Bartronics India

Operating in a business that is growing at 35 per cent per annum, Bartronics looks incredibly cheap.

After its debut on the bourses in January 2006, Bartronics India did not do too well as its share price fell all the way to Rs 46 within a year. The slide in the share price was attributed to its high valuations in the context of its net profit being fairly low at Rs 5.33 crore and a turnover of Rs 29.5 crore in FY06.

But the company has justified its worth to the market by recording a substantial jump in its earnings.

In FY07, the company registered a sales growth of 120 per cent at Rs 63.5 crore and a net profit growth of 150 per cent at Rs 13.46 crore.

Recognising this change, the market has re-rated the stock with its price moving back to 131. There could be further upside as the company would continue to growth quite fast on the strength of its products mainly focused on the booming retail sector.

The recent growth, in the light of better industry outlook and strong client base, seems sustainable in the long-run.

Besides, its increasing focus on the international market and commissioning of new facility to venture into new products augur well for the future. Along with this, the company also has an order book of Rs 175 crore (about 2.7 times FY07 revenue) to be executed over the next two years.

Bartronics provides end-to-end solutions in inventory and logistics management, attendance and asset tracking systems. The company offers automatic identification and data capture (AIDC) technologies, barcode, biometrics, radio frequency identification (RFID), radio frequency data communications (RFDC) and electronic article surveillance (EAS).

The company is primarily a solution provider and procures products and equipment from international markets according to customers' requirements.

In the domestic market, Bartronics is a leading player with a market share of about 24 per cent with a strong client base of 1600, which includes well known companies such as Tata Steel, Tata Motors, HLL, ITC, Ashok Leyland, TVS, CMC, Ranbaxy, Compaq, Dr Reddy's to name a few.

Growth in core businessGlobally, especially in the developed world, the market for inventory and supply chain management products is huge.

The Indian market however is still not mature and it is in the initial phase of development where companies are investing in integration of processes, and managing businesses with the application of the technology.

However, following the success of enterprise solutions like ERP, CRM and SCM, AIDC is receiving a good amount of attention, as it can leverage past tech investments better through automated data collection and input.

The domestic market which largely comprises of smart-card and bar code solutions, were estimated at Rs 100-odd crore in 2005. This segment is expected to grow at 20-30 per cent per annum.

However, within this segment, RFID and biometric solutions are emerging as new technologies and hence growing faster at about 50 per cent per annum. This segment is poised to grow rapidly since it is increasing finding application in the retail and manufacturing sectors.

Since retailing in the country is presently in a growth phase, this alone has the potential to create a huge market for these products.

Besides, a majority of the larger companies have already invested in ERP and SCM software that need to be leveraged further. Bartronics with its first mover advantage and relevant technological expertise has potential to grow its existing line of business at about 35-40 per cent over the next few years.

Smart moveParallel to its existing business, the company has recently invested in a manufacturing facility to make Smart cards. Smart cards find their applications in several growing businesses such as mobile sim-cards, government projects and magnetic banking transaction cards.

According to industry estimates, there is demand for more than 150 million units of smart card per year and this is further expected to grow at a CAGR of 45 per cent.

In India, most of the demand will be driven by telecom and banking sector. According to Visa and Master card consortium, the existing magnetic swap cards used for banking transaction will be converted into smart cards to facilitate multiple applications and prevent fraud.

If all the exiting swap cards are converted into the smart cards, it will mean a big opportunity. However, this is still a distant reality considering that it will require a complete ramp up of the reading machines too.

Besides, there is ample opportunity for smart card applications thanks to certain government initiatives. The central government has already planned to implement Multi-purpose National Identity Card (MNIC), for which Bartronics has been selected as a vendor.

The MNIC project is currently in pilot mode in 20 selected sub-districts of 13 states and union territories.

“It is a huge opportunity for which there are no adequate capacity as of now, but it may take another 2-3 years for this programme to take-off. Considering the huge opportunity, we believe 3-5 new players will enter this segment,” says Sudhir Rao.

To capture the fast growing demand for smart cards, the company is spending Rs 260 crore to put up a capacity to produce 80 million units of smart cards.

In the first phase, which is expected to start production in January 2008, the company will have the capacity to produce 60 per cent of the total. The entire capacity will come into force in FY09.

Depending on the product and application, smart cards are estimated to have a realisation of about Rs 30-98 per unit. Considering 60 per cent capacity utilisation in the current financial year, and the said realisation rate, the turnover for the year is estimated to be in the range of Rs 144-470 crore.

On a conservative basis, one can expect a revenue of about 195 crore this year and about Rs 310 crore in FY09.

Rao says, “The smart card segment alone has the potential to contribute about Rs 600-700 crore of revenue. But a lot will depend on the product mix. As we move towards value added products, which fetch higher realisation, this kind of revenue is achievable.”

Global spreadLike India, many of the developing markets seem to be developing an appetite for these products. Bartronics generates about 45 per cent of revenue from the export markets. It has five international distribution centres catering to the growing AIDC market in Malaysia, Sri Lanka, Bangladesh and Dubai.

The company has tied-up with Watchdata Technologies for sourcing and marketing of smart cards in Singapore while it is expanding in the Sri Lankan market through a tie up with Hayleys group. The company is also looking at business worth $20-30 million in the US market.
Valuations and outlookThe company is in the growth phase and is expected to grow at a rapid clip in the next few years. Its core business is growing at 35-45 per cent, however, higher growth will kick in with the increase in smart card production.

On the diluted equity, which builds in recently raised Rs 100 crore FCCB, the stock is trading at 9.3 times its FY08 earnings and 5.9 times FY09 earnings. Considering the high growth the company promises, valuations look attractive.

Source : Business Standard