BLS E-Services IPO – Is It a Game-Changer for Investors?

BLS E-Services IPO – Review and Analysis

Technology enabled digital service provider BLS E-Services is coming up with IPO which would open for subscription on 30 January, 2024. This digital service provider has generated strong revenue and margin growth in the last few years. Should you invest in BLS E-Services IPO? What is the GMP, positive aspects and risk factors of this IPO?

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BLS E-Services IPO Details

IPO Opening Date 30-Jan-24
IPO Closing Date 01-Feb-24
IPO Listing Date 06-Feb-24
Issue Type Book Built Issue IPO
Face Value Rs 10 per equity share
IPO Price band Rs 129 to Rs 135 per equity share
Lot Size 108 Shares
Listing at BSE and NSE
Total Issue Size Rs. 310.9 Crores

About BLS E-Services Limited

Company 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 they provide 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.

Its merchants act as its interface with the consumers and play a critical role in the delivery of goods and services on the ground. Presently, their merchants are organised in two categories i.e. BLS Touchpoints and BLS Stores. All merchants registered with them are treated as BLS Touchpoints, and they have access to offer multiple services being extended by them.

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 our consumers after having a touch and feel experience of such goods.

As on September 30, 2023, they have 98,034 BLS Touchpoints, which includes 1,016 BLS Stores.

BLS E-Services IPO – Details, Positive Aspects, Risk Factors and Review

BLS E-Services IPO – Financials

  • Its revenues have grown from Rs 65.2 Crores in FY21 to Rs 246.2 Crores in FY23. Its Sep-23 revenues are at Rs 158 Crores.
  • Its profit after tax (PAT) have grown from Rs 3.1 Crores in FY21 to Rs 20.3 Crores in FY23. Its Sep-23 PAT is at Rs 14.6 Crores.

BLS E-Services IPO Price Valuation

The IPO price band is Rs 129 to 135 per share.

  • If we consider last 3 years weighted EPS of Rs 1.89, the P/E ratio works out to be 71x
  • If we consider the last year FY23 EPS of Rs 3.02, the P/E ratio works out to be 45x
  • If we annualise 6 months ended Sep-23 EPS, the P/E ratio works out to be 33x

The only listed peers EMudhra Limited trading at P/E 56x. While it is not appropriate to compare one with only one company P/E, the IPO Price band at P/E of 45x to 71x is fully priced.

BLS E-Services IPO – Positive Aspects

If you are wondering whether this IPO is good or bad, you should first assess the strengths of the company and then the risk factors. Here are the strong reasons to invest in this company IPO.

1) Asset Light Business Model: The company operates on an asset-light business model, leveraging merchant-led models and technology platforms. The focus on technology enables wide service coverage with minimal capital expenditure. The company plans to use IPO proceeds to further expand its BLS Stores, offering opportunities for improved gross margins and cost-effective operations.

2) Social and Financial Inclusion: The company plays a significant role in promoting social and financial inclusion in India, especially in semi-urban, rural, and remote areas. Through its business correspondent services, it connects citizens to various products and services, aligning with government initiatives like Pradhan Mantri Jan Dhan Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana. There’s a particular focus on reaching women, entrepreneurs and underprivileged individuals, contributing to grassroots-level social and financial empowerment.

3) Cross-selling and Up-Selling Opportunities: The company’s integrated platform allows for multiple cross-selling and up-selling opportunities, creating a network effect and wide reach for customer acquisition. The newly launched BLS Sewa app serves as a one-stop solution, offering diverse services such as edutech, money transfer, ticketing, and banking. The use of sophisticated data analytics enhances the understanding of customer behavior, facilitating effective cross-selling.

4) Diverse Revenue Streams and Cost Efficiency: The company boasts diversified revenue streams, including service fees, transactional commissions, and merchant-related fees. With low marketing and business promotion expenses due to cross-selling capabilities and industry presence, the company operates on a high operating leverage model. This results in improved opportunities for profitability and positive unit economics.

5) Successful Track Record of Acquisitions: The company has a history of successful acquisitions that complement its existing capabilities and revenue streams. Notable acquisitions include Zero Mass Private Limited, Starfin India Private Limited, and BLS Kendras Private Limited. These strategic acquisitions have contributed significantly to the company’s overall revenue.

BLS E-Services IPO – Risk Factors in this IPO

Investors should review negative or risk factors from BLS E-Services IPO RHP before investing in such IPOs.

1) Dependency on Fee and Commission-Based Activities:

  • The company depends heavily on fee and commission-based activities, such as Business Correspondents, Assisted E-services, and E-Governance Services.
  • Revenue is significantly driven by fees and commissions, making the financial performance vulnerable to factors like transaction volumes, market conditions, and competition.

2) E-Governance Projects Awarded to Corporate Promoter:

  • All E-Governance projects are awarded to the corporate promoter, BLS International Services Limited, through a tender process.
  • The company’s contracts depend on the corporate promoter’s success in winning tenders, and the continuity of such contracts is not assured.
  • Non-compete arrangements and master service agreements may not guarantee the renewal of contracts, impacting revenues and operations.

3) Limited Operating History and Competitive Challenges:

  • The company has a relatively short operating history, making it challenging to assess its future performance based on past results.
  • Limited experience in newer business segments exposes the company to risks that more experienced competitors may not face.

4) Compounding Applications for Non-Compliance:

  • Compounding applications have been filed for certain past non-compliances with statutory requirements.
  • Failure to rectify or mitigate lapses in compliance could lead to penalties, regulatory actions, and adversely affect the company’s reputation and operations.

5) SEBI Investigations and Legal Actions:

  • SEBI has issued summons to the corporate promoter, raising concerns about investigations, inquiries, or legal actions.
  • Uncertainty exists regarding the potential impact of SEBI’s actions on the company, and legal actions may adversely affect its business and results of operations.

6) Regulatory Impact on Banking Partners:

  • A substantial portion of revenue comes from Business Correspondent (BC) business operated by subsidiaries for banking partners.
  • Changes in RBI policies, decisions, or regulatory frameworks affecting banking partners could adversely impact the company’s business, cash flows, and financial condition.

7) Dependency on Subsidiaries and Cash Flow:

  • Business operations, especially Business Correspondents services, are conducted through subsidiaries, and their default in performance could impact the company’s results.
  • The company relies on free cash flows and cash dividends from subsidiaries, and their ability to generate profits is crucial for dividend payments.

8) Dependency on a Single Customer:

  • A significant portion of revenue comes from a single customer, a large PSU bank.
  • The cancellation of agreements with the top customer could have a material adverse effect on the company’s business, results of operations, and financial condition.

9) Regional Dependency for E-Governance Services:

  • E-Governance Services are provided only in the states of Punjab, Uttar Pradesh, and West Bengal.
  • Adverse changes or developments in these regions, including economic slowdowns, political unrest, or natural calamities, may negatively impact the company’s financial condition.

10) Termination of E-Governance Contracts:

  • Past instances, such as the termination of the agreement with Punjab State e-Governance Society, highlight the risk of contract terminations.
  • Contracts for existing E-Governance projects may be subject to termination, impacting revenues and operations

BLS E-Services IPO Grey Market Premium

GMP is the premium being paid in the offline trades of the company shares. While it is difficult to get the accuracy of such GMP, many websites like IPO Watch, Chittorgar, 5-Paisa quoting the BLS E-Services IPO GMP as Rs 100 to 142.

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BLS E-Services IPO – Should you Invest?

The company’s diverse operations in Business Correspondents, E-Governance Services, and Assisted E-Services offer a wide range of financial and citizen-centric solutions. Strategic acquisitions, such as Starfin and Zero Mass Private Limited, have expanded its reach and customer base. With a focus on digital financial solutions and partnerships with a major PSU bank, the company is well-positioned for growth. It had good growth in revenue and margin in the past.

However, the company faces risks like heavy dependency on fee-based activities, especially in E-Governance projects awarded to its corporate promoter. Dependence on a single customer and the necessity for continuous contract renewals pose significant business risks. Regulatory uncertainties, may impact operations and reputation. The company’s limited operating history in newer segments introduces uncertainties about future performance and competitive challenges.

The issue price is fully priced.

High Risk Investors who understand all the risk factors can invest in this IPO.

Suresh KP

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