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Bls International Services Ltd
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Ladies and gentlemen, good day, and welcome to the BLS International Services Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Shikhar Aggarwal, Joint Managing Director, BLS International Services. Thank you, and over to you, sir.
Good afternoon, everyone. I welcome you all to our earnings conference call for Q2 FY '23 and H1 FY '23 business and financial performance. I have on me -- with me on the call today, Mr. Nikhil Gupta, Managing Director; and Mr. Amit Sudhakar, Chief Financial Officer of the company.
Our performance for the second quarter has been in line with expectations, continuing with our growth trajectory. We are all above pre-COVID levels, despite certain geographies not having fully opened up.
As travel and tourism continue to recover rapidly across various regions, we are witnessing strong month-on-month growth in our business in visa and consular services. Business in certain countries have not recovered fully, yet business from rest of the regions have surpassed the combined business for pre-COVID levels. So when the travel resumed and grow in these 2 countries, this should boost our revenue significantly.
In our visa and consular service business, the growth is coming from multiple fronts; new clients, new geographies, and enhanced services to existing clients. For instance, over the past few months, we have won contracts to process visa from the Royal Thai embassy in Kenya, from the Royal Thai Consulate in Mumbai, and New Delhi, Kolkata, and Chennai, and to process German visas in North America and Mexico.
We are also focusing on the value-added services, which will help us utilize our existing network infrastructure, thus enhancing efficiency in margins. The past 2 months have been very eventful for our business correspondent as well as the e-Governance line of business.
In line with our strategy to expand inorganically, in June 2022 we acquired a 88.71% stake in Zero Mass Private Limited, a business correspondent for SBI in India. This acquisition has further strengthened our BC business. This move makes us the biggest banking respondent for State Bank of India across India.
On the other front, our citizen service business continues to grow with several new contracts during the first half of the financial year. Some of these include an agreement with the Karnataka Government Department of Administrative Reforms and an agreement with Directorate of Registration and Stamp Revenue, Government of West Bengal.
Based on the progress in our BC and e-Governance line of business, and in the light of recent ZMPL acquisition, which has made the BC business substantial in terms of size and opportunity, we have decided to merge the e-Governance and BC business into one segment, namely digital services.
Digital services will consolidate all our services under the BC and e-Governance business, and will include a range of value-added services without requiring much additional cost. We foresee a tremendous opportunity for growth in this segment and we'll have a clear focus with a delegated team in the future, independent of our visa and consular business service segment as well.
In light of this, we have transferred our entire equity stake in BLS Kendra Private Limited, our wholly owned subsidiary, into BLS E-Services Private Limited, another wholly owned subsidiary, thus making BLS Kendra Private Limited a step-down subsidiary of BLS International Limited.
There would be no change in control of either of these companies, but it will facilitate future growth plan for our digital services businesses. We aim to develop and grow both our segments into a sizable level of business for which we shall be aggressively bidding for new contracts. We are also looking for inorganic growth opportunities on this front to complement our organic growth efforts.
I would like to conclude by saying that all our regions are doing well. We firmly do believe that digitalization is the key in the post-COVID world, and we would always try to use cutting-edge technology for our services. This is all from my side.
I now hand over the call to Mr. Amit Sudhakar, our CFO, for updates on financial performance. Thank you.
Good afternoon, everyone. Let me brief you on the financial performance for the second quarter ended 30th September 2022. During the quarter, we reported a revenue of INR 357.04 crores, an increase of 87.46% Y-o-Y basis and 30.87% Q-o-Q, mainly driven by continued recovery in visa and consular business as well as citizen service business.
Revenue was also supported by a contribution of about INR 40 crores from ZMPL during this quarter. We are seeing a good momentum in all our businesses and are optimistic of sustained growth in the coming quarters.
Zero Mass Private Limited is one of the largest business correspondent of SBI India. It comprises more than 15% of all the SBI business correspondents. The move give us BC business of pan India presence across all states and union territories, and bring out a total number of customer service points of more than 20 -- more than 15,000 CSPs.
For this, our BC and e-Governance businesses together are sizable enough to be pursued with deeper focus. It is with this perspective that we have launched these 2 lines of businesses under digital services.
The EBITDA for the quarter stood at INR 56.78 crores compared to INR 27.57 crores in corresponding quarter last year and INR 31.36 crores in Q1 FY '23. The EBITDA margin for the quarter stood at 15.9%, which is more than 140 basis points higher compared to the corresponding quarter last year.
The cost of optimization and higher volumes helped offset the impact of higher employee expenses benefiting the EBITDA margin for the quarter. The profit before tax stood at INR 56.22 crores in Q2 FY '23 as compared to INR 28.45 crores in the previous corresponding quarter and INR 32.41 crores in Q1 FY '23. PBT margin in Q1 FY '20 stood at 15.75% compared to 14.94% in Q2 FY '22.
Going forward, as mentioned earlier, we are investing in expanding of both our business segments, visa as well as digital services. The recent ZMPL acquisition has been EBITDA and EPS accretive from the day 1 and is expected to further improve our overall ROCE.
Coming to half yearly results in 6 months ending September 2022, our revenue grew 70.7% year-on-year to INR 629.86 crores. The EBITDA stood at INR 88.14 crores, growing at 90% Y-o-Y, while EBITDA margins improved by 143 basis points to 13.99%. The PBT for the period was INR 88.63 crores Y-o-Y compared to Y-o-Y increase of 80%. The PAT for the period was INR 81.69 crores versus INR 47.71 crores in the corresponding period last year, a rise of 71.21%.
This is all from our side. We can now open the call for Q&A. Thank you.
[Operator Instructions] We have the first question from the line of Ravi Naredi from Naredi Investment.
Really, Aggarwal family, it is extreme pleasure result you have given to us. I am shareholder since long, but now I'm looking after a very good of best year and then move from here.
Sir, my point is the interim digital business midway? How much are we going to invest in software and hardware? And second, what target you want to give for financial year '23 and '24 in revenue terms or in profit margin?
See, as you know that 90% of our revenue used to come from visa and consular business, right, post-acquisition of this company, now 18% of the revenue is somewhat coming from the digital line of business, which includes banking correspondent and e-Governance business. And the model, as you know, is the same wherein we collect upfront money from the citizen, it's kind of an annuity business.
So we are right now generating cash from that business itself to invest in that business. So right now, there is no investment required from BLS side for expanding that business. So we are expanding through the revenue that is being generated from that business.
But we see good opportunity for growth in that business because volumes that we are getting in that business is very good. And going forward, we expect the margin and profitability of this business definitely to grow up because of the value-added services and other services that we will offer from those services.
Having said that, about your next part of the question regarding the next 2-, 3-year guidance of the company, as I've said that the company right now, the results that we have got is because of the application count that we have got globally, barring certain geographies like Asia and China, which are still semi-closed. So when those geographies start becoming normalized, numbers start coming in. Then definitely, there will be a further growth on the number and that will lead to a growth in revenue and profitability of the company.
On top of that, the additional growth, inorganic growth opportunities in terms of the new tenders that we are bidding, we are winning, we recently won a contract with the German government, Philippine government, Thailand government, and more tenders expected by new foreign governments. So that will definitely add to the revenue and bottom line.
So I would say we are also maturing as a company in terms of our operations. So now I think we will -- economies of scale will definitely kick in as we get new contracts, and there will be a further growth.
In future, visa and consular will be major revenue versus digital. Is it okay or some visa and the digital business will be more in compared to -- gradually, now it is 18%, it will be maybe 25% or visa will be major?
Always, because we see major growth in visa and consular business in the coming years, the percentage will definitely, I think, will maintain the same percentage because there will be growth in both lines of business. So definitely, always, we will more -- major focus is on the visa and consular service, where there will be major growth.
[Operator Instructions] We have the next question from the line of Nikhil Kapoor from JM Financial.
Congratulations on the fantastic set of numbers. Just a couple of questions from my end. One, for the next 2 to 3 years, any ballpark figure on how many contracts in visa and consulate business are up for tendering? That's question number one.
Question number two, for our digital business, what kind of margin outlook are we looking at on that front? And lastly, when we are looking at the inorganic growth, are we looking at international expansion as well in the digital business in terms of the inorganic opportunity? Or are we looking at domestic ones? So those are the questions.
Yes, definitely, Nikhil, thank you for that question. So as I've explained before, because of Covid, the tender cycle in lot of visa and consular contracts had become -- they had given extensions, but now all of these contracts have come up for renewal, and we have been working on them for the last 3, 4 years.
So the opportunity size is quite big if you talk about only visa and consular services, which is $1.5 billion to $2 billion worth of contracts. But if you add on top of that even certain new consular services contracts like we won for the Philippine government wherein we are doing passport renewal for certain -- for Philippine government in 3 countries and planning to expand that, there are a lot of new government which have never outsourced, so would never have arisen. So even that is some new opportunity that will add also bottom line, top line for us in terms of growth opportunity in visa and consular services.
If you talk about the margins in our digital service business, margins are in line of 12.5% to 15% because this is relatively new business. And we think that the margins will definitely increase going forward because if like in the visa business, if we can increase revenue per application in this business also, that is the main aim for us. So definitely, margins will increase in this line of business.
I forgot your third question, Nikhil. You had a third question?
So the inorganic opportunities are the -- that we are looking at for digital businesses, are they domestic or international as well?
See, our main aim as a company was always to expand globally. We also started -- if you see the visa business with our Portuguese embassy contract in New Delhi, and we started with the Indian Government globally. And eventually, we start looking for foreign governments. So definitely, where you get payment in dollars and euros, which is abroad, we will definitely look at global opportunities.
Yes, we are very open to global opportunities wherein our terms and conditions, wherein upfront payment, there is a negligible investment and there is negative working capital. If those things are taken care of, then definitely we look at expanding globally.
We have the next question from the line of Nitin Padmanabhan from Investec.
Congrats on a strong quarter. So my questions are more related to the kind of opportunities that are out there. If you just throw some color on a few of them. So I think one is the U.K. VI. I think October was supposed to be the time when they sort of announced the final list of bidders.
The second was on the U.S. side of things where I think PAE has already sort of tied up, chosen its subcontractor, GDIT. Any incremental move there with GDIT? And finally, anything in KSA or any other geography that's sort of standing out? And finally, these Germany contracts that you have picked up, what is the kind of volumes one should sort of anticipate there per annum? Yes, those are the questions.
Yes. So Nitin, thank you for that question. So I think what I can comment on is that all these tenders, we are in different stages of qualification. These are not simple tenders. They take years, you need to get prequalified and then qualified and then there's a negotiation round. So we are, I would say, in different successive stages. And I would not like to comment on particular opportunities, but none of the results have started to come in yet. As and when they are announced, we'll definitely be coming out with the news to the market. So that is the opportunity right now. In addition to that, there are lot of German contracts also by different European governments that are expected to come out. So we are preparing for that.
In regards to German contract, since it is the first time outsourcing by German embassy in U.S. and Mexico, for Germany in USA, we are going to open more than 10 offices. And in Mexico, we are going to open 2 offices for -- out of which, we have already opened a couple of offices in which we have started with very limited numbers because embassy wants to first make sure how normal system happens to operations. Everything is airtight and once they get a comfort, then eventually gradually the counts increase.
Having said that, the service charges that we have got are very high, more than EUR 30, EUR 32 in both the geographies and even the charges of value-added services are quite high. So we are expecting good margins from these German contracts. Number, since it is a first-time outsourcing, as and when there is probably a 6-month operation, then we can have a better hand on the activation count.
So basically, you should have a better handle on absolute volume from these only later. Fine. Fair enough.
One last thing on the visa volumes that we see today. On an absolute basis, excluding China and Russia, what you mean to say is the absolute visa volumes are higher than pre-COVID or the revenues are higher than pre-COVID? How should we think about it?
See, it's absolute number definitely cannot be higher because the geographies of Russia and China still have not started. So absolute numbers are definitely what we did in 2019 on a total level is not higher. But if you remove the count from Russia and China and if you do an apple-to-apple basis, definitely count should be in the same ballpark what we did in pre-COVID level. But clearly revenue per application is higher than what we did in 2019.
So if I understood it right, the number of applications, excluding China and Russia, are higher. And -- or is it the revenue per application is actually higher, although the --
I would say the revenue per application is definitely higher, application count would be marginally higher because we are -- yes, definitely marginally higher.
[Operator Instructions] We have the next question from the line of [ Rajiv Venkatesh ], an investor.
First of all, congrats on a great set of numbers. And second of all, I have to congratulate you for the exchange filings which have improved. One, we are giving with the detailed investor presentation and other one is a consolidated one. So I think that looks good.
In the investor presentation and in your inaugural call, you said that you'll merging the BC and the e-Governance services. Are we bringing any new CEO for this particular vertical?
So Rajiv, this is the segment that we have worked out for creating our internal focus in these businesses. So at the moment, we have not got any separate CEO for all these businesses. But individually, we have, I will say, CEOs for these businesses separately.
But I think, Rajiv, what we are doing is that individually, Zero Mass already had a CEO and the e-Governance also had a CEO. But going forward, definitely. So we're going to have a dedicated focus to have component people. We will have different individual heading that business.
And my second question is on the -- I think the e-Governance services with the Karnataka Government and with the West Bengal Government. So one is the Department of Administrative Reforms and the other one is with I think the Revenue and Services. So what type of -- like is it similar on the lines with U.P. and the Punjab we did, I think, a few years back, the Punjab one?
So see, definitely the services are quite similar in that in West Bengal we are doing registration, land registration agreements and certificates. Services are different. In Karnataka, I would say services are quite similar as Punjab wherein this includes birth certificate and death certificate. So services are kind of similar to what we are doing in Punjab.
And the margins and the top line will be similar to the Punjab ones?
Correct. The top line in all our lines of business in e-Governance is similar.
And do we have any new stage in the pipeline for these type of services? I think this quarter we didn't report any new pipelines for new states.
I think there are many states. We are working in different models. But as we took time to even get into these states after Punjab if you see, because we are being very careful. We only -- we are looking at different states. We are only looking at states which suit our model, wherein our model, if the state is implementing, then looking at it, and we are looking at 2, 3 states talking to them and looking at this model.
And other question is like with regard to the contracts that are to be renewed, so did we get any renewals from European countries, especially Spain? I think in the last few calls, we were -- you were talking about the renewals for Spain, which is coming up this year.
Right now, all the current contracts are ongoing. And as and when there is any decision on extension or renewal, we'll definitely announce.
And one more question on the gross margins. We are at 33% gross margins and our EBITDA is also like pre-COVID levels. And in the last quarter, we had a significant -- I think the human resource count was added. The margins were a bit affected because of that. Are we optimally utilized on the human resource for this quarter? Or do we see any levers which can play out over a period of time to improve the gross margins and EBITDA margins?
So, Rajiv, this quarter has been normal and we have optimized our expenses as for the volume of business which we are doing currently. So once we get any new, say, geography or something, then obviously with the new contract, we may add more people. But the current volumes of business, we are optimized as far as expense is concerned.
And on the books, we have sufficient amount of INR 500-odd crores. I think with -- and considering even the H2 cash flow generation, will that be having around close to INR 500-odd crores. So I think this has been a pressing question from a few -- a couple of years in fact, from more than 1.5 years. What is the acquisitions we are in pipeline, considering that we have already completed the Zero Mass one?
So if you see the 30th September, we have cash equivalent of around INR 385 crores in the balance sheet, which was -- as of 31st March, this was about INR 410 crores. So we utilized in the 6 months about INR 130 crores for the acquisition. And a couple of acquisitions are we are working seriously on. And as and when they get crystallized, we will be announcing it then. But we are working on those.
These are more on the visa and consular services related acquisitions or on the e-Governance part?
Actually, both. We have 1 or 2 which we are working on the e-Governance and on the digital service area, and 1 or 2 in the visa side also.
And on the Slide 14, on the UAE, we have provided customized solutions. Is it a new set of solutions what we are providing or the existing ones? I just wanted to check if that will be coming into the part of the top line.
Just one second, I'm on it. I don't understand, what are you -- on Page #14? Rajiv, which slide you're talking about? Hello?
[Operator Instructions] We have the next question from the line of Shikha Kapur from GQuant Investech.
Congratulations, gentlemen, for the great set of numbers. One thing, Mr. Shikhar, you had mentioned a while back that largely growth was on account of revenue per count and less on the volume. Can you quantify that figure, please?
No. I mean that there is definitely -- as I said that pre-COVID levels, we have grown per application count by -- from 1x to 1.4x. So we are getting, I would say, 20%, 50% more revenue per application now. There has been, I mean, the growth in application count from the countries that we are currently operating. So there has been a marginal growth of 5% to 10%, but geographies of -- as I said, certain geographies still have not opened up. So there is no revenue from those geographies.
So what would be the breakup of that 70% increase in the value terms?
It is in terms of value-added services.
Secondly, my question is on profitability of ZMPL. I guess for half year or maybe 5, 6 months -- 4, 5 months, it added about INR 50 crores to your top line. So what about the profitability? How much is it contributing in terms of profit margin?
So Shikha, this quarter, we have added a revenue of around INR 40.5 crores on the top line and the bottom line is INR 5.5 crores, has come from the Zero Mass operation.
Thirdly, you had mentioned about Royal Thai Consulate business. So what is the scope of work for you there? And what's the size of our business? Is it sizing?
Yes. So Shikha, basically this is outsourcing of the Thai visas within India. So we won the contract from the Royal Thai embassy in Delhi, Kolkata, Chennai, and Mumbai, because we take out different tenders, we won through all 4, and we also won a contract for the Royal Thai embassy in Kenya.
So these are all people who want to go to Thailand and they want to apply for a physical visa. They're applying through us. So since we have just started, we are getting around 3,000, 4,000 applications per month. So we expect it to further grow as things become normalized, but it is a good profitable contract for us. And in our existing centers, we are accepting applications. So we will not have to set up any new infrastructure for them.
So this is over and above visa on arrivals in Thailand and these are the services which should be provided to Indian citizens?
Correct.
And lastly, one more question. In your presentation, it was mentioned about your subsidiary or step subsidiary. In addition to ZMPL, there was some Kenya and Italy also. So I'm assuming these 2 geographies, you may have some application processing work. So what's the size of your business over there?
Typically, we are working for the Philippine government currently, Kenya. We work for 3, 4 governments; for Qatar, Spain, I think Thailand. So we work for 3, 4 governments. So size of the business, I think we need to check what is the revenue size on those countries. But I don't think it will be very big.
[Operator Instructions] We have the next question from the line of [ Aniket Patkar ], an investor.
First of all, congratulations on the good set of numbers. So sir, I have a couple of questions. Sir, as far as our BC business is concerned, so are you focusing mainly on the SBI only?
I think we are not only focusing on SBI, although we are the largest BC of SBI right now on India, but we are working with many other banks like Karur Vysya Bank, with Central Bank of India, Bank of Baroda, so we are -- Punjab Nation Bank. So we are working with many other banks, but the biggest bank definitely is SBI. But slowly, we are planning to grow in other banks also.
And sir, what would be our strategy in terms of identifying the governments, those who are not currently outsourcing the visa and the consular services?
Strategy is very simple. First, we see where the counts are big. And second, we see where the government is creating a problem in processing applications themselves. So I think that is where how we are focusing.
And sir, as far as our value-added services is concerned, how much does the company own in terms of the revenue and the profit margin?
So I think on a total level, our profit margin is 15% EBITDA. So I think that includes the total revenue of the company and the profit, right, Amit?
Yes, that's right.
And sir, who will be our main competitors basically? And what are the entry barriers for our business basically?
If you see competitors globally, there are different competitors. So we have TLScontact and VFS Global, which are the competitors in this business. In the entry barriers, it is different entry barrier in different contract. It took us 15 years to get here as we have explained before. So there are different restricted clauses we need to represent in many applications in different governments. So definitely, [indiscernible] these contracts.
And any CapEx plan in near future?
No.
And are we looking for any M&A opportunities in future? And if yes, then in which line of business?
Amit?
Yes, Aniket, as I said earlier, we are seriously looking at acquisition because we need to grow in, obviously, in the next couple of years. And with the cash and strong balance sheet, we are gear up to look at good opportunities available in India as well as outside India.
Okay. And sir, one last question. What is our top line contribution from the ZMPL?
Yes, I just said it's about -- in this quarter, it was INR 40 crores.
[Operator Instructions] We have the next question from the line of [ Neha Jen ], an investor.
I have a couple of questions. So sir, we see that there's a bonus share issued during this quarter. And the last one was issued during the March quarter. There's a very short gap between both the bonus share issued. So could you help me understand actually why the company has decided to do this?
Basically, what has happened is that, as you know, we are directing good amount of cash on the books that we are utilizing for acquisitions and spending on new contract wins as we'll have to spend the money on in terms of setting up offices. And we are also distributing dividends to our shareholders. So we were discussing ways how we can reward our shareholders. So that was one of the things that came up was that maybe bonus was a good option. That was the only reason that we have declared the bonus.
And sir, what is the status on the U.K. visa renewal?
This is our -- first of all, it's a first-time contract for us. And we are -- as I said, we are in different stages of contract. And as and when the results are now, we'll definitely be announcing to the market.
And then, sir, on the ROCE, what are our estimates for the next couple of years in terms of growth?
So we are -- yes, we are seeing the trend has been up from around 17%. We have now reached around 27% ROCE this quarter, and the intent is to take it further up over the next couple of years. So ideally, if we can reach around 30%, that will be our target too.
And by when do you plan to reach that target?
Yes, I couldn't hear you.
By when do we plan to reach that target?
So we are working on that. Our target is to reach somewhere around 20%.
But you don't have a time frame yet?
We are working on it. So let's see in the next 6 months or so or a year, it will take us to reach that.
And in terms of the value-added service sales of the business, how much is the company able to generate in terms of revenue and profit margin?
See, we are not calculating them separately. They're in terms of total revenue of the company. So as you see revenue growing, they are part of the revenue of the company. And in total, we are generating around 15% EBITDA margin. So I think that is where the figure is.
And sir, for our banking corresponding business, are you only focusing on SBI?
I just explained I think we are working with different banks. We have 5, 7 national banks, including Punjab National Bank, Bank of Baroda, Central Bank of India. So we are focusing on different banks.
Sir, which will be the major contributor from all these different banks, sir?
SBI definitely, absolutely.
Sir, is it possible in terms of percentage, how much does SBI contribute?
As we said, in total, right now, SBI is a major contributor in terms of bank [indiscernible] business. And the other banks have just started. So we have just recently one tender over the last one year from the other banks. So we are getting -- the major contributor is SBI.
[Operator Instructions] We have the next question from the line of [ Rajiv Venkatesh ], an investor.
So I just wanted to check on Slide 14, we are providing the customer solutions. Is it a new set of solutions or the existing one for the UAE?
I don't know which -- are you talking about the latest investor presentation?
Yes, Shikhar, yes, the latest one.
Okay. But -- one second, I will just go through it. 14, Rajiv, I don't see that we have written anything about UAE. I don't find -- I don't know what exactly you're talking. I think it will be better, Rajiv --
It is under the digital services --
Sorry?
I think it is kind of digital services e-Government services, the global one.
Okay. I think, Rajiv, it will be better if you can e-mail me in the query because I'm sorry, but I'm not able to understand the exact query.
[Operator Instructions] As there are no further questions from participants, I would like to hand the floor back to Mr. Shikhar Aggarwal for closing comments. Please go ahead, sir.
Thank you, everyone, for your participation in our Q2 FY '23 earnings call. In case of any further queries, you may please get in touch with us at Adfactors PR or feel free to get in touch with us. We look forward to interacting with you next quarter. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of BLS International Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.