Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Ravi Naredy from Naredy Investment. Please go ahead.
BLS · Quarter ended Sep 2023
BLS International Services Limited analyst Q&A
Sir you are doing a r eally fantastic with our business. This enhanced margin will continue in H2? What is your expectation?
Margins, if you see from last year EBITDA margins were in the range of 15 to 16%. Now in the current year, we have maintained it around in our 20s and we see the potential that we should be able to continue these margins in the coming quarters.
Okay and sir how many more Visa contracts we have applied and what is success rate we can expect from them?
So, as part of our ongoing business activities, we keep on applying for different tenders and as you have seen in the last 1-1.5 years, we have won a lot of tenders for different governments like recently we won a contract for Slovakia, different European governments, Germany, Italy. Poland, Portugal and we also renewed our contract for the Spanish Government. So, definitely we keep on applying for different tenders and as we have said before, there's a big pipeline and out of this pipeline only some of the tenders we are winning and some of the results are to be announced. So, as and when we win some tender, we will be announcing.
So, this 80% Visa volume. Can we expect in the next few years also?
Correct. Yes.
Sir, how do we utilize the 700 crores cash which we are having and because ROCE is 35%. So, how would you achieve 35% ROCE in future?
So, we have talked about in our last call also, we are seriously looking at new acquisitions in the similar field and as well as Shikhar said, we are bidding for big contracts, so we may need some funding for setting up new offices. So, we are going to use this fund for these requirements.
Right. This big contract in Visa service.
In both in Visa as well as digital services, so we are bidding in both.
Thank you. The next question is from the line of Omkar Kamtekar from Bonanza. Please go ahead.
So, firstly with respect to the rate of growth in the digital services, we can clearly see that the digital services business is growing more than twice the rate of the Visa and consular services and its share in revenue pie is also increasing. So, the first question is how long will this sustain and what will be the effect say two years or three years down the line, the share of the digital service business.
The Digital Service business as we stand today is around 21% of the entire revenue of the Company. Base was quite small compared to the last year. That is why we have grown quite well. We have big plans for the growth of the e-services business also. So, in the next few years we can see good growth coming in from different future contracts that we are eyeing as well as, acquisitions. So, I think growth momentum should continue in both of these.
Okay. So, we can expect a similar kind of growth or maybe higher going forward for the next 2- 3 years?
Percentage I do not know. I cannot comment on any percentages, but as you have seen from our track record, we have been focused on growth. So, definitely next few years also we are targeting growth.
Okay and with respect to the, so we had also applied for the listing of the E -service business. What is the status of that? Is there any update from the SEBI with respect to that?
As per the norms, we have filed our DRHP with SEBI and as and when we get the approval, we will be listing the Company and as we have stated we need money to come into the Company which will be utilized for further growth of the Company.
And just to comment on the Visa space specific ally now because of the conflict that has happened in the Middle Eastern region. We also have certain amount of business in that region. So, how much of an impact has that had on the business, and do you see this business impacting other regions such as Europe or adjacent areas, can you comment on that.
Well, see, we operate in a global environment. We operate in 64 countries. We work with 40plus governments. So, for us this event has not at all impacted our business. So, our revenue, as you have seen have grown, even in the last quarter that for us. But as we are a global Company, you know different events keep on happening in different parts of the world, but on an annual basis, it hardly matters.
Thank you. The next question is from the line of Supan Parekh, who is an individual investor. Please go ahead.
Sir I would like to ask about the IPO. So, like you plan to propose an I PO of BLS E-Services, so like what is the aim for that like could you elaborate much on that?
See, DRHP has been filed with SEBI. So, we can say that the whole idea of the IPO is to raise the fund for the growth of the Company because we see a big potential of growing this digital business first in India and then globally, and for that we are looking at this growth capital for the digital business at the moment.
Okay so like what is the future road map for this BLS E-Services?
I think once the SEBI approval comes in, we will share the road map and the presentation of the whole business.
So, next question, I would like to ask the current grow th rate and EBITDA margin . Is that sustainable for long term like what are the things like you are looking out for the next quarter or this fiscal year like?
As we have stated, I think you already answered that question that for long time we were doing the margin of 15 -16% and from first quarter this we achieved a margin of 20% and we have sustained that in the 2nd Quarter also. So, every day we are working very hard to obviously sustain and improvise. So, definitely I think fro m where we stand, we feel that we can sustain the margin.
Okay and also on the purpose of the cash utilization, so this quarter has been like has been highly cash generative. So, what are the Company’s plan regarding the utilization of cash in the coming quarters?
We are very conservative and looking for effective utilization of money and as you know this cash has been generated because of the hard work that the Company has done from the inception. So, definitely we are look ing at particular opportunities and as and when you know, we think that it qualifies all our conditions, we will be going in for acquisitions. Other than we are regularly paying dividends to the shareholders and the opportunity is that we forese e, money will be utilized in growth, opening new offices, in technology and everything else.
Okay, so now I am just shifting my questions right now like I am seeing like the volumes have recovered from China. So, what are the expectations with the Russia right now.
See in terms of volumes we are better than what we are doing in COVID. In China , now things are opening up, we have also opened our offices. In Russia, volumes are still low, so if you talk about the numb ers, still from 2019 level, we have not achieved the volumes , but still revenue and profitability is higher.
Okay. So, like we can expect it to go like moving forward, it can go up.
Correct. This is not the base volume. So, base volume 2019 level, we still have not reached.
Okay and that the impact of Canada issue been so far like how has that impacted us?
I do not think there was any impact as we have stated. The Visa business from Canada was 2% of our annual revenue and that has also come back . So, we do not see any impact from the Canada business.
Okay and also like the last question I want to ask is that the status of UK tender, is there any progress in terms of these things like winning any geographies?
No, there is no status. We are filing for many tenders and as and when the results are announced we are notified. We will inform.
Thank you. The next question is from the line of Vicky Patel from Artika Wealth. Please go ahead.
My first question is I would like to know on the recent news we heard regarding the Egyptian Embassy. So, what is the current status? Are we like, have they denied working with BLS or?
No, we work for them, and we are one of the authorized partners. There is an exclusive contract with them. So, numbers are quite negligible from the start and still. S o, no one has denied, but we are not the exclusive partner . They does not follow exclusive outsourcing policy anywhere in the world. So, that is the status.
And Sir, the ongoing Israel situation, so will it affect the current line of business?
No, actually we have not seen any impact on it and we see strong growth in our numbers.
Okay and sir the revenue, the total income has grown, I think roughly 14% to 15%. So, do we see a similar range of growth in the coming second half of the year?
Whatever we have achieved, I think we, I think our wish is definitely to maintain it and we are working hard towards that.
There has been a rise in the increase interest cost. The short term borro wings or the long term borrowings have not increased. So, if you could please throw some light where why has there been an increase in the interest cost?
So, see the interest cost is mainly because of the new accounting standard AS -116 where the lease right s of lease has been booked in the assets and the expense has been routed to depreciation and the interest. But there is no debt on the books and there is no interest payment in the financial charges.
Okay and also employee cost as a percentage of sales has increased. If you see y -o-y so is this because of the increments or we are expanding the manpower?
Right, it is because of the increments that have been there for to the existing empl oyees and currently the Company is investing in people at the senior a nd the middle level to ensure the growth which we are planning to do in the next couple of quarters.
Thank you. The next question is from the line of Omkar Kamtekar from Bonanza. Go ahead.
One thing what I wanted to ask was on the fixed asset. We have seen an approximate 24-25 crore of addition. So, how much of more CAPEX for fixed asset and other equipment are we looking ahead for the H2 and FY24 also if you can.
So, Omkar, this is the CAPEX which is showing in the balance sheet . The increment is mainly during this half year and is as per the accounting standard of Use of Assets which we have leased.
Okay. So, the lease assets the lease liability.
Otherwise, we normally have a normal operation al CAPEX in the range of 15 to 20 crores in a year.
So that will be the steady state 15 to 20 crores CAPEX that we do annually. T hat would also continue FY25, okay?
Correct. That is right.
And with respect to I was not able to catch the number or what was the volume growth in the number of Visa applications that we did for the period?
Volume we do not normally declare the exact volume.
As a suggestion if it is possible if you could add that bit on the investor presentation that would be very helpful. I mean if because what would happen is because we can see in EBITDA, the EBITDA margins have increased and because the high margin business of the digital services is increasing so we could break it down as to how much of the revenue.
High margin is in the Visa business.
So, that is why so if the volumes there are also going to pick up the margins would also meaningfully pick up.
Definitely volumes there will increase further.
So, the analysis becomes much easier for us. So, that's it. That's it. Thank you.
Thank you. The next question is from the line of Rajiv Venkatesh, who is an individual investor. Please go ahead.
Couple of questions from my side. I want to know from the tender pipeline for the Visa business, would you be able to provide the split on the retenders and the new tenders that we are in and secondly would you be able to provide the split in the EBITDA for the Visa and the E-business and would you be able to provide more details on the ZMPL business like I think before we had like Punjab, UP and all, we used to provide some details, some color on that. So, will you be able to, sorry.
By whatever tenders that we are currently doing, we have retained, and we have even re -won our tender. So, if you see Spain tender also, we again re -won in April for the next five years at an increased service charge and we recently have won tenders like for the Slovakia Government. There is a global tender that we have won in Visa and we have won tenders for Portugal, Poland, Germany, Italy, couple of governments that we started working for within this year. So, definitely there has been a growth in number of governments that we are working for and going forward, as I have been telling, there are multiple opportunities in Visa outsourcing. Different governments are coming out with tenders and different geographies which we are eyeing for . Now the resul ts have come for Slovakia which we have announced. So, as and when other governments come out with results, we will be announcing . But the opportunity size is quite huge. There are many governments which are outsourcing for the first time and there are many government which are coming out for the re -tenders that is on the Visa business . And on the ZMPL, you know ZMPL which is part of BLS E -services as we have declared that we have already grown, I think more than 100% in that business, compared to last year. We have already won a lot of contracts with new banks like Kotak Mahindra and different banks. We have tied up different government , things like Umang. So, we see further growth happening in that we have now started . We were already in public sector business , now we have also started the private sector business. We have tied-up with HDFC, Kotak, and couple of other banks. So, we see huge growth coming in that business and for that reason only we wanted to list that Company separately and as and when growth capital comes, it will be utilized for growing the Company further.
Great. And I have one request from my side. Like would you be able to provide some sort of say during the IPO some sort of employee asked for pre i nvestors who are already invested with BLS as a priority for getting the IPO?
See, we have to follow the SEBI rules so whatever SEBI rules allow we can only work on that.
Okay, great and what is the group guidance for the next year for the year FY25 I think last call you iterated that it will be like somewhere north of 50 or 60%?
We have not given any guidance I think till now, but of any percentage terms. But as you know, whatever growth that we have achieved in the first two quarters, we wish to maintain that.
Thank you. The next question is from the line of Dhvani Shah from Investec Capital Services India. Please go ahead.
One question was on digital services. You all saw the hig hest margin this quarter to 14%. So, can you explain the drivers for the same and the sustainability of it?
In digital business this quarter, there was a new contract which we have won and under that they have given us an advance/Incentive which was part of the new revenue in the business. So, that has increased the revenue in the current quarter by about 3 crores and that has impacted the bottom line.
Okay. So, the cost for that will be booked in the future?
The CAPEX costs, which we have done in this case.
Okay, got that and also just to confirm, the previous participant asked about ZMPL. So, you said the growth has been 100% y -o-y, if I am not wrong the y -o-y the previous quarter that was reported to 40 crores from the ZMPL. So, the 100% growth on that was around 800 million, is that correct or can I just?
Now if you see in this quarter the revenue that we have done for digital bu siness is around 82 crores if I am not mistaken.
90 crores.
How much is it.
90 crores.
For digital business we have done 85 crores, which is compared to 68 crores. No, this is quarter 2.
Quarter 2 is 90.1 as reported.
I think we had some intersegment. I don't know which numbers are talking?
As reported in your NDL segmented revenue 900.72.
So that may have inter-company revenue, which may have been netted off.
Okay.
Because the intercompany transactions are under the segments.
Fair enough. So, how much would be this ZMPL of that?
ZMPL is for the quarter 2 is about 49 crores.
So, that is over last quarter, which was last year, which was 40.
Q1 was 45 and last year 40
Okay, understood and in terms of Visa volume recovery for the FY24, do you expect to close around at least 75 to 80% of the higher levels of FY19 considering China has opened up and Russia is in initial stages.
Correct. I think we definitely expect the numbers to be higher than last year and last year I think we achieved around 65% to 70% of the numbers. So, this year it should be closing at 75% to 80% definitely.
Okay and just one more question on the realization per Visa application are you seeing a significant growth there after the Spanish contract which was at increased level.
Well, actually, you know what this is not because of any particular contract. Definitely our service charges from contracts have gone up in the last few years, but also the consumer pattern has changed. So, demand for different kind of services will also increase . So, in the last few years, after COVID, constantly we tried to offer more services, we have seen increase in revenue per applications in the last two to three years.
And just one more question this quarter has witnessed some kind of seasonality in the Visa and consular services with higher international like higher European c ountry Visa applications and that could be a reason for the higher gross margin. Is that a correct assumption?
See definitely in this business seasonality is there, but since we are operating in a global environment, now the seasonality does not impact. But if you talk about the EBITDA margins, they are particularly not because of seasonality because EBITDA margins are counted per application basis. So, we have seen rationalization of cost and increase in revenue. That is why there have been higher EBITDA margins.
Okay, now as I was referring more to the gross margins and EBITDA margins, I understand just wanted a little bit more color on the gross margin improvement. I wanted more color on the gross margin improvement.
Gross margin has been on a similar line. If you see Q1 versus Q2, they have been around 40 percent or so.
Thank you. Ladies and gentlemen, due to time constraints, that was the last ques tion. Request participants to get in touch with Investor Relation Team for further queries. I now hand the conference over to Mr. Shikhar Aggarwal for his closing comments. Please go ahead, Sir.
Thank you everyone for taking your time out to participate in BLS International Earning Call today. Wish you all very happy and prosper ous Deepavali. In case of any further queries you may get in touch with Gaurav Chugh, our Head of Investor Relations or Adfactor PR. We look forward to interacting with you again next quarter. Thank you so much.
Thank you. On behalf of BLS International Services that concludes this conference. Thank you for joining us and you may now disconnect your lines.