Company Overview
Incorporated in 2016, BLS E-Services Ltd. (BLSe) is a technology-enabled digital service provider, providing (i) Business correspondent services to major banks in India, (ii) Assisted E-services; and (iii) E-Governance Services at grassroots levels in India. Through its tech-enabled integrated business model, it provides digital and physical products and services in the G2C, B2C, and B2B categories in semi-urban, rural, and remote areas where penetration of the internet is low and citizens need assistance in availing basic technology-enabled services. The company utilizes a “phygital” strategy (i.e., physical and digital) that integrates technologically over 98,000 merchant distribution outlets (comprising of BLS Touchpoints and BLS Stores) for assisted payment solutions, remittance, travel, education, and insurance products, with a one-stop digital online platform for all of its offerings. This results in a business model that is difficult to replicate, and which is intended to provide a smooth customer experience regardless of the product, service, or location. BLS Stores are BLS branded stores that offer its entire suite of offerings to consumers including the 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, the company has 98,034 BLS Touchpoints, which includes 1,016 BLS Stores. Further, 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. The revenue generated under this business segment is through registration fees; transaction-based commissions on goods and services supplied; and support service charges. 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. Their diversified platform allows it to harness deep synergies and provides cross-selling and upselling opportunities to both consumers and businesses.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Strengthening the company’s technology infrastructure to develop new capabilities and consolidate its existing platforms;
- Funding initiatives for organic growth by setting up of BLS Stores;
- Achieving inorganic growth through acquisitions; and
- General corporate purposes.
Investment Rationale:
Asset light business model
BLSe’s merchant-led models are a capital-light business strategy for network expansion. The company has developed its technology platform and continues to invest in it for further improvements, which allows it to service a wide pool of citizens and merchants and cater to their diversified requirements. The premises from which BLS Touchpoints and the BLS Stores operate are owned/leased by their merchants and it provides them with the necessary technology and other infrastructure (as applicable) enabling them to extend their services to the end consumers. The company incurs minimal capital expenditure in connection with onboarding the merchants because the onboarding and setting up capital expenditure costs are borne by the merchants themselves, such as any existing physical premises, laptop, mobile phone, internet connectivity, micro ATM, and AePS devices and fingerprint and/or IRIS scanners, and our technology significantly simplifies our merchant onboarding and training process, making it cost-effective for the merchant and efficient for both parties. In addition to their merchant network which, as of September 30, 2023, was over 98,000, to reach the underserved and unserved populations in hard-to-reach locations (referred to as the “last mile” of delivery). The company’s focus on operational execution in connection with the merchants, the drive to offer a broad range of products through each of these distribution channels, and the capital invested into its technology infrastructure, have resulted to be one of the most effective business models.
Multiple cross-selling and up-selling opportunities, network effect, and wide reach for customer acquisition
BLSe can bring together the advantages of G2C, B2B, and B2C models within a single platform, and provide many touch points for the consumer and back-end entities, thereby enhancing the customer footfall by 4,04,153 consumers at its BLS Touchpoints and BLS Stores and to increase scalability.This, coupled with the wide range of products and services that complement each other, results in multiple cross-selling and upselling opportunities, network effects, and wide reach for customer acquisition. Due to the company’s ability to cross-sell various complementary products and services, in addition to its presence in multiple industries, it typically has low marketing and business promotion expenses and thus, improved opportunities for profitability and unit economics metrics. Accordingly, it has a high operating leverage business model, allowing it to reduce customer onboarding costs over time. Furthermore, BLSe’s newly launched, BLS Sewa app is a one-stop solution for all its products and services such as edutech services, domestic money transfer, PAN card application, bus and air ticketing services, railway ticketing services, banking services, AePS-enabled cash services, recharges, demat account opening, bill payments, etc.
Valuation and Outlook:
India’s digitization efforts have evolved the digital and financial services landscape at a rapid pace. Several existing players are working on delivering these digital services across India. The business of digital service providers can be classified into three broad categories. Department of Administrative Reforms & Public Grievances (DARPG) formulated the National e-Governance Service Delivery Assessment (NeSDA) in 2019 to boost governance endeavors and drive digital government excellence. With the increase in digital adaptation, the demand for various other services has also increased. The increasing digitalization is boosting the market for insurance services, online ticketing, assisted e-commerce, bill payments, tele-medicine, tele-agriculture, digital learning, etc. in urban, semi-urban, and rural areas. With huge touch points of the business correspondent companies, they can provide these services to even the remotest areas. Additionally, even retail/wholesale stores can distribute and/or sell their products through these companies’ touch points. It will pave the way for additional income for business correspondent companies. We believe BLSe’s top and bottom lines are attributed to its recent acquisitions, and the trends will continue with more acquisitions planned. BLS E-Services witnessed the highest revenue growth of 50.8%, with the highest EBITDA and PAT margins at an average of 33.8% and 18.2% respectively in H1FY24. Turning to valuations, the PE ratio stands at 33.1x based on the annualized FY24E EPS which appears reasonable compared to peers in the industry. Based on the positives discussed, we give the issue a “SUBSCRIBE” rating.
