What you must know about BLS E-Services IPO?

BLS E-Services Ltd – About the company

BLS E-Services Ltd was incorporated  in the year 2016 as a dedicated digital service provider to customers. BLS E-Services Ltd offers business correspondence services to major banks in India. In addition, the company also provides assisted e-Services, and e-Governance Services at the grassroots level across the length and breadth of India. Broadly, its service offerings can be categorized into Business Correspondents Services, Assisted E-services, and E-Governance Services. BLS E-Services Ltd is also a subsidiary of BLS International Services Ltd, which provides visa, passport, consular, and other citizen services to state and provincial governments across Asia, Africa, Europe, Latin America, North America, and the Middle East. The entire activity is managed through its technology-enabled platform. It is the only listed company in India that is engaged in this domain. As of the end of fiscal FY23, the merchant network stands at 92,427 and the customer focus of BLS E-Services Ltd  is largely on the underserved and unserved populations in hard-to-reach areas.

BLS E-Services Ltd  has around 3,071 employees on its rolls, which includes 2,413 contract employees. BLS E-Services Ltd provides Government to Citizen (G2C) & Business to Customer (B2C) Services to Indians through Common Service Centres (CSC). These CSCs help delivery many of the public services from different government departments. It has a single entry portal for the full range of G2C and B2C services on offer under a single portal. The CSCs of BLS E-Services Ltd are typically operated by self-employed youth (Village Level Entrepreneur). They help deliver last-mile services to the remotest parts seamlessly. The main objective of CSC is to offer smart, citizen-centric, ethical, efficient, and effective governance to Indians, facilitated by technology. It also provides gainful employment to village level youth enablers.

The fresh funds will be used to strengthen technology infrastructure, fund organic and inorganic growth. Post-IPO, the promoter stake gets diluted from 93.80% to 69.73%. The IPO will be lead managed by Unistone Capital Private Ltd, while KFIN Technologies Ltd will be the registrar to the IPO.

Highlights of the IPO issue of BLS E-Services Ltd

Here are some of the key highlights to the public issue of BLS E-Services Ltd.

• The IPO of BLS E-Services Ltd will be open from January 30th, 2024 to February 01st, 2024; both days inclusive. The stock of BLS E-Services Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹129 to ₹135 per share. The final price will be discovered within this band through the process of book building, at the price where the demand can be fully met.
   
• The IPO of BLS E-Services Ltd will be purely a fresh issue of shares with no offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The fresh issue portion of the IPO of BLS E-Services Ltd comprises the issue of 2,30,30,000 shares (230.30 lakh shares), which at the upper price band of ₹135 per share will translate into a fresh issue size of ₹310.91 crore.
   
• Since there is no OFS component, the fresh issue will also double up as the overall issue size. The overall IPO of BLS E-Services, therefore, will comprise of the issue of 2,30,30,000 shares (230.30 lakh shares), which at the upper price band of ₹135 per share will translate into overall issue size of ₹310.91 crore.
   
• The company will be using the fresh fund proceeds for strengthening the Technology infrastructure, develop new capabilities and consolidate their existing platforms. BLS E-Services Ltd will also be using the funds for bankrolling its organic and inorganic growth and expansion plans; apart from using some portion for general corporate expenses.

The IPO of BLS E-Services Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by BLS International Services Ltd. As per the terms of the offer, not less than 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while not more than 10% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is no employee offer that has been communicated by the company, but there is a 10% reservation made for the parent company in this case. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of BLS E-Services Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of BLS E-Services Ltd, the minimum lot size is 108 shares with upper band indicative value of ₹14,580. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of BLS E-Services Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for BLS E-Services Ltd IPO and how to apply?

The issue opens for subscription on 30th January 2024 and closes for subscription on 01st February 2024 (both days inclusive). The basis of allotment will be finalized on 02nd February 2024 and the refunds will be initiated on 05th February 2024. In addition, the demat credits are expected to also happen on 05th February 2024 and the stock will list on 06th February 2024 on the NSE and the BSE. BLS E-Services Ltd will test the appetite for such digital stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 05th February 2024 under ISIN (INE0NLT01010). Let us now turn to the practical issue of how to apply for the IPO of BLS E-Services Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of BLS E-Services Ltd

The table below captures the key financials of BLS E-Services Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of BLS E-Services Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust with the sales growing nearly 4-fold in the last 3 years. However, most of the growth has come in the last one year and hence it makes the latest year numbers the most credible from a projection perspective.
    
2. The net profits also grew 6-fold in the last 3 years, leading to the profit margins expanding sharply to the 7.77% in the latest full fiscal FY23. The latest year ROE at 17.65%, ROA at 10.52% and the PAT margins at 7.77% are all relatively attractive. However, this is a sort of a tech-enablement industry where the margins tend to be in single-digits and the scope to move it up is quite limited. This is more of a volume game and less of a margin game. However, scaling up can be quite seamless.
    
3. The company has had comfortable sweating of assets over 1X. However, even otherwise, the ROA is still robust and the asset turnover ratio should get better in the coming quarters when the sales pick up momentum. In this specific case, the margins may be of greater value, since tech enablement is basically a scalable service.

Let us turn to the valuations part. On the latest year diluted EPS of ₹3.02, the upper band stock price of Rs135 gets discounted at a P/E ratio of 44.7 times and may get slightly unfavourable if the IPO dilution is also taken into consideration. That is a relatively high P/E ratio if you compare with the similar P/E ratio of the peer group. A lot will predicate on the company being able to maintain the current rate of sales growth and the current net margins, and gradually improving upon the net margins. Higher ROE will be needed to justify the price. Meanwhile, there are some intangibles that work in favour of the company.

Let us look at some of the qualitative advantages that BLS E-Services Ltd brings to the table.

• The company runs a fairly asset light business model since most of its growth will come from outsourced franchise jobs, which will be profit accretive than cost accretive.
   
• At a macro level it enables social and financial inclusion, but at a micro level, the model opens up big time cross selling opportunities and prospects for customer churn across various revenue models.
   
• The customer acquisition and retention costs are quite low in this case while the manpower quality brings substantial man-years of skill sets.

It is a high growth business and the potential is huge. For a start, the business has an existing standing in the industry, which should hold them in good stead. The pricing may look slightly on the higher side, but investors in the IPO can look at this as a proxy play on rapidly growing e-governance services market in India and its potential. Investors with a higher risk appetite and willing to wait for over one year can look at this IPO from a longer term standpoint. The story continues to be a scalable story!