IPO: BLS E-Services

BLS E-Services, a digital services provider, will come out with its IPO (initial public offering) on January 30, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality : Its three-year average return on equity (ROE) and return on capital employed (ROCE) are 39 and 30 per cent, respectively. Moreover, it generated positive cash flow from operations in each of the last three financial years. Growth : It has undertaken an acquisitive growth route to expand its operations in the last few years. It has acquired Zero Mass and BLS Kendra, and as a result, its revenue and profit after tax increased by 94 and 145 per cent annually during FY21-FY23. Valuation : The stock will be priced at a P/E and P/B of 65.0 and 2.8 times, respectively, as compared to its peer eMudhra, which trades at a P/E and P/B of 57.3 and 6.0 times. Overview : The government's focus on improving financial inclusion and strong relationship with PSU banks will help drive growth. However, the company is pursuing inorganic growth through acquisition, which may pose risks. In addition, intense competition from both organised and unorganised players are a threat. About the company BLS E-Services provides digital services, such as opening savings accounts or applying for Aadhar cards online, in semi-urban and rural areas with low internet penetration. It is a subsidiary of BLS International Services, which provides visa and passport processing services. Strengths of BLS E-Services It offers a wide range of services , uncommon in the digital services industry. It is a highly asset-light business . Weaknesses of BLS E-Services Revenue concentration. Its largest customer, which is a PSU (public sector undertaking) bank, accounts for 60 per cent of the revenue as of September 30, 2023, compared to 15 per cent in FY22. Issues with respect to cancellation of an agreement can have a significant impact on its operations. It operates in a highly competitive environment and faces competition from various organised and unorganised players. IPO details Total IPO size (Rs cr) 311 Offer for sale (Rs cr) 0 Fresh issue (Rs cr) 311 Price band (Rs) 129-135 Subscription dates Jan 30 - Feb 01, 2024 Purpose of issue Technological development, expansionary initiatives and general corporate purposes. Post-IPO M-cap (Rs cr) 1227 Net worth (Rs cr) 431 Promoter holding (%) 68.9 Price/earnings ratio (P/E) 65 Price/book ratio (P/B) 2.8 Financial history Key financials 2Y growth (% pa) H1 FY24 FY23 FY22 FY21 Revenue (Rs cr) 94.1 156 243 97