20 September 2008
Report by HDFC Securities
HDFC Securities has put a buy rating on Bartronics India Limited with a price target of Rs 234.
Company Snapshot
Incorporated in 1990, Bartronics is a Hyderabad based company. It offers services that enable automatic identification of products and persons and creates the infrastructure to keep track of their movement.
It offers tailor made AIDC (Automatic Identification and Data Collection) and RFID (Radio Frequency Identification) based solutions and offers consulting services pertaining to Barcode, Biometrics, RFID, RFDC and Electronic Article Surveillance (EAS).
The company also provides business and technology strategy, systems design and architecture, applications implementation, network and systems integration in this field. In the solutions segment, Bartronics is the only company in India to provide end-to-end solutions. That is the reason its client list includes most of the Blue chip companies.
Its state-of-the-art 80 mn smart cards manufacturing facility (biggest in south east Asia) located near Hyderabad manufactures smart cards for the Indian telecom sector and a variety of government projects.
Outlook & Valuation
Bartronics’ recent diversification into smart card business is well timed. This is reflected in its healthy market share of almost 90% in India.
The demand for smart cards has begun to pick up in India with the increasing awareness of this technology. Further, the government of India’s MNIC project for which BIL is a strong contender and the plan of banks to replace magnetic strip cards with smart cards will provide a favorable market for the company.
Its capability to provide all AIDC solutions under one roof makes it the preferred choice as the company’s over 1600 clients, including blue chip companies, testify. The AIDC segment has an order book of Rs 5100 mn executable over a period of 1.5-2 years. The AIDC solution’s RFID is the most preferred technology in which BIL has a 95% market share.
Its presence in various countries through its subsidiaries will help it to grab market share and enhance its topline due to the low base of operations.
Revenues and profits are projected to grow at a CAGR of 72% and 78% respectively. At the CMP of Rs 153, it is trading at 6.5x and 3.8x its FY09E & FY10E FDEPS. We have arrived at a DCF based target price of Rs 234, an upside of 53% from current levels. We initiate coverage with a BUY rating on the stock.
• First mover advantage in smart card technology gives it an advantage over others in the smart card industry, which is set to grow from USD 70 mn at present to USD 200 mn by 2010-11.
• As the only company to provide end-to-end AIDC solutions in India, it is likely to benefit from strong and sustained client relationship.
• Strong technical tie-up with the global majors including EMS, ID Micro & Watch Data Technologies to provide access to the latest technology.
• High customer base of more than 1600 clients reduces client concentration risk. Its top clients including HLL group, ITC group, Telco, Tata Steel, Ashok Leyland contribute just 10% of revenues.
• Monopoly in smart card & RFID technology in domestic market with 90-95% market share in both, which in turn will swell its order book.
Weaknesses
• The management has no prior experience in smart card manufacturing business.
• Huge equity dilution of 69% [33% dilution on account of 1st FCCB allotment in June 2007 (Rs 1038 mn) and (32% & 4% dilution on account of 2nd FCCB allotment in January 2008 (Rs 2100 mn)] and allotment of ESOPs in July 2008.
• High debtors days in the AIDC segment of almost 200 days which accounts for 61% and 57% of the total revenues in FY09E and FY10E.< |
