Bartronics India raises $ 50 mn via FCCB

Bartronics India has raised USD 50 million via an FCCB. In an exclusive interview with CNBC-TV18,Sudhir Rao, MD & CEO, Bartronics India said that 100% of the funds are expected to go into the solutions side of the business. He added that right now the company was at the stage of financial closure of the acquisition. Talking about phase-II of their smartccard project, he said that they are currently in the process of acquiring machinery and installing it. According to Rao, overall, from a sales point of view, they should be crossing around Rs 200 crore in terms of topline.

Excerpts of CNBC-TV18’s exclusive interview with Sudhir Rao:

Q: There are three streams in terms of products, AIDC, RFID and now the smart card business. Where do you intend to deploy the funds that you have raised?

A: 100% of the funds are expected to go into the solutions side of the business. So, out of the three segments that you pointed out it would be AIDC and the RFID business.

Q: None of this will go into the possible acquisitions that’s doing the rounds, that you may consider in the US at this point in time?

A: In both the technology areas we are looking at acquisitions As you rightly pointed out, that was the main objective of the FCCB issue. Right now we are at a stage of financial closure of the acquisition. This proposed acquisition is in the RFID technology area, where we are looking at a company that can give us some patents, which is I think an absolute must looking at the leadership position that we have in the market.

Apart from the patents, we are also looking at acquiring a few customers that the target company already has and some key personnel. So, part of the funds will go towards acquiring the target company and part of the funds would go in running the enterprise for the next six to eight months.

Q: Give us an idea of the kind of earnings performance we can expect? The market expects that Bartronics will pack in about Rs 195 crore on sales and do a PAT of about Rs 33.24 crore. Would you like to raise the bar on that and from AIDC alone, how much would the contribution be?

A: I think we should be doing much better than that. Internally our targets are slightly higher than the figures that you have mentioned. As far as the breakup between the various segments is concerned, the solutions segment should constitute about 50% of the overall figure, while the smart card business, that we have started during the current year, should generate the other 50%. So, overall I think from a sales point of view, we should be crossing around Rs 200 crore in terms of topline.

Q: Can you give us an idea of the smart card business because that has been spoken off as a pressure point for margins? Where do margins stand with smart cards, and if you pull out smart cards, where do they stand for AIDC and RFID?

A: As far as the smart cards are concerned, if you really look at the business in its isolation, it is a business that is driven by manufacturing, and in any manufacturing capacity utilisation becomes very critical. So, at the breakeven capacity, utilisation, which is approximately 70%, we should more or less be able to take care of our expenses.

But the capacity utilisation that we are looking at right now, and also for the next 12-18 months, is nearing almost 100% in terms of production. At those levels, we still are confident that our EBITDA from the smart cards manufacturing business should be around 33-34%, which is the current EBITDA in the solution side of the business.

So, we are not expecting significant strain on margins by entering into the smart card business.

Q: Phase-II of your smart card expansion that dealt with your entire silicon manufacturing chips, was due to be commissioned in January 2008. Can you give us an update on that? Consequently what sort of capital outlay plans do you have over the next 12-18 months?

A: As far as phase-II of the project is concerned, we are right now in the process of acquiring machinery and installing it. So, as earlier projected, we should be able to finish off the installation and commissioning during the current month. As far as further capex is concerned, for the expansion plan, the company has no further capital expenditure programme for the next 12 months.

As far as inorganic growth is concerned, we have now finished the 50 million FCCB issues, which is going to be spent in the overseas market for acquisition and growth. We are still looking at a possible acquisition in the European market, because from a global perspective, we are currently the market leaders in India.

We expect to be having significant market share in the US in about a year’s time. We believe that we will be one of the leading players in the Southeast Asian region with the start of our Singapore subsidiary. It’s only the European and the Middle East market that is something that we have not yet tapped. So, we may be looking at tapping into that market in the next 8-10 months.

Q: For your sales of Rs 200 crore, what sort of profits will you do at the end of FY08?

A: Our internal target is for a net profit margin of around 20%. If you look at the track record of Bartronics, we have been doing somewhere 18-20%. So, we can expect a similar kind of net profit margin.

Video link : Moneycontrol