BLS International

Stock Opportunities Untested - but worth a good look
21

An important point to note here is that both businesses(visa processing and e-governance) work on a negative working capital after the initial investment is done in building the processing offices. Money is collected first and then the processing is done.

Also there is no competition for the entire contact period.

The growth should sustain for next couple of years with Spain and Punjab contracts but additional win is needed for the stock prices to move much higher. Let’s see how things pan out in next 1-2 years with respect to the new wins.

Regards,
Raj

1 Like
22

Outlook money recommends a BUY in BLS International ( courtesy HDFC securities )

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Looks like FIIs & Fund houses are lapping up on BLS International which seems to be the reason for sudden upmove.

  1. on 22-August - GMO EMERGING FUND bought 1047656 shares @176.99
    http://www.business-standard.com/article/markets/bls-international-zooms-18-on-fii-buying-117082300430_1.html

  2. on 23-August BNP paribas Arbitrage Fund bought 568647 shares @ 204.43
    http://www.moneycontrol.com/news/business/stocks-business/bnp-paribas-arbitrage-buys-5-68-lakh-shares-of-bls-international-services-2368345.html

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Winning the first of its kind project in Punjab definitely gives them a first mover for future projects in the same space.

I like the company for the Moat : difficult space to enter, contracts are longer term and its more about execution after you win the contract. The Spain and Afghanistan win’s prove the effort is in the right direction.
Additional reasons : Negative Working Capital, Good ROE, ROCE, Low debt (mainly due to Punjab Contract), Improving Margins , Strong Growth, Good Promoter Ownership, Not Well Researched, Change in Dividend policy

Concerns : US Loss to CKGS (its an old loss but still the most lucrative market) , Questions on execution especially when they are scaling so fast, Management, eVisa

Key question : VFS loss of Spain Contract ? does anyone has some intel as to why they lost?

Disc: Researching and planning to enter

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VSF lost the bid because of price differential. Listen to the last confcall(not the latest).

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I went to Delhi to attend the AGM of BLS International on 21st Sep. The AGM was more of a formality and was completed in a hurried manner. When we asked our questions, we were told to come to their office in Barakhamba road. I along with two other investors went to their office where Mr. Karan Agarwal, ED met us and spent time to answer all queries. I might have missed few points or heard incorrectly. Please do your own research

Summary of our discussion with Karan Agarwal – Executive Director

Visa services Business:
• Only 3-4 companies are engaged in this type of business. The names which we could make out was VFS Global, CKGS (Cox and Kings Global Services) and one more whose name I missed.

• Most of their offices are leased, hence it’s an asset light model.

• They partner with locals as in many countries it is mandatory. Local partner also helps them negotiates the rentals etc. better.

• As per them the Quality of Service and Security systems are their main USP for any new offering. However, it’s sounded too generic to me. To me it seems once technical bids are cleared it’s the price which matters. But only few players in this business at this point of time is an advantage.

• Their vision is to reach 20m application/Year. They are expecting to process 2 million applications in current financial year.

• They lost their US business to CKGS(Cox & Kings Global services)

• Visa on arrival: It has it’s own risk, hence most people prefer to have it approved before they start their vacation. Policies keep changing across the globe, so they have to work through it. Like with Brexit, even British people will need visa to travel to Europe some time from now.

Spain Business:

• They got Spain visa business replacing VFS Global. VFS Global’s tender was only slightly higher. However, they said that around 50% of it is new business.

• They confirmed that value added services could take the total realization to about 500 million Euros while the visa contract is only 175 million Euros. However, Value added services will pick up gradually.

Punjab e-Seva project:

• Debt were taken for Punjab project as the cash sitting in the books were outside India in $. Hence borrowed money in India for rupee needs

• Wipro and ILFS were competitor for Punjab e-seva projects

Others points:

• They pay taxes in respective countries, hence it seems low in India. With India business going up the tax rate will increase overall as in India tax rate will be full.

• Most of their software systems are custom made. They have 50+ team who are working on development/maintenance of the system.

• Low Management Salary: The profit in standalone business is low and hence the management team can take only limited salary.

• They do not retain customer data. Once a client’s application is processed, his/her data is purged from BLS database. The Data purge happens every evening and the data is purged for clients whose application has been processed

• Property bought in Dubai: Property worth 29Cr was bought in Dubai to accommodate future growth as rentals are quite high there. It was bought in 2014. The strength of team there is more than 500 (not sure I heard it correctly).

• Have appointed E&Y for the process overhaul and restructure the organization for the current and future growth

Disc: Invested since much lower levels. No transactions in last 3 months.

12 Likes
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Did they talk about any new tenders they are bidding for or in final stages in domestic or international markets? And also the risk of losing contracts?

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Thanks for the info @raj1968
Any comments on Afghanistan and future tenders and their capability to win them (preparedness).
Prasad.

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@abdulzis they are ready for new tenders which is almost 20 million applications per year. Government process is slow in nature.

Why this question? Anybody can lose contract if they goof up.

@Prasad_India Afghanistan contact details were in conf call. Hence I didn’t ask.

The window with management is always small, hence I tried to focus on questions where information is not available in AR/Conf call.

Regards,
Raj

2 Likes
30

thanks for the detail info ,really helpful

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A detailed report by Centrum is below.BLS-International-Visit-Note-Centrum-12092017.pdf (1.2 MB)

Other reports can also be accessed from BLS site at the below link.

Regards,
Raj
Disc: Invested. No trading in last 3 months.

1 Like
32

Hi guys, I recently started looking at BLS International, and have been awed by the execution skills of the company. However, there some clarifications I need from members:

Spain Contract win
Spain contract value is stated to be EUR 175 million over 5 years (including application and VAS).

Mgmt states it expected to process 1.8 million application per year with a cost of EUR 15.45, which comes to EUR 27.8 million per year, and for 5 years it comes EUR 139 million. The difference between the two of EUR 36 would come from VAS. Is this correct?

Mr. Nikhil Aggarwal (MD) on a CNBC TV-18 interview stated that he expected revenue of EUR 500 million from application and VAS. The difference between the two is staggering! Here is the link to interview: https://www.youtube.com/watch?v=qnlnEnEy3rY dated Dec 13, 2016

From the previous post, we understand that the mgmt. has stated that it expected 0.3-0.5 million application of visas of other countries using same infra of the Spain visa services. Is this a yearly or for a block of 5 years. What could be the revenue potential of this?

Catalonia independence

The recent referendum of Catalonia in Spain for a separate state has affected the tourism in a big way (https://www.theguardian.com/world/2017/oct/20/catalonia-tourism-slumps-15-since-referendum-violence).

This is a very important negative development for BLS since Catalonia accounts for the highest tourist spends in Spain. See link: https://skift.com/2017/10/18/catalonias-bid-for-independence-is-complicating-tourism-in-spain/

The impact of the above could directly affect the earnings of BLS since it model is related to per visa applications and any drop in tourism/economy, will affect BLS. The effect may not show in 2Q since it started towards the end of the quarter.

Punjab Govt contract

The Punjab govt contract is an annuity model contract of INR 1500 cr, which is minimum amount the company will earn from Punjab govt. Mr. Shikhar Aggarwal has said, the company can earn more from this contract by providing services to the ppl who come to avail such services. Is there an estimate on how big this can be?

BLS contract with MEA in trouble?

One of the biggest threat to such business is risk of running out of reputation. I found a news report (https://www.youtube.com/watch?v=gQYtAKpFR9c&pbjreload=10) which is case of call details being sold by BLS Directors in conjunction with police authorities. The contract relate to Ministry of External affairs contract for verification of passport throughout the globe granted to BLS Int. A case was filed against those, but couldn’t file any more details. Can someone shed some more light to this?

Valuations:

Mgmt. expects close to INR 800 cr revenue in FY18 and going by the 1Q PAT margins of 14.8%, would translate into a PAT of INR 120 cr, this translate into a FY18 P/E of 22x. The above margins shall be sustainable since the expense of the Spain contract of INR 150 cr are front loaded and were expected to be completed by June 2017. This is incredibly cheap for a business growing at this rate and if there 10-15% additional contract wins, the growth would increase.

2 Likes
33

Yes it’s correct. The contract is of Euro 175 million but they will get additional revenue from other services. Total will be Euro 500 million in next 5 years.

You are right…there will be impact for sure.

Management has not guided on this, but my guess is it will be much smaller.

This seems to be a group company and is a private firm. They are engaged in detective services it seems. It should not have a big impact on BLS international. Also, news seems to have died down.

Regards,
Raj

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This has been raised before, but some numbers in terms of e-visa growth into India:

And it seems that UK to India eVisa has crossed numbers for regular visa:

1 Like
35

Some positives.

Regards,
Raj

37

Buy - says Rudra capital - target Rs 400
BLS Rudra 7th Nov 17.pdf (1.4 MB)

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Signs of bubbliness…With all due respect to Rudra Broking, every Tom, Dick, Harry started coming with their own recommendations. We are in November 2017 and the recommendation has been given assigning multiple to FY18 earnings. Stock Price chart not shown split adjusted.

Be wary of rally when your uber driver start giving you stock advises is what is happening in the market.

Although I am bullishness on BLS but the same will remain consistent only if Management shows their capability to secure new contracts and keep the momentum alive and hence command premium valuation.

1 Like
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Q2 result out.

Good show continues.
Dividend policy announced -15% payout.

1 Like
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Another gem. Guptas facilitating intro for BLS International with Minister Gigaba at Home Affairs. They infiltrated everything. Same cast. pic.twitter.com/VnetHVqsXJ

— Magda Wierzycka (@Magda_Wierzycka) November 11, 2017

Disc: Invested. No trading in last 3 months.

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I am apologizing in advance if I hurt someone’s feelings here. I am not biased and have no stake in this company.

This company has very poor service.
They are rude and have even misplaced /lost people’s passports.
The USA contract is no longer with them. HORRIBLE SERVICE - please note they are a service oriented business.

POOR SERVICE… THEY SHOULD BE RELATED TO SOME MINISTER OR HIS KIN TO GET THESE CONTRACTS PARTICULARLY IN USA. I think it is a mom and po shop running on someone’s favors and would siphon off people’s money.