Price is a big bar
The value-added reseller in a niche field is going for acquisition-based international growth
Bartronics India (BIL), a leading automatic identification and data collection (AIDC) and radio frequency Identification (RFID) solutions provider, is entering the capital market by issuing 65 lakh equity shares through a 100% book-building offer. The price band has been fixed in the range of Rs 63 to Rs 75. With the money raised through this issue, the company plans to enhance its technological base through R&D capability and to expand its business overseas.
The company ‘s current promoters are A B Satyavas Reddy and R Satish Reddy, both of whom are technocrats with about a decade of experience in various industries.
The business
BIL offers consulting services, design, software, hardware, customisation and full implementation of integrated and tailor-made AIDC- and RFID-based systems. The company also provides business and technology strategy, systems design and architecture, applications implementation, network and systems integration in this field.
BIL has three business segments: AIDC Solution, RFID Solution and Retail Solution. In the AIDC solution segment, the company provides bar code- and biometrics-based solutions, where the data related to the process flow get automatically fed into the computer system of the client. In the RFID solution segment, similar solutions are provided through RFID technology. However, in the Retail solution segment, inventory management solutions are offered based on both bar code- and RFID-based technology.
All the major equipment required for the solutions are imported. BIL provides the middle-ware solutions along with the imported hardware so as to integrate the systems to the requirement of the client. On an average, hardware constitutes approximately 60% of the contract value.
In FY 2005, BIL generated 80% of its revenue from the AIDC, 15% from RFID and 5% from Retail business. In half year ending September 2005, the contribution was 50%, 40% and 10%, respectively. Going forward, the revenue contribution will tilt more towards the RFID and Retail segments. On an average, the annual maintenance (AMC) revenue constitutes 20% of the company’s turnover and 60% of the business comes from repeat orders.
Project cost
For its new initiatives, BIL has planed a project cost of Rs 29.8 crore. Of which, a significant part goes to the establishment of the R&D center and international expansion. The company is raising Rs 34 crore to Rs 40.5 crore from the public issue. The surplus money will go for acquisition, for which Rs 4.5 crore has been earmarked.
Strengths
*BIL operates in a niche area of AIDC business, which is essential for the automated business processes of today. The implementation of organisationwide ERP software has made the requirement of automatic data-capturing and feeding to the automated systems essential for enhancing the pace of the business processes for organisations.
* Established in its field, BIL has a reputed clientele including corporate houses Tata Steel, Tata Motors, HLL, ITC, Ashok Leyland, TVS, CMC, Ranbaxy, Compaq, VST, Whirlpool, ITW, Dr.Reddy’s, and Nagarjuna Construction. .
* The recent focus on RFID technology, which will replace some bar code-led business, will enhance BIL’s scope of repeat business along with new business.
*The government of India favors foreign direct investment in the retail sector. Bar code technology plays a very important role in this sector. The hardware and software tools of this technology have become essential for retailing. With its experience, BIL is at an advantageous position to meet the demands of the retail sector.
Weaknesses
*The bar code business has reached saturation in the country. Therefore, the growth for BIL will come from adding more international clients and enhancing the RFID business. The company is targeting acquisitions abroad to enhance its international exposure. However, any overseas business, and that too based on acquisitions, involves risks.
*The technological depth of the business is low. It is more of a value addition. So the entry of global players with good technological depth is a threat to BIL’s new RFID business.
*All the service contracts entered by BIL are based on fixed price. Also, the project-based business model requires significant working capital till completion. Notably, the general contract size spans more than 180 days. In this context, any rise in cost of the project may affect the margin.
Financials
In FY 2005, BIL reported sales of Rs 18.06 crore and net profit of Rs 2.4 crore. Compared to the previous year, the operating profit was marginally affected due to rupee-dollar volatility. The company imports all its raw materials. In half year ended September 2005, BIL reported sales of Rs 12.77 crore and net profit of Rs 2.68 crore.
Valuation
*At the issue price of Rs 63 on an expanded equity of Rs 14.57 crore, the first half FY 2006 annualised EPS works out to Rs 3.7. PE stands at 17. At the issue price of Rs 75, PE works out to 20. There is no comparable listed player and PE is high for a small company.