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Bls International Services Ltd
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Ladies and gentlemen, good day, and welcome to the BLS International Q3 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 Investor Relations. Thank you, and over to you sir.
Thank you, [ Lausanne ]. Good evening to all the participants on the 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 risks that could cause further results performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Please note that we have mailed the results and the presentation. If you have no proceed, please write to us, and we will be happy to send it 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 Agarwal, Joint Financing Director; 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 Agarwal. Over to you, sir.
Good afternoon, everyone. I would also like to add today, we have on the call Mr. Sanjay Baweja, who is our head M&A and Strategy also with us. I welcome you all to our earnings conference call of Q3 and 9 months for financial year 2021. I would like to take this opportunity to introduce our company to those who are attending this call for the first time. Established in 2005, BLS International Services Limited is a tech-enabled speciality service provider for government and diplomatic missions worldwide. BLS International enables its clients that include 36 plus governments to serve their citizens and visitors by hard work in technology in 62 countries. Be it visa and passport services, front-end services, citizen services or consular and Passport services. We are also providing e-visa services, which we have just started in the last couple of years. To the -- and also, we have started front-end citizen services to state governments through digital provisions over 223 services through a single window relating to diverse government departments. BLS has established a robust network of banking points to deliver last mile banking services to unserved and underserved for rural and remote populations as part of the financial inclusion program of Government of India. BLS International enables this by providing innovative technology, professional, personal and strengthened data security. Our core offerings to our client is state-of-the-art technology that has helped them to process around 47 million applications in the last 15 years by concentrating on key aspects of their work and leaving administrative and non-judgmental tasks to us. In line with our service offerings, we are a tech-enabled service company. Let me brief you about the current situation on travel restrictions globally. Post discovery of highly contiguous mutated virus in the U.K., many European countries have extended lockdowns or have imposed stricter guidelines for residents. On positive side, immunization work is going on at full swing in countries like U.S., U.K., Israel, UAE. It is catching pace in India, China, Italy, Germany, France, et cetera. With this, we expect improvement in Visa application services in the coming quarters. It has also been an honor to be part of the Vande Bharat Mission by Government of India, which is the world's largest repatriation exercise. Even in such adverse times during complete lockdown, our staff members worked tirelessly, gone out of schedules to accommodate consular needs of our fellow citizens. Despite these challenges and pessimistic global scenario, we have managed to post healthy performance during the quarter. Our total operating revenue during this quarter stood at INR 150 crores, which is almost INR 19 crores higher compared to Q2 and significantly higher compared to Q1 for financial year 2021. The revenues during the quarter were mainly contributed by the consular services and our citizen services projects, especially Punjab. If we look at citizen services, Punjab contract has started functioning at pre-COVID level where we processed around almost 1.5 million applications during the quarter. The passport and consular services have also picked up momentum and is now close to pre-COVID levels. Our banking correspondent services being carried under the subsidiary, Starfin, continues to perform well. We are delighted to be part of the direct benefit transfer scheme provided by the government of India, in which all our centers were used for providing this benefits to the rural population. On the profitability front, with realignment of expenses in line with the business operations, we could minimize the impact on profitability. We expect improvement of margins post resumption of Visa businesses and normalization of other services. We are also in discussion with our clients for increase in service fee and contract duration to compensate for the business loss within the pandemic period. Some clients have already agreed, for example, at least, where we have got a 50% increase in the service charge for the Portugal government, where we have got 15% increase in service fee. In some countries, we have got contract extension like for the Brazil government in Lebanon. This will definitely improve our margins going forward, and we expect certain growth because of this increment in service charges. On the business front, company has commenced operations for the Brazil embassy in China. This 5-year exclusive contract from the embassy mandates BLS to operate 5 centers across China. With this, we expect to process around 400,000 applications during the contract. Our balance sheet continues to remain strong with 0 debt and cash and bank balances which is around INR 255 crores. As a prominent industry player, we are -- BLS are committed to invest in the most innovative and advanced technology from time to time. We are always on a lookout for highly rewarding M&A opportunities in tech-enabled service area. Thank you. This is all from my side. I'll now 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 9 months ended December 2020. We reported a net profit of INR 14.3 crores, for the Q3 FY '21 as compared to INR 21.2 crores in corresponding quarter last year. PAT margin stood at 9.3% in Q3 FY '21. The Board has approved an interim dividend of 25% for the current financial year. During the quarter, we witnessed a 15% Q-o-Q increase in revenue due to improvement in Punjab Starfin and consular service operations and registered a 280 basis point improvement in gross margins. In line with our cost rationalization measures, our employee costs came down from INR 17.9 crores in Q3 fiscal year '20 to INR 12.5 crores in Q3 FY '21. EBITDA in Q3 FY '21 stood at INR 13.3 crore as compared to INR 20.2 crores in corresponding quarter last year. We reported a revenue of INR 150 crore versus INR 204 crore in Q3 FY '20 and INR 131 crore in Q2 FY '21. A decline of 26% Y-o-Y, mainly due to a decline in Visa processing services operations. The decline in margin was on the back of reduction in revenue. However, we managed to limit our decline as we continue to focus on cost rationalization initiatives and have realigned expenses in line with the current level of business operations. We reported a PBT for Q3 FY '21 of INR 14.5 crore versus a profit of INR 22 crores in Q3 FY '20. For 9 months FY '21, the reported PBT is at INR 32.7 crore compared to INR 46.6 crore in 9 months FY '20. That is all from my side. I would request the moderator to open the call for questions and answers. Thank you.
[Operator Instructions]. The first question is from the line of Diwakar Pingle from Christensen.
Yes. I think given there is a bit of a loss right now but let me just start the proceedings to ask the question. I think this question is for Shikhar and Amit. I think obviously, from a business perspective, things are kind of slowly coming back to normal. But I think it would be a nice idea I figure if you kind of highlight where the different parts of the businesses are in terms of how it was in India after the COVID where it stands now. And how do you see it moving forward from here? Because I think the general fear in the mind of people is we are only EBITDA-based company. And if you could kind of clearly highlight how the different [indiscernible]. That's my first question.
Yes. I think that -- so basically, as you know, BLS International is concentrating on tech-enabled services wherein we are providing -- using technology platform across the world, we are providing visa consular and citizen services. During the last -- this year, 9 months, we have -- good thing is that in the services that we are offering to the customer, like consular services, our margins have improved. We are offering a lot of services that we were not offering before. That has led to increase in margins. And even going forward, across the board in all our contracts, the visa service charges have increased by more than 10% to 15%. And we are in negotiation with the government for improvement in duration of the contract. So this will definitely lead to increase in margins in the next coming years by more than 15%. Probably the growth of the company could be expected when the Visa business resumes normality. We are, right now, operations in all across the world. Slowly, slowly, we are starting all our operations, wherein the demand is starting to come in, in some countries. So I feel probably demand should start coming in from the first quarter of next year in terms of Visa business. So this profit that we have generated this year is just from a consular services and citizen services. So if the Visa businesses also picks up, so we will have a very incremental profit within the next year. On top of that, our businesses from the Punjab government has been providing a steady revenue and cash flow at more than INR 5.5 crore, INR 6 crore average revenue every month, wherein we are generating a heavy -- healthy EBITDA of 17% to 18% with a negative cash flow and no depending on the government for any money. And our other businesses like the Starfin business that we acquired a couple of years back has also been very lucrative for us, wherein we have grown to more than 1,750 centers now. We are doing average monthly transactions of INR 360 crores. And we expect this business to grow. We have already got approvals for 400 more centers in 5 more states, which we expect to streamline in the next few months and then eventually grow from there.
Thanks for the explanation. Shikhar, I think next question is, obviously, we have a big contract going in Spain. And given the second wave that has come through in Europe, how are you seeing the situation there? That is question #1. And number two, last time around, you also spoke about some new contract in Russia. How is that ramping up? I think these are all my questions.
Yes. So if I talk about -- we start with the new contract, as you know, recently, we won a contract for the Brazil Government in China, wherein we are processing around 400,000 applications in 5 years, and we will be charging a service charge plus there, so at least $20 will be expecting revenue to come from this contract. That is a big win for us. And we also won a contract for the Portugal government in Russia recently that was started before the lockdown once it resumes. We have got a big increase in service charge over there also. So from EUR 26.5, now it has become EUR 30.5. So that we can collect from the applicants. Also, as you know, we have started working for the Estonia government. For the Estonia e-residentship project and for the RCMP for Canada. So when these contracts get streamlined, we are expecting a revenue addition of at least INR 40 crore to INR 50 crore every year because of these contracts. And these governments are also looking at awarding different contracts in different geographies. So once we already have a working relationship with them, our chances of getting more contracts in some different geographies definitely increase a lot. About the Spanish contract, as I told you, we have already got an increase in service charges of around 10% to 15%. We are in discussion with the government for extension of the contract. We know that there is a lot of revenge travel or pent-up demand that is there in the market, wherein we are getting inquiries every day, when will the travel resume. So in some countries, slowly, we have opened some offices. We have started accepting some category of applications. So we definitely feel within the next couple of months when the travel resumes. We will see a surge in applications which is more than the 2019 level. And with the increase in service charge and increase in the value-added services, we definitely expect an increase in the revenue from these contracts. So I feel in the future, revenue of the company will definitely go up.
Okay. My last one before I get back in queue is on the -- earlier -- and the Punjab G2C contracts, I think there were some monies which are still pending to us from the government. Amit, any status on where we are with respect to that.
I'm the -- let me answer that, Amit. My name is Nikhil Gupta, I'm the Managing Director. And I'm -- actually at the moment, I am in Chandigarh, and whole idea is to meet with government officials and follow through that. Current expectations are that in the next 3 months, we should realize our dues?
All of it remains?
Yes.
[Operator Instructions]. The next question is from the line of V.P. Rajesh from Banyan Capital.
[indiscernible]
Sorry, Mr. Rajesh, we are not able to hear you clearly.
Is it better now?
Much better.
Yes. So my first question was, if you can just give a little more color on the revenue. If you can separate between the G2C services of Punjab contract versus the visa processing, if you can just share the split for that?
Rajesh, this is Amit. So in this quarter, if you see, out of INR 150 crores, the consular services and the other accessories we've taken together has done about INR 125 crores. And the balance has come from -- with Punjab and Starfin.
Okay. Okay. And, Amit, sir, my second question was on the -- if you think about the growth that we have been talking about in the last call in terms of the large contracts. Any update on that, sir?
Sorry, can you repeat the question, what's on the new contract which we have got?
Yes. The large ones that we were talking about on the last call, if any of them have materialized since then or are likely to materialize in this quarter?
Correct. So as you know, that we already started working for the Brazil government in China, which we had been working for a long time. Also, we have been shortlisted for a major western government for which we have started some operations in a limited manner, and we will be gradually scaling up. So I think once we get the approval for them for announcements, we have a strict NDA with the government, we will be announcing the number of -- about that contract.
Okay. And my other question is that, let's say, pre-COVID, we were at 100%. So where are we back up to? Are we back up to 50%, 70%, if you can just give some sense on that side in terms of the applications that we are processing?
So Rajesh, I just explain you the current situation in the last 9 months have been that they are practically very little of Visa business which we have done. So current revenue to if I bifurcate, is basically coming from consular services, wherein we provide, say, Passport renewals, we provide all the services people require from the embassies, but other than Visa. So those have been working online. Now they have been pre-COVID level, I would say, even higher than that, the revenues have come up, as well as the Punjab and Starfin has been doing higher than pre-COVID levels the volumes of business. So currently, if you see the breakup of the revenue, practically, there's hardly anything coming from the Visa business, which used to be a major. So this current quarter as well as the last 2 quarters, the business is only related to G2C staffing and consular services.
Understood. And if I may, then what was the visa revenue in the December 2019 quarter.
So I don't have Visa separately. But if you see the total number visa and consular together, last year, it was out of -- we had a last year '19, we had a INR 204 crore. Out of those INR 204 crore, we had INR 180 crore from visa and consular service together, which has actually now has come down to INR 130 crore.
Right. So -- and which is basically what I understood was that Visa is 0 and the entire INR 130 crore is from the consular services. Is it right?
TPractically, yes. So basically, we lost this INR 50-plus crore of revenue, which was linked to visa only.
So that's the number I was looking for. Around INR 50 crores is the decline.
In this quarter. But also you need to take into account the revenue has increased from consular services from the last year, the same quarter by more than 20% because of the increase in the services that we are offering and increase in the charges. So definitely, when the Visa business resume, our revenue will be much higher -- next year will be much higher than Q3 2019. Because I don't have the breakup in that INR 180 crore visa and consular for you.
Okay. Okay. No, I think that will be a helpful number to know because as you said, if you -- let's say, if things normalize, then you will be much higher than where you are today. So I was just trying to get a sense of how much higher would it be? And then my second question is your other expenses went up quite a bit quarter-over-quarter, so any one-offs in there? Or this is just as you are ramping up your services those expenses are expected to go up?
Yes. So actually, this quarter, other expenses have gone up. And they are -- as you said, they are one-off. There was 1 major payment to as bonus to Punjab contractors in this quarter, which was paid, and we have engaged Big 4 during the quarter for M&A activities. So that has -- that has come in. And secondly, in this third quarter, whatever discount earlier we were having on rentals they have now -- so we have started saying. So these 3 components basically increased the other expenses in this quarter. But overall, if you see 9 months, the other expenses are quite low compared to 20%, 25% lower than the last year concerning period.
[Operator Instructions] The next question is from the line of Harit Shah from K.R. Choksey.
This is Harit here. Just want to get a sense of what is the kind of -- so right now, you're not separating your consular services from your visa processing. Is that right?
Yes, that's right.
Yes. So going forward, I mean, obviously, I'm sorry, will you be able to separate that maybe going forward, given the current context, where obviously, the visa processing business is under severe stress on account of the pandemic. So can you just give maybe some qualitative direction in terms of what is the profitability of visa processing versus consular? Is it that consular has higher margins than visa processing? And if that is the case, why is that so? Sometimes detail on that will be quite helpful.
Yes. So basically, what happens is if we are working for a particular embassy, we are offering normally both the services, visa and consular from the same embassy. For example, if we are working for Indian embassy in Canada. We are processing the passport and attestation or certificate for the Indian expatriate population over there and also for the foreigners who want to apply for a Visa. So right now, since there is a lockdown and people cannot travel outside, the visa business has stopped over there. But the consular services businesses is going on full track because the people who are stuck there or who live there, they need their services on a regular basis. What has happened is because of the pandemic. Now people have started opting for more premium services or we have started opting for courier or postal way of accepting applications or a mobile biometric kind of a way. So that is why the margins have increased right now in consular services, even the same thing we expect will happen when the visa applications are resumed because people will be wanting these same kind of services in which we generate a higher margin. Thank you for your question.
[Operator Instructions] The next question is from the line of V.P. Rajesh from Banyan Capital.
The possibility [Audio Gap] other expenses that's seen in this quarter for the first 2 items you mentioned, which was sort of one-off?
Yes. Rajesh, this bonus was one-off as well as Big 4 engagement, initial payment, what we have done was one-off.
Right. So what is the total to?
So the bonus was about INR 1.5 crores. And engagement, Big 4, we paid around INR 1.75 crores.
So INR 3.25 crores is the total, which was one-off, right?
Correct. That's right. That's a one-off in this quarter.
Okay. Right. Then my other question is that because of the visa processing revenue being 0, you still must be carrying some costs related to that business. Is it possible to give a sense of what is the extra cost you are carrying, that is where there is no revenue as yet?
So basically, Rajesh, in all the offices that we are operating across the world, we have to maintain the structure even if the countries are closed. We cannot close down, for example, in our offices in maybe London, we have to maintain the offices, which are operating on 1 day in a week right now since the government has told us to operate. So we are incurring expenses in terms of rent and maintaining the minimum structure of manpower. So from that perspective, we are incurring the expenses in the visa businesses. And we...
And Rajesh, secondly, as the earlier participant also talked about Visa and consular services goes hand by hand at one place only. So the infrastructure is actually the same, where we provide all these services. So the bifurcation between Visa and consular becomes quite difficult because you are providing a couple of services from the same infrastructure.
Right. I guess what I was trying to understand and maybe there's another way to get some sense, is that you have the infrastructure in place but because of these restrictions, it has not been fully utilized, and therefore, the EBITDA margin is very subdued. So let's say, once these normalize, where do you think the EBITDA margins can go to?
So that is why when the visa business opens, we'll have more revenue coming straight to the bottom line.
Correct. And that's what I'm trying to understand that what is the potential? What is the operating leverage that you can see in the business once that starts to happen. So because some of the premium value-add services will probably go down. Because people will come and pick it up rather than asking you to clear things to them. But at the same time, your visa processing will go up. So I'm just trying to understand what will be the net impact of that on your EBITDA margin?
No, no, actually, people will prefer to actually get -- opt for more premium services like courier because they are -- right now, they want to travel, but they don't want to come down to offices. They want everything sitting at home, they want all the services to be delivered to them. That is why one thing is that our service charges have already been increased. So that will definitely be a little increase in revenue and the value-add services will have an incremental effect on the profitability straight away. So next year, we think that profitability of the company will improve a lot substantially.
Okay. And then lastly, in the U.K. and Spain, how confident are you that visa counseling or visa offices will start opening next quarter? I mean if you can just tell us a little bit more about what the governments are telling you? And do you foresee that it's getting pushed out by another quarter or so?
Yes. So see, we cannot give a definitive date or number on that. But what we have seen on the ground, we feel by Q1 of next year, things should start coming up, picking up certain because people want to travel. We have a lot of pending work. I don't know which category will start traveling from the quarter 1, but we feel that from quarter 1, things should start picking up.
[Operator Instructions] The next question is from the line of [ Abhishek Datta ], an investor.
Sir, I just had 1 query. Wherein -- since there were -- visa services were completely closed down. So is there any contractual term, wherein you get some kind of reimbursement from the client because this is a fourth major event and which could not be earlier anticipated. So is there anything?
Correct. So basically, what happens is, that is what as I told you in terms -- in some countries, we have got some reimbursement from the respective countries where we are operating offices, like U.S.A., Canada, U.K., for reimbursement of the salaries or rental expenses. In terms of the contract with the government, in view of the reimbursements, we are, as I told you, we've got, in certain countries, increase in service charges, increasing the duration of the contracts. So that is how the government works.
Okay. Talking about the duration of the contract. So has the duration been extended for all the major contracts? Or is it only passport?
Correct. Correct. Yes. Many or most of them have been extended, some of them are in the pipeline.
The next question is from the line of Harit Shah from K.R. Choksey Shares & Securities.
Yes. I got disconnected. So I kind of missed out a part of, I think what you were saying, sir. But essentially, my question, my query I wanted to ask that if someone wants to compare, let's say, consular services or visa processing on a like-to-like basis. What would you say would be maybe a more profitable business? I know maybe not necessarily asking for any figures, but at least sometimes even some direction would be helpful.
See, right now, obviously, more profitable business, I would say, is the consular services because there is demand for those services right now. But like-to-like basis, both the businesses are of the same profitability or same cost for us. Because end of the day, it's a service that we are providing with the same cost structure.
So maybe with same infrastructure, obviously you will be providing kind of similar services. Is that right?
Yes, correct.
Okay. Okay. Great. Second question. So your -- so want to get a sense of the banking correspondence business? How do you specifically make -- earn money or revenue on that? And again, what is the kind of profitability? And overall, how does that business grow? Because I guess, that business is may be slightly different from your core business of visa processing if I'm not wrong.
Correct. So basically, see, we are right now one of the biggest banking correspondents for the State Bank of India, where we have a national banking license with them. So we are operating more than 1,780 centers there right now. Currently, we've already got approval for -- to open 400 more centers in 5 states. So we are in the process of rolling out those centers also. How this model works is that right from opening of bank accounts or transferring of money, whatever state Bank of India requires from us we do on their behalf. So it is also kind of the same contract. It is an exclusive contract with a body like State Bank of India, where we open offices on their behalf and do all these services. How we earn money is on the commission. So for example, on every transaction, we charge upfront fee from the public or from the state Bank of India. And that is how the money is earned. We -- for example, last month, we did around INR 360 crore of average monthly transaction in this business. So we expect this business to grow with the healthy margins going forward, wherein we are in discussion with a lot more other banks also to become bank correspondent partner for us. And this is like a guaranteed business.
So just to clarify, I guess, you were talking about the INR 360 crores. That is [indiscernible] terms, right?
Correct.
Yes so [indiscernible]. Hello?
Sorry to interrupt but sir, Mr. Nikhil Gupta has placed the call on hold and muted this line for now. You may please proceed.
Yes. Sorry. So I guess to clarify, so you were saying the INR 360 crores transaction. So that was what, include investment and savings of let's say, if a particular person puts INR 500 or INR 1,000 in those in [ SBI ] account...
Correct. Yes. So I'm talking about INR 360 crore of transactions. But the commission that we generate out of this is a different amount. That is around INR 1.5 crore every month that we are generating as a commission.
So the commission slab, is it calculated on a per transaction basis or as a percentage of the total investment. Is that right?
On a transaction basis.
Okay. And that value is depending on the transaction as of today?
Correct.
The next question is from the line of V.P. Rajesh from Banyan Capital.
Yes. My another question is on this money that has to come from the Punjab government. If I recall on the last call, you had said that we will get it by March end. And now from the comments made earlier in the call, it seems like it is getting pushed out further. So a, is that the correct way to look at it? And b, if so, what's the reason for it getting delayed?
I would say that the government, unfortunately, in Punjab, has other priorities with agriculture and farmers and all like that. So they just pushed it out a couple of months. But -- and I'm reasonably sure that they mean what they say, and they are going to pay us in the next couple of months.
Okay. So you're still expecting it to be realized.
Very much.
Hello, Mr. V.P. Rajesh? Ladies and gentlemen, we have lost a line for the current participant. [Operator Instructions]. As there are no further questions, I now hand the conference over to the management for the closing comments.
Thank you, everyone, for making this call today. We are satisfied with the performance of our company during this quarter, considering the global pandemic situation. I have full confidence in our capabilities and our business model and see bright future for BLS International. During the period, we have streamlined our processes. So as and when travel restrictions are lifted, we expect significant improvement in profitability. We have a very long and dynamic team running the company. Our aim is to grow the company year-on-year and have a long-term horizon for the company. 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. Thank you.