I have been interested in this stock for a while. I may be wrong on this but I think Visa outsourcing is a brilliant business. It is a big headache for most government embassies to deal with visa applications. There is a big moat as a lot of trust is required on the part of embassies to outsource their visa process. It can affect the revenues of a country in a drastic way related to travel. BLS has been winning contracts slowly and there is a lot of room to grow. Every year BLS survives increases the trust they have.
VFS is the giant here. It has cornered most of the market. BLS is a tiny fish. It holds a 4% market share as of now. But as trust develops over a period of time, even winning a few contracts will make a big difference. Gaining a few percentage points in market share can be a gamechanger.
The company did not lose any money during the pandemic and does not require much-fixed assets. Also, I would respectfully disagree that visa processes will shift online or get automated as feared by some people in this thread. Developed countries do like to control the kind of people that enter their land. A country like India can give online e-visa applications to developed countries but vice versa wonât happen. They need documents and biometrics where outsourcing is more efficient. Also, dealing with embassies often leads to fewer applications as it is not much consumer-friendly. A travel agent told me that the lowest applications in the whole of Europe are with the countries that have not outsourced its visa services. Going to embassies for visa applications is a headache for both the consumer and the embassy. It is not cost-efficient and dealing with all kinds of people is not the forte of embassies.
There were certain issues regarding this company which was highlighted a couple of years ago. And they were pretty much valid. Most of them were related to corporate governance. Large debt and large receivables was a major issue. Earlier, it was a little tough to believe that management was being sincere regarding this. Now, since both debt and receivables have been cleared, it is much easier to believe that. Also, governments are famous for withholding payments. Cash being held in a subsidiary outside may be an issue but it is understandable as UAE is more tax efficient.
The managing director was an ex-CEO of KEC International(Harsh Goenka group) and it seems the family owners have decided to seek help from certain professional CEO. The promoter is still in a position of Joint MD. This is a positive sign I believe. The interviews of the promoter seemed good and he refrained from giving any future guidance. Also, I think it is highly unlikely that a company may win contracts with foreign governments and be of below-average corporate governance simultaneously. Given, that they have received many contracts from the Canadian government recently is reassuring and has created a different revenue stream apart from visa outsourcing.
There are certain risks regarding this. Firstly, it is difficult to judge the quality of services they are providing. Spain tourism has increased under their contract which is positive but the way Sopra Steria removed them out of their contract can be problematic. As someone rightly pointed out in this thread that low bidding can decrease the quality of services they provide. Also, there are low net margins but simultaneously high entry barriers as it takes a lot of time to develop trust which makes it extremely difficult for new players to enter but also tough for BLS to gain new contracts from VFS clients.
The other issue that can cause downside is the potential of losing business from one of their top clients i.e. Spain and the inability to gain any new client. But I am willing to bet against this possibility for the time being.
The valuation isnât high enough. It is available below 850 Cr market cap and has huge room to grow. It is cheap as per a cash flow basis and return ratios will improve as this business does not require a huge capital outlay to expand. An increase in revenue will most likely increase ROCE and ROE. Management has a 75% stake which is positive. They have around 270 crores of cash plus 100 crores in receivables with zero debt. These factors do give some margin of safety.
I would be grateful for some counter views.
Disclaimer: Invested tracking amount
