Few of my takeaways from Q1 FY25 of BLS International

BLS International has kicked off FY25 with a bang, crossing the INR 500 crore mark in consolidated total income for Q1. The company’s revenue from operations grew an impressive 28% year-over-year, driven primarily by its Visa & Consular segment. With 18% growth in visa application volumes and a 36% jump in segment revenues, BLS seems poised for continued momentum. The management exudes confidence about sustaining this growth trajectory, buoyed by new contract wins and expansion in existing markets.

𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐁𝐥𝐮𝐞𝐩𝐫𝐢𝐧𝐭:

The company is pulling multiple levers to drive growth:

1. Shifting from partner-run to self-run model: This transition is already yielding fruit, with margin expansion visible in Q1.
2. Acquisitions: The recent 100% buyout of Turkey-based iDATA and 55% stake in Aadifidelis Loan Solution showcase BLS’s appetite for inorganic growth.
3. Geographic expansion: New contract wins in 14-15 countries over the past 18 months signal aggressive market share gains.
4. Value-added services: Increased focus on ancillary offerings like travel insurance is boosting realizations.

𝐌𝐚𝐫𝐤𝐞𝐭 𝐃𝐲𝐧𝐚𝐦𝐢𝐜𝐬:

1. Global travel rebound: Post-pandemic recovery in international tourism is a major tailwind.
2. Government outsourcing: More countries are embracing outsourced visa processing, expanding the addressable market.
3. Digital transformation: BLS’s e-services arm is riding the wave of financial inclusion and digital empowerment in India.

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐓𝐚𝐢𝐥𝐰𝐢𝐧𝐝𝐬:

1. Pent-up travel demand: After years of restrictions, there’s a surge in international travel.
2. Visa policy liberalization: Some countries are easing visa norms to boost tourism.
3. Government push for efficiency: Outsourcing non-core functions like visa processing is gaining traction globally.

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐇𝐞𝐚𝐝𝐰𝐢𝐧𝐝𝐬:

1. Geopolitical tensions: Conflicts or diplomatic spats can disrupt visa processing in affected regions.
2. Economic uncertainties: Recessionary fears might dampen discretionary travel spending.
3. Cybersecurity concerns: As a handler of sensitive data, the industry faces constant security challenges.

𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫/𝐀𝐧𝐚𝐥𝐲𝐬𝐭 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬:

1. Margin sustainability: Management attributes margin expansion to multiple factors beyond just the self-run model transition, instilling confidence in its durability.
2. Cash utilization: With a INR 1,290 crore cash pile, analysts questioned the need for further fundraising. Management clarified it’s an enabling resolution for potential future acquisitions.
3. Seasonality: While Q1 is traditionally strong, management believes the business is becoming more evenly spread across quarters.

𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 𝐋𝐚𝐧𝐝𝐬𝐜𝐚𝐩𝐞:

BLS positions itself as a challenger to established players like VFS Global. The company’s aggressive contract wins (14-15 in 18 months) suggest it’s gaining ground. The iDATA acquisition further solidifies its European presence. Management’s confidence in winning contracts at higher service charges indicates strong competitive positioning.

𝐅𝐮𝐭𝐮𝐫𝐞 𝐏𝐫𝐨𝐣𝐞𝐜𝐭𝐢𝐨𝐧𝐬:

The management expressed optimism about sustaining the growth momentum. They expect further margin expansion, especially post the iDATA integration. The digital business (BLS e-Services) is also projected to maintain its growth trajectory.

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐃𝐞𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭:

BLS is pursuing a balanced approach:

1. Organic growth: Reinvesting in existing operations and new contract bids.
2. Inorganic expansion: Strategic acquisitions like iDATA and Aadifidelis.
3. Shareholder returns: While not explicitly discussed, the company’s strong cash generation could potentially lead to enhanced payouts in the future.

𝐎𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 & 𝐑𝐢𝐬𝐤𝐬:

Opportunities:

1. Untapped markets: Countries like Philippines and Brazil outsourcing for the first time.
2. Cross-selling: Leveraging Aadifidelis’s network for financial products distribution.
3. Tech integration: Potential for AI/ML adoption in visa processing for efficiency gains.

Risks:

1. Execution challenges: Rapid expansion and acquisitions need seamless integration.
2. Currency fluctuations: While natural hedges exist, extreme volatility could impact margins.
3. Regulatory changes: Shifts in visa policies of client governments can affect volumes.

𝐑𝐞𝐠𝐮𝐥𝐚𝐭𝐨𝐫𝐲 𝐂𝐥𝐢𝐦𝐚𝐭𝐞:

The visa processing industry operates in a complex regulatory landscape, with each country having its own rules. BLS’s ability to win and retain government contracts across 70+ countries suggests strong regulatory compliance capabilities. The management’s emphasis on upfront cash collection and negative working capital in government projects indicates a prudent approach to navigating bureaucratic challenges.

𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐏𝐮𝐥𝐬𝐞:

The 18% growth in visa application volumes suggests positive customer sentiment. The company’s expansion into value-added services like travel insurance also indicates growing customer trust and engagement. The rapid scaling of the digital business, especially in loan distribution, further points to favorable reception among end-users in India.

Disclaimer: This is a general analysis and does not constitute financial advice.

Few of my takeaways from Q1 FY25 of Devyani International

Devyani International’s Q1 FY25 performance showed mixed results. While revenue grew 44.3% year-over-year to Rs. 1,222 crore, this was largely driven by the consolidation of the recently acquired Thailand business. The core India business faced headwinds, with same-store sales growth (SSSG) remaining negative for key brands like KFC (-7%) and Pizza Hut. That said, average daily sales (ADS) improved sequentially for both KFC and Pizza Hut in India, providing some encouragement. The management expressed optimism about a potential rebound during the upcoming festive season, though concrete signs of recovery remain elusive so far.

𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐁𝐥𝐮𝐞𝐩𝐫𝐢𝐧𝐭:

The company is pursuing several strategic initiatives to drive growth:

1. Continued store expansion, with 54 new stores added in Q1 and plans to reach 2,000 total stores by FY25 end
2. Increased marketing and product innovation for Pizza Hut to revive the brand
3. Focus on enhancing institutional business like food courts and airport presence
4. New joint venture with PVR for food court operations
5. Prudent cost management to protect margins amid weak demand

𝐌𝐚𝐫𝐤𝐞𝐭 𝐃𝐲𝐧𝐚𝐦𝐢𝐜𝐬:

Key trends highlighted include:

1. Cautious consumer spending impacting QSR industry
2. Shift towards value offerings and promotions
3. Increasing focus on off-premise channels like delivery
4. Rising importance of digital marketing and engagement
5. Emphasis on product innovation to drive growth

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐓𝐚𝐢𝐥𝐰𝐢𝐧𝐝𝐬:

1. Long-term structural growth potential of Indian QSR market
2. Rising disposable incomes and urbanization
3. Increasing adoption of food delivery
4. Expansion opportunities in underpenetrated markets

𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲 𝐇𝐞𝐚𝐝𝐰𝐢𝐧𝐝𝐬:

1. Ongoing macroeconomic challenges impacting discretionary spending
2. Geopolitical issues leading to boycotts of certain brands
3. Intense competition in the QSR space
4. Inflationary pressures on input costs

𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫/𝐀𝐧𝐚𝐥𝐲𝐬𝐭 𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧𝐬:

Analysts raised concerns about weak SSSG trends and Pizza Hut’s underperformance. Management acknowledged the challenges but emphasized efforts to revive Pizza Hut through increased marketing, product innovation, and promotional offers. They also highlighted cost optimization measures to protect profitability amid weak demand.

𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 𝐋𝐚𝐧𝐝𝐬𝐜𝐚𝐩𝐞:

The QSR market in India remains highly competitive. While Devyani did not provide specific market share data, they emphasized KFC’s strong positioning and Pizza Hut being the #2 pizza brand nationally. The management sees significant untapped potential in the pizza category despite competitive pressures.

𝐅𝐮𝐭𝐮𝐫𝐞 𝐏𝐫𝐨𝐣𝐞𝐜𝐭𝐢𝐨𝐧𝐬:

The company refrained from providing specific numerical guidance but reiterated its target of reaching 2,000 stores by FY25 end. For FY25, they plan to open 100+ new KFC stores and 50-60 Costa Coffee outlets, while taking a more measured approach to Pizza Hut expansion.

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐃𝐞𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭:

Devyani’s capital allocation remains focused on new store expansion across brands and geographies. The recent Thailand acquisition highlights their willingness to pursue inorganic growth opportunities as well. No specific details on dividend policy or share buybacks were discussed.

𝐎𝐩𝐩𝐨𝐫𝐭𝐮𝐧𝐢𝐭𝐢𝐞𝐬 & 𝐑𝐢𝐬𝐤𝐬:

Key opportunities include:

1. Large untapped market potential in India
2. Expansion into new geographies like Thailand
3. Growth in institutional segments like food courts

Major risks include:

1. Prolonged weakness in consumer sentiment
2. Currency volatility in international markets like Nigeria
3. Execution challenges in turning around Pizza Hut
4. Potential disruptions from new entrants or changing consumer preferences

𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐏𝐮𝐥𝐬𝐞

Management noted that customer sentiment remains cautious, with spending patterns impacted by macroeconomic headwinds. However, they see potential for improved sentiment during the upcoming festive season. The company is focused on offering value-driven options to adapt to the current market dynamics.

Disclaimer: This is a general analysis and does not constitute financial advice.

Thanks much @harsh.beria93 . Looks well covered. Let’s hope their expansion into new states is measured and develops well.
They have indicated they want to dominate the regional markets they are in and not stretch themselves across the country chasing growth, which is reassuring.

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