Bartronics India Ltd - Value Pick (June 2010) From Indian Value Investors (IVI) Unit of HBJ Capital[1]

8/8/2019 Bartronics India Ltd - Value Pick (June 2010) From Indian Value Investors (IVI) Unit of HBJ Capital[1]

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Indian Value Investors- A Unit of HBJ Capital

Bartronics India LtdIdentification Technologies |

Smart Cards

Jun-2010

Theme: Value Investment


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Bartronics

India EXECUTIVE SUMMARY

Bartronics India Ltd is a Hyderabad-based company which

Is Indias leading player in the development and deployment of end-to-end

solutions in Automatic Identification & Data Capture (AIDC) Technologies

Provides a range of Smart Card solutions to various Private & Government

entities, with a capacity to manufacture 80 million units per annum

Industry Overview

Company

, ,

Frequency Identification, Data Communication Technologies, etc.

Radio Frequency Technologies is one of the largest segments within AIDC

with the global market estimated at USD 6 bn in FY 2010. RFID Market in India

estimated at Rs 120 cr in FY 2010, growing at 100% CAGR

Smart Card market projected to reach 150 million units p.a., growing at 45%

CAGR

Bartronics India is currently quoting at P/E < 5 & Market Cap < Rs 500 cr

Good Opportunity for Long term Value Investors

Multiple Growth Engines, Market Leadership provide good scope for returns

Sector

View


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Sector Automatic Identification &a a ap ure


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AIDC

Sector Introduction

Automatic Identification and Data Capture (AIDC) refers to the

methods of

Step 1: Automatically identifying objects,

Step 2: Collecting data about them, and

Step 3: Entering that data directly into computer systems

Some Applications: e a n us ry: rac ng s oc s, rep en s ng s runn ng ow

Manufacturing: Raw material, inventory management

Supply Chain: Tracking transit of raw materials, finished goods

The Internet of Things

This is a concept created by the Auto-ID

Center at MIT, USA

Aim is to equip all items with a unique

identification code (an IP Address), to enable

them to communicate through the internet

Objects, once connected, can be remotely

monitored through the internet

Major AIDC Technologies

Bar codes,

Radio Frequency Identification (RFID),

Biometrics,

Magnetic stripes,

Optical Character Recognition (OCR),

Smart cards,

Voice recognition


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AIDC

Sector RFID Technology

Radio Frequency Identification is a technology used to track

persons, objects, etc using radio waves

RFID System consists of 3 components:

RFID Tag storing information about item being tracked

RFID Reader/ Writer which queries tags to gather information. Also used

to store information on tags

Computer system used to store and process information collected from

tags and to produce Management Information Systems

RFID Mandates

Walmart & US Department of Defense

have mandated that all their suppliers

must place RFID tags on shipments

Walmart

Jan 2005 (Top 100 Suppliers)

2010 (Tagging at pellet level)

US DoD is largest RFID user Globally

Global RFID Market

Leading Countries are Us, UK & China

Global RFID Market estimated at USD 5.56 bn

in 2009, with expected volume of 2.35 bn tags

Government projects like Chinas National ID,

Indias UID, etc driving the market

Other Areas: Animal Tagging, Retail Tracking,

Transit Tickets


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AIDC

Sector RFID Technology - Applications

Supply Chain Management

Monitoring and controlling flow of rawmaterials through supply chain

Enterprise wide SCM to track inventory,

prevent stock-outs

Replenishing stocks running low

Tracking the movement of goods

between various factories, warehouses

Healthcare

Patient history can be stored on smart

cards bearing RFID tags Solutions for maintaining accurate data,

patient tracking, managing medical

supplies

Storing information on allergies,

prescription history, etc to prevent

medical errors

Manufacturing

Tracking dates of manufacture, place of

manufacture at individual item level totrace source of manufacturing defects,

for corrective action

Tracking locations of various parts,

status of production processes

Better co-ordination with suppliers,

specially for Just-In-Time manufacturers


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AIDC

Sector Smart Cards

Smart Card is a device containing an embedded integrated circuit.

Card connects to a reader with direct contact or through radio

frequency interface. 2 Categories

Memory Cards: Ability to store data with optional security features

Microcontroller Cards: Ability to add/ delete and manipulate information

stored. Store large amounts of data

n , . on car s are expec e o e s ppe ource:

Eurosmart)

Market expected to move towards contactless cards, including for payments

Applications of Smart Cards

Secure identity - Employee ID badges, Citizen ID documents,

Electronic passports, Drivers licenses, Online authentication

Healthcare - Health ID , Physician ID, Portable medical records

Payment - Credit/Debit cards, Transit Payment cards

Telecommunications GSM SIM Cards, Pay Telephone cards

Indian Market

Market Size: Indian market has

scope for 150 million cards p.a.

Market is growing at 45% CAGR

Applications: Telecom, Banking,

IT Security, etc


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Stock Bartronics India Ltd.


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Established in 1990, Bartronics India Ltd -

Is Indias leading AIDC solution provider with offerings including RFID solutions,

Point of Sale solutions,

Market leader in Indian RFID industry, with wide range of RFID readers, tags, etc.

Provides custom smart card solutions to Government & Private Sector entities

with a capacity to manufacture 80 million units p.a.

Company has over 2000 customers across East Asia, India & North

Bartronics

India Introduction

America

Jun - 2010

Market Cap Rs 483.15 cr

Stock Price Rs 141.90

52 Week High/ Low 193.70/129.70

Latest TTM P/E 4.6x

FY 2010 Sales Rs 841.4 cr (Cons)

AIDC

RFID,Barcodes

Biometrics

Smart

Cards

SecureMemory

Cards

AccessControl Cards

BusinessModel


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Bartronics India Ltd has 2

subsidiaries:

Bartronics America Ltd (USA)

Bartronics Asia Pte Ltd (Singapore)

Bartronics

India Group Structure

Promoter,

31.06%

DomesticInstitutions

Others,

42.65%

Shareholding Pattern (31-Mar-10)

, .s, .

Bartronics America Ltd

Incorporated in 2007, in Delaware USA Acquired Proximities Inc of Australia &

SRG America Inc for USD 50 mn

Received 3 patents from US Patents

Office for RFID based wrist-band

technology

Contributes 15% of Consolidated Sales

Bartronics Asia Pte Ltd

Incorporated in 2007, in Singapore Bagged an order from Housing Board of

Singapore to supply 48000 RFID tags,

with additional orders expected

Also bagged an RFID tracking project

from Avitar, a Singapore based Group

Contributes 14% of Consolidated Sales


11/22

Bartronics

India Products & Services

AIDC RFID

Barcode

Barcode Printer, Scannera

rds SIM Cards

Prepaid Telephone Cards

Patient Data Cards

Attendance/ EmployeeManagement, AccessControl, Job Costing

Point of Sale Solutions PoS System with Printer,

Touch Screen PoS, CashDrawer, Scanner

S

mart

Management, Insurance

Bank Cards

Credit/ Debit/ ATM

Transport Cards Bus/ Train Pass

Contactless Cards

Highway Tolls


12/22

Bartronics

India RFID Business

RFID Readers/ Writers

Fixed/ Handheld Readers

Operating on Windows & Palm OS

Network Enabled through LAN/ WLAN/IEEE 802.11B

Operating at HF, UHF & Microwave

System Integration

Application Design

Consulting

Training

Wireless Security Assessment

Project Management

x n-s te upport

RFID Tags Active/ Passive Tags

Printed Circuit Boards

High Memory Capacity

Ability to Operate at High Temperature,High Humidity & other adverse

conditions

Business Successfully implemented

projects for entities like TirupatiTemple, Housing Board of Singapore,Avitar Singapore, etc

Tied up with Verayo Ventures, a Vinod

Khosla funded company to offer cost-effective tagging solutions


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Bartronics

India Solutions | Manufacturing

tions Building Management

Electronic Surveillance,

Attendance Management Crowd Management ur

ing Smart Cards

Capacity to manufacture 80million cards p.a.

ISO 9001:2000 & ISO 27001

Solu

For Religious pilgrimages,conferences

Retail Security

Theft Prevention, Active

Deterrence through visual/audio alarm

Document Tracking System

Laptop Tracking

E-Governance

Vehicle Tracking

Man

ufact certified

First Smart Card unit in India

Expected to obtainMastercard/ VISA

certification shortly AIDC

Facility located atHyderabad

Manufactures HF, UHF,custom tags.


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Bartronics

India Financials

0

200

400

600

800

1000

FY 2007 FY 2008 FY 2009 FY 2010

63.49 183.3

376.41

595.52

63.49

270.82

588

845.04Net Sales (Rs Cr)Standalone

Consolidated

India

71%

North

America

14%

S.E. Asia15%

Geographic Contribution

,

grown at CAGR of 99% over the same period

On Consolidated basis in FY 2010, AIDC business contributed

79% of sales & Smart Cards contributed 21%

0

20

40

60

80

100

120

FY 2007 FY 2008 FY 2009 FY 2010

13.46 32.73

48.1143.43

13.46

46.68

20.65

106.66Net Profit (Rs Cr)

Standalone

Consolidated

0

50

100

150

200

250

FY 2007 FY 2008 FY 2009 FY 2010

17.1747.03

117.69

224.33

17.17

64.4190.33

239EBITDA (Rs Cr)Standalone

Consolidated


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Bartronics

India Financials (Contd...)

Debt E uit Rs Cr

0.00%

10.00%

20.00%

30.00%

FY 2007 FY 2008 FY 2009 FY 2010

27.04% 23.78%

15.36%

28.28%

21.20% 17.24%

3.51%

12.62%

Margins (Consolidated)EBITDA

PAT

0

50

100

150

200

250

300

Net Sales EBITDA PAT

166.1

51.25

9.56

238.78

73.01

21.8

264.93

74.91

28.84

Quarterly Financials

- Cons (Rs Cr) Mar-09Dec-09

Mar-10

Debt: Company has assumed significant debt to finance capex. As of March

2010, Debt stands at Rs 625 Cr, including Rs 225 Cr of FCCB(convertible in

2013), Term Loan of Rs 193 Cr. Balance is Working Capital Loan

Debtors: Receivables Period (at 4.5 months of sales) is on the higher side.

Traction on improving this is a significant catalyst for the stock

0

100

200

300

400

500

600

FY 2007 FY 2008 FY 2009

9.12

313.03

.

117.6

274.48311.7

Debt

Equity

0

100

200

300

FY 2007 FY 2008 FY 2009

127.8870.76 59.41

257.83

121.08 129.48

Cash Conversion Cycle

Receivable Period


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Bartronics

India Growth Engines

Order Book: The Company currently has an order book size ofRs 730 Cr as on

May 2010. This does not include the Aapke Dwar Project (discussed on next

slide), which will generate revenues for next 9 years

Out of Rs 730 Cr, Rs 130 Cr is from Smart Cards, and balance from AIDC

UID Project:

Union Government spending Rs 25000 cr to issue unique ID to citizens. Based on

UID, cards will be issued by various authorities. Bartronics is market leader in this

segment

Animal Tagging:

Globally, this is expected to be a USD 7 bn market by 2017. Company is seeing

orders for RFID based tagging products, especially in US

3G Telephony:

With the issue of 3G licenses by Government, telecom companies will commence

network rollout soon. Bartronics has already supplied 3G SIM Cards to BSNL, and is

well placed to tap other private telcos


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Bartronics

India Aapke Dwar Project

Aapke Dwar awarded to Bartronics under Municipal Corporation of Delhis

Government to Citizen (G2C) initiative

Involves setting up of 2000 10x10 kiosks in Delhi City before 2010

Commonwealth Games

Kiosks will provide all information provided by Government bodies like MCD,

Delhi Development Authority, Railways, Delhi State Government

Revenue Model: Services will be provided free to citizens, and reimbursed by

concerned Government Department. Exclusive rights to advertising revenue

Company expects Rs 5000 cr in total revenues over the 9 year term of the

contract

Status Check

The first kiosk under this project was inaugurated on 30-Jan, 2010

Company expects to commission 2000 kiosks by October 2010, and expects to start

booking revenues from Q3 FY 2011. Management has projected Rs 250 cr in revenues in FY

2011


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Bartronics

India Projections

Estimates (Source: Reuters)

(Rs Cr) FY 11 E FY 12 E

Sales 1244.4 1480.9

EBITDA 368.3 447.0

PAT 189.9 247.8

EPS 52.6 68.6

800

FY 2010

0

500

1000

1500

FY 10 A FY 11 E FY 12 E

845

1244.41480.9

Projected Sales (Rs Cr)

Management Guidance FY 2011:

Consolidated Sales - Rs 1400 cr (Consolidated Sales)

Operating Margin - 28-32% & PAT Margin 10-12%

Breakup Aapke Dwar (Rs 250 Cr), Smart Cards (Rs 200 Cr), Singapore (Rs 150 Cr), US (Rs

250 Cr)

127.68 139.84 152

304178.92 195.96 213

426

288.12 315.56343

0

100

200

300

400

500

600

700

4.2x 4.6x 5x 10x

o ng arFY 2011

FY 2012

0

20

40

60

80

FY 10 A FY 11 E FY 12 E

30.4

42.6

68.6

ro ecte s are


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Bartronics

India Valuation

Due to concerns over high debt and conversion of FCCBs issued by

the company, stock has underperformed index (0.56% vs 21.01% YoY)

Stock Trades at P/E of 4.6x, P/B Ratio of 1.4x and market

capitalization of Rs 483.15 cr, valuing it at ~ 0.5x FY10 sales.

On EV/EBITDA basis, stock trades at ~4.0 x of FY 2010 EBITDA

We value the company at 80% discount to 5x of FY-12E EPS. Returns

to be driven by:

High Earnings Visibility due to present Order Book & Aapke Dwar Project

Resolution of concerns over high debt burden


20/22

Bartronics

India Investment Recommendation

BUY: Target: 2x in 2 Years (i.e. > 40% CAGR p.a. returns), i.e. 5x FY 12 EPS

Price Target assumes 80% discount to FY-12E EPS

Stock is quoting at very cheap multiples relative to earnings (4.6x)

Earnings visibility over next 2-3 years owing to strong order book and

also revenues from flagship Aapke Dwar project

Revenues from this project to commence from Q3 FY 2011 onwards

Beneficiary of Indias Consumption Story

Company is a major supplier to Indian Telecom industry through SIM Cards

RFID business is a major beneficiary of retail and manufacturing sector

growth as this technology is gaining huge traction in these industries

Significant linkages with financial services sector through Smart Card business

Re-rating of the stock likely to lead to lucrative returns for patient value

investors.

High earnings growth to ensure high returns even if P/E Re-rating fails to

materialize


21/22

Bartronics

India Risks to Investment Case

High Working Capital Requirement

Companys receivable period stands at about 4.5

months of sales in FY 2009

Though this ratio has improved over the past 2

years, it still raises the Working Capital funding

requirement, leading to higher debt burden050

100

150

200

250

300 257.83

121.08 129.48

Receivables Period

(Days)

High Debt/ Equity Ratio

In FY 2009, the Debt Equity Ratio was at 1.76x

Yet, the Company needs to raise more debt to fund

Capex intensive projects like Aapke Dwar. It isplanning to raise Rs 650 cr more

Low Promoter Holding

Promoters hold only 31% of the equity, with a

significant proportion of pledged shares

FY 2007 FY 2008 FY 2009

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.601.80

FY 2007 FY 2008 FY 2009

0.08

1.14

1.76

Debt/ Equity Ratio


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HAPPY INVESTING!

,

[email protected]

www.indianvalueinvestors.com | www.hbjcapital.comHBJ Capital Services Pvt Ltd

#912, 1st F Main, Girinagar 2nd Ph, BSK 3rd Stage, Bangalore 85, Ph: +91-080-65681134

Documents

Bartronics India Ltd - Value Pick (June 2010) From Indian Value Investors (IVI) Unit of HBJ Capital[1]