Bartronics India: Buy

Investors with a one to two year perspective can buy the shares of Bartronics India, considering its strong business prospects and reasonable valuations. At the current share price of Rs 214, the stock trades at about 16 times its current earnings and 12 times its estimated earnings (on fully diluted equity) for 2008-09.

In the light of the growth being experienced by Bartronics in its automatic information and data capture (AIDC) business, and more recently its smart card business, there may be scope for capital appreciation. The company derives 50 per cent of its revenues from Indian sales, 30 per cent from the US and the rest from countries such as Singapore and Malaysia.

Bartronics was primarily in the business of selling products and solutions for data capture in the areas of logistics and inventory management, time and attendance management and asset tracking operations. It has now broad-based its AIDC offering to services such as barcoding, biometrics, radio frequency identification and radio frequency data communications and electronic article surveillance. This signalled a move up the value chain and has enabled the company to have a stronger client penetration in India, South-East Asian countries and the US.

In AIDC, the company is well placed to capture a significant share of manufacturing clients, both in India and abroad. The boom in organised retail in the country also offers opportunities for scaling up revenues.

The smart card business also may hold promise, with the company starting its own manufacturing facility, with opportunities in areas such as SIM cards, identity cards, credit cards and social security. Bartronics appears well placed to capture a reasonable slice of the SIM cards market. It is also doing pilot studies with a few banks and is eyeing the opportunity of the government rolling out national social security cards. From 4 million cards currently, the company targets 40 million smart card sales by March 2008. It has subsidiaries in Singapore and the US, so located to cater to the local markets in South East Asia. The Singapore facility has already started to contribute to profits. The key risks to our recommendation are any strain on margins in the smart card business and competition from players like CMC in the RFID space. Any direct foray by the company’s principals, with a view to seeking an entry into the Indian market, is also a risk.