BLS E-Serv IPO review (Apply)

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Review By Dilip Davda on January 25, 2024

•    BEL is a technology enabled digital service providers in G2C. B2C and B2B segments.
•    The company has posted growth in its top and bottom lines for the reported periods.
•    The company has lined up organic/inorganic growth to tap the opportunities lying ahead.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Considering bright prospects ahead, investors may lap it up for medium to long term rewards.

PREFACE:
BLS E-serve (BEL) is the second company of BLS group after listing of parent company BLS International Services Ltd. (BISL) which got listed on BSE and NSE in 2016, and has handsomely rewarded shareholders and is having a gesture of BISL shareholder quota in BEL IPO. Like BISL, that has become the global niche player in its segment, BEL too is expected to follow the footprint and become the numero uno technology enabled digital services to take forward "Digital India" move. With its mega infra in place, it is poised for bright prospects ahead. This group has nothing to do with BLS Infotech Ltd.

ABOUT COMPANY:
BLS E-Services Ltd. (BEL) is a technology enabled digital service provider, providing (i) Business Correspondents services to major banks in India, (ii) Assisted E-services; and (iii) E-Governance Services at grass root levels in India. Through its robust network BEL provides access points for delivery of essential public utility services, social welfare schemes, healthcare, financial, educational, agricultural and banking services for governments (G2C) and businesses (B2B) alike in addition to a host of B2C services to citizens in urban, semi-urban, rural and remote areas. 

The company's merchants act as its interface with the consumers and play a critical role in delivery of goods and services on the ground. Presently, its merchants are organized in two categories i.e. BLS Touchpoints and BLS Stores. All merchants registered with it are treated as BLS Touchpoints and they have access to offer multiple services being extended by BEL. BLS Stores are BLS branded stores which offer its entire suite of offerings to the consumers including availability of select goods on a sample basis supplied by e-commerce players which can be ordered and procured by its consumers after having a touch and feel experience of such goods. As on September 30, 2023, BEL has 98,034 BLS Touchpoints, which includes 1,016 BLS Stores.

Through its tech-enabled integrated business model, the company provides digital and physical products and services in the G2C, B2C, B2B categories in semi-urban, rural and remote areas where penetration of internet is low and citizens need assistance in availing basic technology enabled services. BEL organizes its business along three primary business segments, (i) Business Correspondents Services; (ii) Assisted E-services; and (iii) E-Governance Services. A key stakeholder in each of its business segments are merchants, with whom it collaborates for delivery of its products and services to the citizens.

As a part of BEL's operations, it acts as business correspondents ("Business Correspondents") to provide banking products and services on behalf of banks to people while performing a variety of services including opening savings, recurring deposit accounts, cash deposits, withdrawals, remittance, transfer, bill collection services, through its Subsidiaries, namely ZMPL and Starfin. The company generates revenue from monthly commission; transaction-based commission; and registration Fees.

Further, it also provides a variety of Assisted E-Services through retailers and digital stores also known as BLS Touchpoints, including PoS services, ticketing services, assisted e-commerce services, etc. The revenue generated under this business segment is through registration fees; transaction-based commission on goods & services supplied; and support service charge. The company also provides a variety of assisted e-services through retailers and digital stores also known as BLS Touchpoints, including PoS services, ticketing services, assisted e-commerce services, etc. Additionally, it facilitates delivery of various e-governance initiatives of the State Governments in India by providing various information communication technology ("ICT") enabled citizen centric services ("E-Governance Services") through its merchants also known as BLS Touchpoints to the citizens. BEL's E-Governance Services, enable the provision of citizen-centric and front-end services through BLS Touchpoints ranging from birth and death certificates, PAN and Aadhar registrations, property registrations, and other citizen centric services in a transparent and accountable manner. The Company has entered into an MOU with the National e-Governance Division ("NeGD") for agent assisted delivery of unified mobile application for new-age Governance ("UMANG") services into its digital platform, offering convenient access of E-Governance Services. 

Its revenue structure revolves around a transactional framework. For every service delivered, a transaction fee is levied, along with a fixed government fee. The government fee is remitted to the government department in real-time, facilitated through its payment wallet maintained with the government department. The transaction fee, on the other hand, is validly apportioned, ensuring distribution to BLS Touchpoints and the company, as per the pricing dynamics established in each district as per contract.

The company also has a history of acquiring complementary businesses and integrating them into its eco-system, it is typically able to achieve growth and improved performance of the newly acquired business within a relatively short timeframe. For instance, it acquired Starfin in the month of August 2018 and ZMPL in the month of June 2022, which had 1,384 active CSPs and more than 11,500 active CSPs, respectively at the time of acquisition. Further, in October 2022, it acquired BLS Kendras Private Limited, which had 365 Sewa Kendras, in the State of Punjab at the time of acquisition. As of November 30, 2023, it had 791 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a book building route maiden IPO of 23030000 equity shares of Rs. 10 each (worth Rs. 310.91 cr. at the upper cap). The company has announced a price band of Rs. 129 - Rs. 135 per share). The issue opens for subscription on January 30, 2024, and will close on February 01, 2024. The minimum application to be made is for 108 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.35% of the post-IPO paid-up equity capital of the company. From the net proceeds, it will utilize Rs. 97.59 cr. for strengthening its technology infrastructure to develop new capabilities and consolidating existing platforms, Rs. 74.78 cr. for funding organic growth initiatives by setting up BLS stores, Rs. 28.71 cr. for achieving inorganic growth through acquisitions, and the rest for general corporate purpose (not exceeding 25% of the gross proceeds).  

The company did a pre-IPO placement of 1100000 equity shares at a price of Rs. 125 and mobilized Rs. 13.75 cr. in January 2024. The IPO size stands reduced to that extent. 

From the IPO portion, the company has reserved 2303000 equity shares for the shareholders of BLS International (Parent company) and is offering them a discount of Rs. 7 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail Investors. 

The sole Book Running Lead Manager for this issue is Unistone Capital Pvt. Ltd., KFin Technologies Ltd. is the registrar of the issue.  

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 100 - Rs. 125 between October 2022 and January 2024. It has also issued bonus shares in the ratio of 600 for 1 in October 2022, and 4 for 1 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 5.41, Rs. 22.55, Rs. 23.09, and Rs. 24.60 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 67.83 cr. will stand enhanced to Rs. 90.86 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1226.56 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 65.23 cr. / Rs. 3.15 cr. (FY21), Rs. 98.40 cr. / Rs. 5.38 cr. (FY22), and Rs. 246.29 cr. / Rs. 20.33 cr. (FY23). For H1 of FY24, it earns a net profit of Rs. 14.68 cr. on a total income of Rs. 158.05 cr. According to the management, the boost in its top and bottom lines are attributed to its recent acquisitions, and the trends will continue with more acquisitions planned.

For the last three fiscals, it has reported an average EPS o Rs. 1.89, and an average RoNW of 26.26%. The issue is priced at a P/BV of 7.01 based on its NAV of Rs. 19.25 as of September 30, 2023, and at a P/BV of 2.76 based on its post-IPO NAV of Rs. 48.92 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 41.80. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 4.88% (FY21), 5.56% (FY22), 8.36% (FY23), 9.40% (H1-FY24), and RoCE margins of 29.68%, 28.39%, 30.62%, 16.69% respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown EMudhra Ltd. as their listed peer. It is trading at a P/E of 57.6 (as of January 25, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 15th mandate from Unistone Capital in the last three fiscals (SME + Mainboard IPOs). Out of the last 10 listings, all listed with premiums ranging from 3.57% to 38.89% on the date of listing. 

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