Outsourced Visa And Digital Public Services Are Expected To Drive Long Term Upside

Catalysts

About BLS International Services

BLS International Services provides outsourced visa, consular and digital citizen services for governments and financial institutions worldwide.

What are the underlying business or industry changes driving this perspective?

• Ongoing shift by governments toward outsourcing visa and consular processing, with only about half of global volumes currently outsourced, gives BLS meaningful headroom to expand its 15% to 17% market share and drive sustained revenue growth.
• Rising cross border travel and improving India China relations, coupled with recent mandates for Indian visa centers in key Chinese cities and new contracts like Cyprus Kazakhstan, should support higher visa volumes and premium service uptake. This may lift revenue and sustain visa segment EBITDA margins above 40%.
• Structural push toward digital public infrastructure and e governance in India, exemplified by the six year Aadhaar Seva Kendra contract of around INR 2,000 crores, provides a long visibility runway for transaction based income that can steadily scale digital business revenue and EBITDA.
• Deepening financial inclusion and digitization of last mile services through more than 147,000 digital touch points and over 45,400 business correspondents positions BLS to benefit from rising transaction volumes and cross sell of financial products, supporting revenue growth and gradual margin expansion in the digital segment.
• Disciplined, EBITDA focused acquisitions such as Citizenship Invest, iDATA and Aadifidelis, funded from strong net cash of over INR 1,300 crores, can broaden geography and service breadth and add inorganic growth and operating leverage that supports earnings growth even if core volumes normalize.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming BLS International Services's revenue will grow by 16.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.7% today to 28.4% in 3 years time.
• Analysts expect earnings to reach ₹11.8 billion (and earnings per share of ₹28.7) by about December 2028, up from ₹6.0 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the IN Professional Services industry at 28.2x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.15%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The temporary ban from the Ministry of External Affairs on bidding for new Indian tenders, even if currently claimed to have no financial impact, highlights customer service and SLA weaknesses that could resurface, limit future contract wins with Indian authorities and other governments, and ultimately cap long-term revenue and earnings growth.
• Visa and consular organic growth is tracking at around 10% despite management citing a 14% to 15% industry growth rate, suggesting potential market share stagnation or competitive pressures that could slow top line expansion and constrain the ability to sustain more than 40% segment EBITDA margins over time.
• The digital services segment has become heavily dependent on low margin acquisitions such as Aadifidelis, which contributes a high share of revenue but only around 3% margin, creating a structural drag on consolidated EBITDA margin expansion and increasing the risk that earnings growth lags revenue growth if higher value added services do not ramp as planned.
• The strategy of pursuing frequent and “aggressive” acquisitions, including forays into non core areas like hospitality, increases integration and capital allocation risk. If returns on these deals fall short of expectations, the company could dilute return on investment and depress future net margins and earnings.
• Long term reliance on government and quasi government contracts in both visa processing and Aadhaar led digital public infrastructure exposes the business to policy changes, contract renewals, compliance actions and pricing pressure. Any of these could reduce visibility on volumes, compress net revenue per transaction and weaken long term profitability and earnings resilience.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹445.0 for BLS International Services based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ₹41.7 billion, earnings will come to ₹11.8 billion, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 13.2%.
  
• Given the current share price of ₹325.5, the analyst price target of ₹445.0 is 26.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.