CFO directly on this because right now, we don't take this numbers out.
[Operator Instructions] Ladies and gentlemen, that would be the last question for today. I would now like to hand the conference over to the management for their closing comments. Thank you, and over to you.
Yes. So thank you, everyone, for joining this call today. And with this scenario, I think we are [Technical Difficulty] by the results that the company has performed this quarter. And I think for us, the future is brighter, where we are -- we can only improve going forward. As and when the scenario is improved from a COVID scenario, we expect the EBITDA to reach 2x or 3x level for the company. And we are very hopeful for a bright future.We have a very young team running the company. Our aim is how we can grow the company year-on-year, and we have a lot of horizon for the company. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of BLS International, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.