BLS International Stamps a 93% Upside

In Issue #009, I dive into BLS International Services Ltd. With strategic expansion & strong financials, BLS is poised for significant growth. This analysis uncovers the why & how much of the upside

This long line of people you see is NOT to get into the stadium or an exhibition or the metro

It’s a queue to get into the VFS Global office in Delhi’s Connaught Place to submit one’s visa application

As a traveller, I’ve faced this horrid experience – twice!

Now, it’s payback time! 👿

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BLS International Welcomes You

Founded in 2005, BLS International Services Limited offers visa processing & consular services to embassies and governments all around the world.

Amongst the 3 largest visa outsourcing companies in the world, BLS operates in over 66 countries with 46+ client governments 

The company also provides business correspondent & e-governance services like opening bank accounts, Aadhar registration, land records, ticketing etc. via it’s listed subsidiary - BLS E-Services Limited in which it has a 51% stake (corporate presentation; read pages 15-22 for more info)

▸ BLS has done well over the years – both, on the business front & also the stock price

Q1FY25 was the company’s best quarter ever with :

• ₹492 crores in revenue (+28% over Q1FY24)

• ₹133 crores of EBITDA (+66%)

• ₹120 crores of PAT (+70%)

• 24.5% PAT Margin (v/s 18.5%)

A 70% surge in profits is impressive — but what if I told you that the next few quarters’ PAT growth could be even higher? (psst .. more than 100%) 🚀

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Türkiye sizi ağırlıyor

Last month, BLS concluded the acquisition of a 100% stake in iData Danışmanlık Ve Hizmet Dış Ticaret Anonim Şirketi – a prominent Turkey-based player in the visa processing & consular services space – for ₹720 crores (news)

iData has 37+ visa application centres, presence in 15+ countries and in the year 2023 – it processed 7.22 lakh applications achieving a revenue of ₹246 crores at an EBITDA of ₹144 crores

Essentially, BLS has bought an accretive business that’s started contributing revenue & profits for it from day 1 i.e. from 10th July 2024 – the results of which should show up in this year’s Q2, Q3 & Q4 numbers

Let’s take a closer look at how BLS International’s FY25 might look like

📌 By my reckoning, BLS should see a YOY revenue growth of 35% inspite of my assuming:

a) Zero growth in visa applications throughout the year (btw, volumes rose by 18% in Q1FY25 due to new contracts & rise in global travel)

b) Zero growth in BLS net revenue per application (growing every quarter due to increase in service fees; Q1FY24: ₹1,852 to Q1FY25: ₹2,653, see page 12)

c) Zero growth in iDATA volume & value performance

📌 When I modelled the profit numbers, my estimates puts YOY EBITDA growth at 94%.

In building this scenario, I made the following assumptions:

a) Zero growth in BLS EBITDA margin (although upside expected from increase in service/value-added fees & as centres transition from partner to company-owned model)

b) Zero growth in iDATA EBITDA margin (I’ve looked at different materials; this has historically been in the 51-59% range)

🤔 As you can see, I was super-conservative with my assumptions – and yet, we’re looking at strong growth coming over the next few quarters and importantly for me, this growth is very visible (similar to our study on SAMHI Hotels from Issue #008)

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📌 There is some action happening in BLS E-Services aswell (BLS International has a 51% stake in this entity) with a recent 55% acquisition in Aadifidelis Solutions – a loan distributor – for ₹190 crores (news)

With the visa & consular business contributing over 80% of revenue & profits, I’ve kept the BLS E-Services part aside for now (more conservatism at my end) but feel free to study that aswell & contribute your findings in the comments box below

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Valuation Welcomes You

Growth is fine but are we paying too big a price for it?

📌 Let’s start with a short-cut and the PEG ratio is a favoured metric for all fans of Peter Lynch (me included; call me RePeter Lynch) 

Simply put, the PEG ratio assesses if a stock is over/fairly/undervalued by comparing it’s PE ratio with it’s expected EPS growth rate

43.7 (TTM PE ratio) divided by 64.1 (12m Fwd EPS growth) gives us a PEG ratio of 0.68 — undervalued!

To calculate the FY25 EPS, I used the ₹586 crores of FY25 EBITDA we had calculated and adjusted it for expected depreciation (-₹65 crs), finance cost (-₹8 crs), other income (+₹70 crs) and tax (12% of PBT). This gives me an est. FY25 PAT of ₹513 crores or an EPS of ₹12.47 as against ₹7.60 for FY24 – a growth of 64.1%  

And if you’re more of a “forward PE” fan then using the above logic, we’re looking at an FY25 PE of 32.0 (as against the current PE of 43.7)

📌 Being a prominent player in a small niche I must say, it’s not easy to pin a value on BLS International

The industry leader, VFS Global is unlisted & per it’s most recent valuation in 2021 – was valued at $2.5 billion (news). It’s outdated but just to put some numbers out – VFS Global is at a price-sales ratio of 3.5 while BLS is at 8 (read page 11; download link). Personally, I won’t look much into it

Instead I’ll prefer to examine BLS broadly based on its business model & related metrics. Let’s give that a shot in the coming section

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“The Niche” Welcomes You

There are ways of complicating it, but here’s how I visualize BLS International’s operations (based on my own experience at that VFS Global centre) – 

• a long queue of people

• with money in hand

• ready to pay any amount I charge

• with nowhere else to go 

— the perfect business model

OK, nothing’s perfect! But there are two particular areas I want to highlight here for your consideration:

1. BLS is in an all-cash business (visualize: “with money in hand”) and generates massive amounts of operational cashflow

Essentially, the incremental cash position of the company will be commensurate with its EBITDA — which the company plans to use for more acquisitions like the iData deal (intent)

2. I really like how the management thinks & executes

a) they’re aggressively expanding market share (15 new contracts in last 1-1.5 years)

b) exploring a range of outsourcing opportunities (like their foray into business correspondent services)

c) acquire only value accretive businesses (like the iData acquisition) which reduces implementation risks & improves return metrics

Ofcourse, there’s even more to BLS & its business model including –

• an asset-light business

• no debt

• negative working capital (very high liquidity)

• improving ROCE (Q1FY25 : 32.0%)

• high barriers to entry

• diversified operations (66+ countries)

• offer additional services (biometrics, verification, passport collection etc.)

• industry tailwinds (global air passenger traffic to grow by 50% by FY30)

• continued outsourcing of visa applications worldwide (from 22% outsourcing in 2010, 35% in 2021, 50% projected by 2030)

Interestingly, during the Board of Directors meeting on August 5th, a proposal was put forward to raise up to ₹2,000 crores through various options, including a Qualified Institutional Placement (QIP) (communication to exchange)

🤔 This seemed a bit unnecessary for a company that was flush with cash (after the iData payout, I think BLS would have around ₹600 crores). However, the management labelled this more as an enabling function & would reserve the right to use this option if a big acquisition comes along (hurray!)

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My Viewpoint

The big question mark for me was the valuation i.e. current PE of 43.7

But considering the nature of this business — its oligopolistic structure, scalability, high profitability, growing demand & a thinking management — there’s substantial reassurance and optimism about what BLS International could achieve in the coming years

Add to this revenue visibility – a potential 93% jump in EBITDA & a 64% rise in EPS – and I think we have a business worthy of our consideration

If you like what you see, please take some time out and do your own research on top of mine.

And if you find some new material information or have a different way of evaluating BLS, then kindly let me know in the comments section below

Much love,

Shankar