BLS E-Services IPO - Investment Rationale, Issue Details, Strategies, Risks, Financials: Anand Rathi

Anand Rathi's IPO Report

BLS E-Services Ltd., a technology enabled digital service provider will launch its initial public offering on January 30 and the offer closes on Feb 01, to raise up to Rs 310.9 crore via a fresh issue on upper price band.

The company has fixed a price band of Rs 129-135 apiece. The minimum order lot is 108.

Object of the fresh issue

• Strengthening the technology infrastructure to develop new capabilities and consolidating the existing platforms;

• Funding initiatives for organic growth by setting up of BLS Stores;

• Achieving inorganic growth through acquisitions; and

• General corporate purposes.

Strengths:

• Asset light business model.

• Company enable social and financial inclusion in India.

• Multiple cross-selling and up-selling opportunities, network effect and wide reach for customer acquisition.

• Business model with diverse sources of revenue and negligible customer acquisition and retention costs.

Key strategies:

• Strengthening and integrating their technology backbone.

• Grow their merchants and BLS Stores network.

• Pursue strategic investments and acquisitions to enhance product and service capabilities.

• Leverage existing market position to grow each business segments, with an aim to improve cross-selling results.

Valuation

BLS E-Services is having an asset light business model with multiple cross-selling and up-selling opportunities, network effect and wide reach for customer acquisition and a business model with diverse sources of revenue and negligible customer acquisition and retention costs along with experienced senior management, skilled employees, and strong parentage of our corporate promoter BLS International Services Ltd.

We believe that valuations of the company are fairly priced, hence we recommend a ‘Subscribe- long term’ rating to the IPO.

Key risk:

• Company predominantly undertake fee and commission-based activities, and their financial performance may be adversely affected by their inability to generate income from such activities.

• None of the e-governance projects are awarded to their Company directly. All of their contracts with respect to E-Governance projects are awarded to their Corporate Promoter, BLS International Services Ltd. by governmental agencies for providing G2C services to the citizens and to BLS Kendras, their subsidiary for providing E- Governance.

• As a result of their limited operating history, they may not be able to compete successfully, and it may be difficult to evaluate their business and future operating results on the basis of their past performance.

• Company and their subsidiary, i.e. Zero Mass Private Limited have filed compounding applications before the Regional Director, Northern Region, Delhi and Regional Director, Western Region, Maharashtra, respectively for compounding and adjudication of certain past non compliances.

• In the past, SEBI had issued summons to their corporate promoter, for production of documents and for personal appearance before the investigating authority. Their corporate promoter may be subject to investigations, enquiries or legal actions.

• A substantial portion of the revenue is generated by BC business operated by their subsidiaries, ZMPL and Starfin for their banking partners. The businesses of their banking partners are regulated by the RBI and any change in the RBI’s policies, decisions and regulatory framework could adversely affect their business, cash flows, results of operations and financial condition.

• Deterioration in the performance of their subsidiaries may adversely affect their results of operations and their ability to pay dividends on the Equity Shares depends on their ability to obtain cash dividends or other cash payments.

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