BLS International Ltd – A niche and scalable business model with high entry barriers
BLS is one of the world’s largest visa, passport and consular outsourcing services provider for governments and their diplomatic missions worldwide. Company manages visa and passport issuance related administrative and non-judgmental tasks for client governments, which enables its clients to focus on the important judgmental part of the visa issuance process.
Company enters into contracts directly with Foreign Ministries, which have stringent pre-qualification requirements that cover industry experience, track record, international operations, minimum net worth and a minimum annual turnover. With these criteria in place, it has successfully developed global brand recognition as the consular and citizen service provider of choice. With a strategic focus on expanding business profitably in to high growth markets across geographies, company has developed highly scalable, secured and cost-efficient proprietary systems and processes. It is further looking to reduce the process life cycles to meet increasing demand of its global clients.
BLS International entered the business in 2005 by being a service provider to the Embassy of Portugal. In a little over a decade, BLS has rapidly scaled up its operations across 58 nations and 29 client governments. In 2016, BLS expanded its business operations to provide front-end and citizen services to State Governments in India to facilitate the realisation of the goal of transparent and accountable e-governance system.
BLS International operates through two distant business models wherein 60% of the business is owned while the remaining 40% is through facility management partners (FMPs). Company predominantly works with a user-pay revenue model where it receives service fee directly from visa applicants, in addition to the visa fees which are remitted to the diplomatic mission. In some countries, it operates with a Facility Management Partner (FMP) for regulatory or cultural reasons. These FMPs handle the operations under the brand name of BLS International. Some of the staff in these countries are employed by the FMC and infrastructure is provided by the FMP, but key managers are employed by BLS International and BLS International maintains complete control and takes full responsibility for, the entire operation. Further, this business model gives the management alot of flexibility to scale up/down operations in a dynamic manner. In the Spain contract, BLS International cannot subcontract more than 50% of the total number of Diplomatic Missions or Consular Offices for which the service is provided.
Huge growth opportunity
The visa outsourcing industry has shown significant growth with over 40 million visa applications being currently managed by specialised service providers globally. However, this translates to just 31% of the total visa market currently being outsourced with the remaining 69% yet to be tapped by outsourcing service providers. Backed by the years of industry experience, strong brand positioning, competitive advantage and the niche nature of the industry, BLS is well equipped to capitalise on the potential of this magnitude. BLS has processed over 20 million applications to date with an approximately 18 million applications estimated to be processed during the year FY2017-18E. In FY2017-18E, several foreign mission tenders are likely to be submitted and BLS is prequalified to bid for these global tenders in the pipeline.
BLS has been awarded a contract from the Ministry of Foreign Affairs and Cooperation, Spain (Spain MAEC) with a value of €175 million. The first contract for major Schengen country to an Indian Company. It is a five-year exclusive contract, wherein BLS will open 118 visa application centers to support the embassies and consulates of Spain globally. The total scope of the project is Rs 13475mn (~175mn Euros). This is based on factors like ~1.8 – 2mn annual applications, with fixed €15.45/visa application including taxes. We believe this is a major win for BLS International given the high entry barriers in the industry as very few players have won global contracts given strict technical, financial qualifications needed for the same. Spain is 3 in global tourist arrival and 4 in Schengen visa application. We believe the Spain visa contract is very significant since it forms the third highest country globally in 2016 in terms of tourist arrival at 68.5mn only after France and USA.
First mover advantage in e-Governance:
In 2016, BLS secured the Rs15bn Punjab e-Governance project through competitive bidding (VFS Global, Wipro, IL&FS, CKGS etc. were other bidders) and opened doors for opportunities both in India and internationally. We believe this business is completely aligned to the management’s existing business model, which is asset-light and backed by positive cash flow. First of its kind project in India, BLS would engage in delivering to the people of Punjab more than223 services through close coordination with more than 17 government departments, they offer a single window for government services through 2147 Punjab Sewa Kendras, manned by a total of 4,250 personnel for five years.
In Q1 FY18, revenue from Punjab e-governance at Rs 535mn (~27% of rev). The company is processing ~40K applications daily in 2,147 centres across Punjab. The project also paves the way for BLS to bid for similar e-governance projects with states as Haryana, Delhi and Odisha are ready to replicate Punjab e-governance model.
The visa application outsourcing market is niche and young, with few specialised players; in very short run the market has witnessed significant change. The main competitor of BLS is VFS Global, which is leading with more than 50% market share. BLS International has ~4% market share while other large players such as TLS Contact and CSRA has 14.5% and 12.1% market share respectively. There are around 70 other players, which command around 20% market share.
Revenues and Profits to grow more than 30% CAGR over the next three years:
The asset-light model, coupled with a key focus on further expanding its margins, has helped BLS to deliver strong all-around performance. In FY17, its revenue increased by 26% at Rs.6,350mn as compared to Rs. 5,050mn in the previous year. EBITDA margin stood at 13.6%, up by 607bps over last year, mainly contributed by expansion in gross margin. PAT for the year stood at Rs. 500mn, up by 62% y-o-y. The strong performance in FY17 was on account of growth in core consular processing and outsourcing services along with recent expansion into the front end and citizen services.
Going forward, we expect BLS revenue to grow at CAGR of 36% between FY17-19 led by strong growth from e-Punjab project and Spain along with new contract wins and strong pipeline. EBITA to grow at CAGR of 56% during same period led by operational efficiency and increase in application count.
Given the niche and unique business model in this high entry barrier industry, global contract wins which would start to translate in revenue and profitability over the next three years, opportunity to win many global visa contracts for which BLS is already qualified offers huge upside potential. BLS International is currently trading at 22x and 17x FY18E and FY19E PE and 14x and 11x FY18E and FY19E EV/EBIDTA. We believe that BLS International should trade at steep premium to global averages and at a marginal discount to its Indian peer Vakrangee.