Delhi based company. Second largest visa processing company in the world, VFS is the largest player and the gap between VFS and BLS is huge and will take serious time to take up the leading position. Started operations nearly a decade ago and become the leading player in a short span of time. It is a cash rich business with near zero working capital requirement. The company charge customer, and hence the realizations are upfront and debtors are not there except for few credit card transactions due which get settle for over 6 to 7 days for transactions made during last week of the year. No inventory is build up in this business. No need to for debt. A single visa processing application centre takes nearly 7 to 8 months before it recover its initial investment in manpower, equipment and rent. BLS operates majority of its VISA business from dubai based subsidiary and hence as per Management the company has opportunity to save tax by not bringing this cashflows in India and using the same for deploying in incremental center that they continue to add going ahead. The company recently secured contract for Spain and five Gulf countries which will be funded using internal accruals.
Second line of business is that the company secured India’s first e-governance project from Punjab Government where they set up more than 2,000 outlets to provide Government services for a upfront fee that will be charged from the government. It is a fixed revenue contract wherein BLS will earn nearly Rs 1,500 crore over next five years. Revenue will be realised from customers for providing services like attestation, other government services and any shortfall in monthly revenue will be funded by Government to BLS, surplus revenue will be paid back to the Government. This is a first of its kind model in India. Though the centers have been set up but footfall is not yet up to the mark and as per expectation. Government is thinking of adding more services to this projects like Passport application, Pan Card application etc so as to increase the footfall. Though the project has big potential but it still has to manage the challenges of increasing the footfall. This will take time as it has a transient phase which will develop the consumer habit of paying for the services which they believe should be free. Each service has a flat fee of Rs 85 ( I do not exactly remember the figures, One can check it in the RFP). Other State Governments are also evaluating such projects and BLS being the first mover should be a big beneficiary. Punjab Project became live in November 2016 and till March, 2017 the revenues were lower than the committed amount and hence the debtors of more than Rs 50 crore stood in the balance sheet as a due from Government. This project, because of its linkage to Government interference, will have working capital requirement and hence the short term loan company took in FY17 to meet e-governance project requirement in terms of fixed cost, as the realization in case of shortfall will materialize once Government release payment.
The company was working capital free and debt free till FY16, but FY17 both appears because of e-governance project. The management maintained very clearly that for visa processing business they do not need external debt and can fund through internal accruals because of cash rich nature of the business. But for e-governance project they may need short term debt to meet working capital requirement.
The company got listed on NSE, BSE and MCX last June 2016. High promoter holding and low liquidity with very limited number of shareholders (2,897 shareholders as on June 30, 2017). They announced stock split from face value 10 to face value 1 which became effective since April 2017. The company never use to pay dividend because for the same they need to repatriate funds from dubai subsidiary to India which as per them will attract tax and hence was not inclined for such move. This was a little disappointing because the high cash generating business will never be in a position to reward shareholders. However, in June 2017, the company announced that the Board proposed a new dividend policy wherein they repatriated funds from Dubai by paying tax and declared dividend of 30%. Coming Board Meeting, scheduled for August 9, 2017, the Board is going to pass the Annual Dividend Policy of the Company. This is a good step in direction and should be appreciated.
The company look interesting and I request if someone has looked it in detail to please come forward and lets discuss the pros and cons.
What I understand is that it was a promoter managed business which is now getting professionalized.
Some concern for me:
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Punjab Contract, need to be monitored carefully, how the same is getting executed. If the footfalls does not turn up as per expectation, it will be a big blow to the exchequer in terms of fixed payment which needs to be paid to BLS and hence may pose a risk for subsequent project and also the realization will have impact on the balance sheet.
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Visa Processing Business sit in overseas subsidiary, how management is going to restructure the business to make it more transparent.
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Management so far is not holding concall and I expect to them to do so going forward.
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CFO Mukesh was appointed in December 2016 and have exited in July 2017. I understand from the Management he was ailing with serious kidney related disease and was hospitalized last one month and hence decided to exit finally. Mukesh was the first professionala CFO being appointed by the company. Prior to that though there was a CFO, but he was merely an accountant. The company found a new CFO Mr. Ajay Milhotra and is going to appoint him in the coming Board Meeting on Aug 9, 2017. However, I found that Mr. Ajay has been frequently shifting his jobs as a CFO from organisation to organization, so do not know how long he will continue his stint at BLS. His Linkedin Profile can be checked. Would like other members view on the same.
A Rs 2,000 cr market cap company with very high growth potential available at decent valuation. I expect Q1FY18 to be very good, given that this will be the first quarter, where company will report its SPAIN revenue. I hope revenue from SPAIN project in this quarter should be sufficient enough to take care of operating expenses incurred for setting these facilities. As per my sources, some big names (without taking names), have entered this scrip.
Lets discuss this in more detail:
Disclosure: I have added a small position in the stock.
